Update: Litton Sinks 24% After Profit Warning - TheStreet

Updated from 2:59 p.m. EDT

Investors bailed from

Litton Industries

(LIT) - Get Report

Wednesday, driving its shares down almost 24% after the diversified military contractor said its profit in the next quarter would sink well below Wall Street's expectations.

The selloff came even though Litton, known for building U.S. Navy ships, reported earnings for its latest quarter that exceeded analysts' forecasts by 3 cents a share.

Litton said it expects earnings of 91 cents to $1.02 a share in its fiscal 2001 first quarter -- 10% to 20% lower than its profit in the comparable period of fiscal 2000. The company largely attributed the lackluster numbers to a shift in the focus of its shipbuilding business, a move expected to lead to lower profit margins in upcoming quarters.

The anticipated first-quarter earnings are 17% to 27% lower than analysts' estimate of $1.24 a share, according to

First Call/Thomson Financial

.

Litton Industries finished down $13.06 at $41.

The company also said earnings in fiscal 2001 could remain flat, or possibly grow up to 5%, once again deflating expectations of Wall Street observers, who had anticipated earnings of $5.31 a share for fiscal 2001, an 11% rise from fiscal 2000.

Litton, which acquired shipbuilder

Avondale Industries

last year in a $529 million deal, is constructing its first double-hulled oil tankers and cruise liners in addition to new amphibious warships, moving beyond traditional military ships, such as destroyers. As the company eases into its new businesses, costs in theory should decline, sending profits higher.

And for a company the size of Litton, which generated $5.6 billion dollars in revenue in fiscal 2000, anything up to 5% growth in earnings "is nothing to sneeze at," said Randy Belote, a spokesman for Litton. After a rough upcoming year, fiscal 2002 should be brighter, Belote added.

At the same time, Litton, based in Woodland Hills, Calif., noted that it expects earnings per share in the second, third and fourth quarters of fiscal 2001 to meet, or possibly exceed, profits in the comparable periods of fiscal 2000.

"Litton finds itself in a very favorable environment and well positioned for growth," Michael R. Brown, the company's chairman and chief executive, maintained in a statement. Brown added that he is buoyed by opportunities in commercial shipbuilding and an expected rise in defense procurement spending.

In its fiscal fourth quarter ended July 31, Litton posted earnings of $69.8 million, or $1.52 a share, compared with a loss of $21.5 million, or 48 cents a share, in the fourth quarter of fiscal 1999. The results in the latest quarter exceeded analysts' consensus prediction of $1.49 a share, according to First Call.

Litton said its fourth-quarter revenue rose 19%, to $1.47 billion compared with $1.23 billion a year earlier. The company cited its acquisition of Avondale, which improved its commercial ship business, and strong demand from its telecommunications customers for commercial electronic components.

In a conference call with analysts Wednesday, Brown said the company is considering selling off some of its divisions, most likely parts of its defense electronics business, but he declined to elaborate on any specific plans. "We have to keep a fresh and ongoing look at that," he said.

Thomas Meagher, a

BB&T Capital Markets

analyst who recently moved his rating on Litton stock to "hold," said analysts recently had braced for weaker earnings projections. But, he said, "it turned out to be a lot worse than we thought."