Top 100: Northrop bucks turbulence by staying calm

Company makes several moves, including a new headquarters, to stay focused on its customers and control costs.

Last year was “almost a pivotal year,” for Northrop Grumman, said Randy Belote, corporate vice president of strategic communications.

“We made some really significant changes,” he said, perhaps none more significant than relocating Northrop’s long-time Los Angeles headquarters to Fall Church, Va.

“We wanted to be closer to the customer set,” Belote explained. “We wanted to have influence on the decision cycle, if you will, within our market space.”

That desire for proximity also brought together under one roof the company’s Enterprise Shared Services unit, which previously had locations across the country.

“That helped with our cost savings and affordability issues,” Belote said.

The company achieved the No. 2 rank on the 2012 Top 100 with $9.1 billion in prime contract revenue.

Among its other moves last year, Northrop also brought in several new executives including Sid Ashworth as vice president of government relations and Charles Phalen Jr. as vice president, corporate and Enterprise Shared Services’ industrial security.

Northrop Grumman is led by Wes Bush, chairman, president and CEO. The company’s four business units are led by Linda Mills, who is president of Information Systems; Gary Ervin leads Aerospace Systems; Jim Pitts leads Electronic Systems; and Tom Vice directs Technical Services.

“We believe we are well-positioned to support the Defense Department and the federal government in four primary areas – and about 75 percent of our sales come from four strategic markets,” Belote said, citing unmanned systems, cybersecurity, logistics, and command, control, communications and computers, intelligence, surveillance and reconnaissance, or C4ISR.

“Those are core areas to DOD and our customer set, so that’s why we feel we’re well positioned even though we recognize that there are challenges in the DOD budget for this year and going forward,” Belote said.

Another cost savings occurred when Northrop Grumman spun off its shipbuilding business as Huntington Ingalls Industries in March 2011, gaining $1.8 billion of equity value for shareholders.

“Arguably that’s allowed management to focus more time on some of its core markets,” said Byron Callan, director at Capital Alpha Partners LLC, an investment and analysis advisory firm.

Northrop also did not expend big bucks on any major acquisitions in 2011.

“We don’t see any major holes in our portfolio,” Belote said. “The multiples have been fairly high in the businesses that we are engaged in. Until that picture improves we don’t see [acquisitions] as share-holder value."

“I don’t see that as an aberration compared to what the other large defense primes are doing. I think they’ve all been picking their spots and doing fairly small deals,” Callan said.

“Given the uncertainties in the contracting environment, the run-up to sequestration and the very real risk that sequestration could be triggered, it might be a good idea to save some powder for a rainy day,” he said. “At least from a capital allocation emphasis, the bigger focus has been returning cash to shareholders through share-buybacks rather than making a big deal in the IT sector.”

Last year Northrop Grumman spent $2.3 billion to repurchase more than 40 million shares and raised the quarterly dividend by 6.4 percent, the eighth consecutive annual increase.

Among the company’s major contract wins last year was selection to the Navy’s $1.7 billion Consolidated Afloat Networks and Enterprise System contract to design and develop the CANES common computing environment.

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