Northrop Grumman to Realign Business Sectors, Names COO

Defense contractor Northrop Grumman Corporation NOC announced structural changes to better align its business with changing customer preferences and enhance innovation across the company.

As part of these changes, the company intends to reorganize its business sectors to three from the previous four. It will merge certain businesses of the existing Electronic Systems, Information Systems and Technical Services sectors to form two new sectors.

The company has also appointed Gloria Flach, the present corporate vice president and president of the Electronic Systems sector, as the chief operating officer. These changes will take effect from Jan 1, 2016.

The new Maryland-based Mission Systems sector will comprise Northrop's existing Electronic Systems sector and certain businesses of the Information Systems sector that focuses on the development of new capabilities for military and intelligence customers worldwide. The present corporate vice president and president of Information Systems, Kathy Warden, will assume the role of corporate vice president and president of Mission Systems.

A new Technology Services sector will be formed by combining the services portfolio of the Information Systems with Technical Services. Chris Jones will lead this sector. He is currently the corporate vice president and president of Technical Services.

Also, Electronic Systems' Azusa, CA-based military and civil space hardware business will be reallocated to the Aerospace Systems sector, while the electronic attack business, presently part of Aerospace Systems, will move to Mission Systems. Aerospace Systems will continue to be led by Tom Vice.

To maintain margins in a declining revenue environment, the company needs to control its costs. This has led defense operators to restructure their businesses and cost structures. Northrop has followed the footsteps of other weapons manufacturers, given the Pentagon's increased focus on integrated solutions combining cyber, electronic warfare and space.

Recently, Northrop announced another restructuring initiative to focus on its space and airborne Intelligence, Surveillance, Reconnaissance ("ISR") business. The defense giant split its Intelligence, Surveillance Reconnaissance and Targeting Systems division into two new entities: Airborne Intelligence, Surveillance Reconnaissance and Targeting Systems; and Space Intelligence, Surveillance & Reconnaissance Systems. The company's efforts to address the rise in cyber crime, with focus on ISR systems, is in sync with the defense industry's increasing emphasis on developing high-tech intelligence equipment.

Zacks Rank

Northrop Grumman currently has a Zacks Rank #2 (Buy). Other favorably ranked stocks in the aerospace and defense sector are Leidos Holdings, Inc. LDOS, Aerojet Rocketdyne Holdings, Inc. AJRD and LMI Aerospace Inc. LMIA. While Aerojet Rocketdyne sports a Zacks Rank #1 (Strong Buy), Leidos and LMI Aerospace share the same Zacks Rank as Northrop.

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