(GD) General Dynamics Reports Mixed Third Quarter Earnings

Defense and aerospace operator General Dynamics Corporation (GD) announced third-quarter 2011 operating earnings of $1.83 per share, which surpassed the Zacks Consensus Estimate of $1.77. The results of the company were 13 cents ahead of the year-ago figure of $1.70 per share.

Total Revenue

General Dynamics generated total revenue of $7.85 million in the reported quarter versus $8.01 million in the year-ago quarter, reflecting a decline of 2.0%. The year-over-year decline in revenue was primarily attributable to lower contribution from its Marine Systems and Information Systems and Technology segments, marginally offset by growth in Aerospace, and Combat Systems.

Reported quarter revenue however failed to meet the Zacks Consensus Estimate of $8.3 billion.

Segment Performance

The Aerospace segment reported revenue of $1.4 billion, up 9.4% from the prior-year period. Operating income from this segment was $217 million versus $199 million a year ago. During the quarter this segment received an order worth $810 million from Minsheng Financial Leasing, a Chinese aviation leasing company.

Combat Systems reported revenue of $2.1 billion, up 3.4% year over year. Operating income from this segment was $319 million versus $311 million in the prior-year period. During the quarter the segment received new orders worth $1.1 billion, most significant of which was a $440 million deal from the U.S. Army for the Technology Development (TD) phase of the Army’s Ground Combat Vehicle (GCV) Infantry Fighting Vehicle (IFV) program.

Marine Systems reported revenue of $1.62 billion, a decline of 4.6% from the year-earlier period. Operating income from this segment was $173 million versus $169 million in the prior-year period. During the quarter the segment received new orders worth $2.4 billion. The one that stands out is the $1.8 billion order from the U.S. Navy for engineering, design and construction of two DDG-1000 destroyers.

Information Systems and Technology reported revenue of $2.68 billion reflecting a decline of 9.1% from the previous year. Operating income from this segment was $310 million versus $306 million in the prior-year period. During the quarter the segment received new orders worth $225 million and a few indefinite delivery, indefinite quantity (IDIQ) contracts from the Army to carry out various programs.

Financial Condition

Cash and cash equivalents as of October 2, 2011, were $2.6 billion versus $2.26 billion as of October 3, 2010.

Capital expenditure of the company for the first nine months of 2011 increased by $54 million to $273 million from $219 million in the comparable period in 2010.

Long-term debts of the company have increased in the first nine months of fiscal 2011. Outstanding long-term debts, as of December 31, 2010, were $2.43 billion, which increased to $3.9 billion as of October 2, 2011. Debt to equity at the end of third quarter 2011 was 30.3% versus 23.6% at the end of third quarter 2010.

Peer Update

Lockheed Martin Corporation (LMT) which competes with General Dynamics reported a strong third quarter fiscal 2011 with operating earnings of $1.99 per share surpassing both the Zacks Consensus Estimate of $1.81 and year-ago earnings of $1.53 per share.

Lockheed Martin reported quarterly net sales of $12.12 billion, beating the Zacks Consensus Estimate of $11.71 billion. The company also whisked past the year-ago revenue of $11.34 billion.

Outlook

Total backlog of General Dynamics at the end of the quarter under review was $58.52 billion, which slipped 5.3% from $61.8 billion reported in the year-ago comparable quarter. However, funded backlog increased by 0.7% year over year. The decline in total backlog was attributable to lower orders in the Combat and Marine Systems segments of the company compared with year-ago levels.

Despite the dip in total backlog, the total potential contract value of the company increased by 3.8% from the prior-year period. We believe this factor along with the company’s ability to get consistent contracts will boost the topline of the company going forward.

General Dynamics currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

Based in Falls Church, Virginia, General Dynamics along with its units operates in business aviation, land and expeditionary combat systems, armaments and munitions, shipbuilding and marine systems as well as information systems and technologies.

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