The Air Force probably will not award a contract to build next-generation, silo-based intercontinental ballistic missiles more than a month or two earlier than planned, the chief executive of presumptive prime Northrop Grumman said Wednesday morning during a conference call with investors. That would put the award around July or August.
Northrop looks like a lock to win a $25 billion contract to build and deploy the Ground-Based Strategic Deterrent (GBSD) after Boeing dropped out of the competition last year. The aerospace giant cited an unfair cost advantage for Northrop, which owns a solid-fuel rocket-propulsion business. The Ground-Based Strategic Deterrent, like the Minuteman III missiles it will replace, will be solid-fueled.
The Air Force had planned to award the GBSD Engineering and Manufacturing Development contract by September, but recently announced plans to speed up the award. On Wednesday morning’s call, Northrop Preident and CEO Kathy Warden told analysts the company thought the Air Force might move up the GBSD contract no more than one or two months.
That could help put the first missiles in the ground not long after 2029, Warden said.
Northrop Grumman is “working with the Air Force and negotiating the contract now” and has been preparing should the service accelerate the award, Warden said. Expediting development of GBSD “de-risks the program to some extent and allows us to be more confident in meeting those milestones along the path to the 2029 [initial operating capability] date for the program,” she said.
The GBSD will eventually use W87-1 warheads with new plutonium cores made by the Department of Energy’s semiautonomous National Nuclear Security Administration (NNSA). A senior NNSA official in March said some of the earlier GBSD missiles to deploy might carry W87-1 warheads now used on Minuteman III missiles.
On Wednesday, Northrop reported a solid boost in sales in the first quarter on increases across its operating sectors, although net income barely edged up as a pension benefit more than offset lower operating earnings, higher taxes, and the impacts from negative returns on marketable securities due to market volatility.
The company lowered its estimates for sales and adjusted earnings for the rest of 2020 due to the ongoing COVID-19 pandemic, with most of the impacts expected to be felt in the second quarter.
Net income in the quarter inched up 1% to $868 million, $5.15 earnings a share, from $863 million, or $5.06 a share, a year ago. That was well below consensus estimates of $5.50 a share. The company’s earnings in the first quarter took a hit to the tune of $56 million, or $0.33 a share, due to negative returns on marketable securities.
Sales increased 5% to $8.6 billion, from $8.2 billion.
At the operating level, sales increased at all four segments.
Business segment operating profit was down 1% overall as declines at Aeronautics and Defense Systems more than offset increases at Mission and Space Systems. The declines were attributed to performance adjustments on Uncrewed Aircraft Systems, timing of F-35 risk retirements, manned aircraft contract mix, and favorable adjustments on certain small caliber ammunition programs that boosted profit a year ago.
For 2020, sales are now expected to range between $35 billion and $35.4 billion, about 1$ lower than prior guidance of between $35.3 billion and $35.8 billion. The projected decline is related to the Aeronautics business and impacts from the COVID-19 impacts specific to aerostructures work for commercial planes, supply chain risks, employee absenteeism and productivity impacts, Dave Keffer, Northrop Grumman’s chief financial officer, said on the call.
Commercial aerostructures make up about 1% of the company’s overall sales, he said.
The lower expected sales combined with higher interest expense and the first quarter hit from market volatility led Northrop Grumman to decrease its adjusted earnings guidance for the year by $0.95 a share, to between $21.80 a share and $22.20 a share.
Overall, the supply chain risks to the company haven’t been significant, Warden said, adding that providing advance payments to some suppliers has helped the company’s liquidity. Northrop Grumman has been advancing $30 million per week, mainly to its small and medium-size suppliers to help them through the pandemic, she said. The company expects these payments to exceed $200 million.
Northrop Grumman is also passing through to its suppliers higher Defense Department progress payments, she said.
First-quarter orders stood at $7.9 billion, and total backlog at the end of March stood at $64.2 billion, down 1% from $64.8 billion at the end of 2019. Free cash flow in the quarter was $1.3 billion.
