U.S. defence company Northrop Grumman NOC-N raised its forecast for full-year revenue and profit on Thursday, amid increased global defence spending and a strong backlog.
Shares were up 5.1% to $464.77 during the New York trading session.
Chief Executive Officer Kathy Warden told investors on a post earnings conference call that the headwinds for the B-21 Raider program are behind them and they “expect program margin dollars to grow annually from here.”
The B-21 Raider program has incurred losses on initial production contracts.
The ongoing war in Ukraine has fuelled a strong demand for U.S. weaponry in Europe, with nations actively engaged in negotiations and striking deals to acquire arms and looking to speed up ongoing contracts.
Northrop now expects annual sales to reach up to $41.4 billion, up from its previous forecast of $40.8 billion to $41.2 billion. It sees adjusted profit per share between $24.90 and $25.30, up from an earlier $24.45 to $24.85 per share.
The U.S. Congress’ recent approval for $95 billion additional funding, which includes aid for replenishing U.S. stockpiles in Ukraine and Israel has benefited Northrop.
Other major defence contractors, such as Lockheed Martin, RTX, and General Dynamics are also benefiting from the new funds.
Northrop is facing cost challenges on some of its fixed-price contracts due to inflation, strained supply chains, and labour shortages.
Additionally, the Northrop-managed Sentinel program, aimed at replacing the aging intercontinental ballistic missile system, has significantly exceeded its initial budget estimate.
“Northrop is well positioned for defence work related to nuclear capabilities. We think this is one key area poised for relatively strong spending in coming years with an aggressive Russia on the horizon, as well as newfound co-operation between Russia and China raising the geopolitical stakes.” CFRA Research’s Garrett Nelson said.
The company posted earnings per share of $6.36 for the second quarter ended June 30, up from $5.34 per share a year earlier. Sales rose 7% to $10.22 billion.
Profits in Northrop’s Defense Systems segment jumped by 23%, on high demand for ammunition and rocket motors used in guided multiple-launch rocket systems, which are critical in the Ukraine conflict.
Northrop and L3Harris Technologies Inc are the top companies that supply these sought-after rocket motors.