DATE: Saturday, October 25, 1997            TAG: 9710250400

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER 

                                            LENGTH:   70 lines

PENINSULA YARD POSTS $1 MILLION IN EARNINGS QUARTERLY INCOME IS DOWN FROM $15 MILLION LAST YEAR, BUT THE FUTURE LOOKS BRIGHT.

After setting aside $57 million to cover expected losses in its construction of commercial tankers, Newport News Shipbuilding said Friday that it earned $1 million in the quarter ended Sept. 30.

That amounts to earnings of 5 cents per share. The $1 million profit compares to $15 million in net income in the quarter last year, when the big Peninsula shipyard was still owned by Tenneco Inc.

The third-quarter results should be the last weak earnings report from the now-independent company for a while. Its core Navy shipbuilding business looks steady and secure, and it has set aside what it expects to lose from commercial shipbuilding.

``With the establishment of the commercial loss reserve, we have addressed the financial uncertainty associated with our commercial shipbuilding program,'' said William P. Fricks, the shipyard's chairman and chief executive. ``This action provides greater visibility for the stronger earnings performance of our core business, and should lead to improved results in the fourth quarter of 1997, and throughout 1998.''

The third quarter brought the shipyard a lot of assurance about its future, Fricks said.

Congress assured its long-term participation in sub construction by approving the team building approach on the new attack sub. The shipyard will build the subs in cooperation with its longtime competitor Electric Boat.

Congress also fully funded the refueling of the carrier Nimitz, which will bring the yard more than $1 billion during the next 2 1/2 years, and it approved $50 million in advance funding for the next carrier, CVN-77. The Pentagon is looking for even more money to give the yard this year for the carrier.

The shipyard ended the quarter with a $3.1 billion backlog, 85 percent of which represents construction and repair of Navy carriers. The yard is outfitting the carrier Harry S. Truman for delivery next year and building the Ronald Reagan.

Still, the shipyard's third quarter revenue fell off by $99 million to $423 million due to reductions in the shipyard's construction and repair work.

Construction revenue declined because the yard finished the second of two ships it was reconstructing for the Military Sealift Command and had little submarine work.

Repair revenue was higher in the third quarter of 1996 because of the very high level of activity on the overhaul of the aircraft carrier Dwight D. Eisenhower.

The $57 million loss reserve on its commercial construction program was offset by two one-time gains.

The yard was able to record a $19 million gain because it has been doing better with its margins in the carrier business than previously estimated, Anderson said.

In other words, it's not spending as much as it thought to build carriers, thanks in part to commercial construction techniques it has learned building the money-losing tankers. ``As we integrate commercial practices into our production processes, our core Navy business has the most to gain,'' Fricks said.

It also recorded a $14 million gain from accounting adjustments related to post-retirement and post-employment benefits.

Without the one-time charges and gains, the shipyard would have made $15 million, 42 cents a share, Anderson said.

In New York Stock Exchange trading Friday, the shipyard's stock slipped 18.75 cents to $22.8125 a share. ILLUSTRATION: FILE PHOTO

The weak third-quarter report should be the last for a while for

Newport News Shipbuilding, which is expecting a boost from increased

Navy work.

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