Northrop Grumman to Cut Jobs on Defense Spending Slowdown

| About: Northrop Grumman (NOC)

Northrop Grumman Corporation (NYSE:NOC) announced its plans to lay off about 200 employees by the end of May. Per company spokesman Jack Martin Jr. the four Baltimore-area facilities: the Electronic Systems division's Linthicum headquarters and facilities in Annapolis, Sykesville and Elkridge, will mostly face the axe. Apart from Baltimore other facilities in Virginia, Connecticut and Florida will also see some lay-offs.

Northrop Grumman’s lay-off plans come on the heel of a slowdown in defense spending. Employees whose jobs are being eliminated will be notified on May 17, and their last working day will be May 31.

In April this year, Northrop Grumman Corporation reported impressive first quarter 2011 adjusted earnings of $1.67 per share compared with the Zacks Consensus Estimate of $1.55 for the quarter. Sales for the reported quarter however decreased 2.6% to $6.73 billion, from $6.91 billion in the year-ago quarter, and were 5.6% lower than the Zacks Consensus Estimate of $7.13 billion.

Northrop Grumman recently separated its Shipbuilding segment through a spin-off. The new company is named Huntington Ingalls Industries Inc. (NYSE:HII). The business unit had suffered from a slowdown in shipbuilding contracts with increasing competition from rivals.

Post spin-off, Northrop has a strong program portfolio, which is positioned to take advantage of growth in the defense space and is supported by favorable projected revenue from diversified streams.

The positives are nevertheless tempered by apprehensions regarding defense cutbacks on high-cost platform programs, over-exposure to the Department of Defense (DoD) budget, lower backlog, cost over-runs and substantial exposure to missile-defense-related programs. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Los Angeles-based Northrop Grumman Corporation is the third largest defense contractor after The Boeing Company (NYSE:BA) and Lockheed Martin Corporation (NYSE:LMT) in the U.S. in terms of trailing twelve months sales. The company supplies a broad array of products and services to the U.S. DoD, including electronic systems, information technology, aircraft, space technology and systems integration services.