Northrop Grumman Corp., the third- largest U.S. defense company, dropped the most since 2002 in New York trading after saying it will take a first-quarter charge of as much as $360 million because of delays on a new ship, Bloomberg News reports.
The $1.9 billion LHD-8 amphibious assault ship known as the Makin Island will now be delivered in the second quarter of 2009 instead of the end of this year, Los Angeles-based Northrop said in a statement today.
Northrop blamed the effects from Hurricane Katrina in 2005, which damaged its Pascagoula, Mississippi, shipyard and displaced experienced workers. Poor-quality work done by replacement crews was caught in a review and will require “substantial rework,” including electrical cables, executives said on a conference call. The delay will slow construction of other ships, they said.
“This is a pretty serious situation,” Paul Nisbet, equities analyst at JSA Research Inc. in Newport, Rhode Island, said in an interview. “It took a special audit to discover it. They’re badly in the hole. It puts their results into question.” He rates the stock as “buy.”
Northrop declined $4.67, or 6.1 percent, to $72.17 at 2:07 p.m. in New York Stock Exchange composite trading. The shares earlier dropped 7.1 percent, the most since Oct. 17, 2002.
The charge will be $320 million to $360 million before tax, or 61 cents to 69 cents a share, with the final amount to be disclosed in the earnings report later this month, Northrop said. The charge will not affect 2012 financial targets, the company said. The average estimate of 18 analysts in a Bloomberg survey was for first-quarter earnings of $1.28 a share.
