By Gopal Ratnam
Apr 25, 2012 10:07 AM ET
General Dynamics Corp. (GD) said first- quarter profit fell 8.7 percent, because of a decline in sales and profit at its combat systems unit.
Net income declined $564 million, or $1.57 a share, from $618 million, or $1.64 a share, a year earlier, the maker of Abrams battle tanks and Gulfstream jets, said today in a statement. General Dynamics fell 1.2 percent to $69.19 at 10:04 a.m. in New York trading.
After adjusting for a non-cash charge of 13 cents a share, profit was $1.70 compared with the average estimate of $1.69 a share by 20 analysts surveyed by Bloomberg. Sales declined 2.8 percent to $7.58 billion.
Jay Johnson, the company’s chairman and chief executive officer, sees international and domestic demand for Gulfstream jets offsetting weak orders for some of the company’s defense products this year.
The Gulfstream G650, a large-cabin, long-range business jet that’s in development, already has a backlog of more than 200 orders and “it’s a very, very well-received airplane before it ever even hits the market,” Johnson has said.
The company’s first quarter result “reflects continued growth in our aerospace segment as well as the challenges presented” by slow defense orders, Johnson said in the statement today.
The threat of automatic defense budget cuts, known as sequestration, is slowing orders for General Dynamics’ military radios, satellites, and information-technology systems, Johnson said Feb. 23.
General Dynamics, based in Falls Church, Virginia, said the European operations of its Combat Systems unit had a $67 million non-cash charge during the first quarter. The company reaffirmed today its forecast for 2012 profit of $7.10 to $7.20 a share made in January, less than the $7.33 a share estimate of 22 analysts surveyed by Bloomberg.
General Dynamics rose 79 cents or 1.14 percent to $70.06 yesterday in New York trading. They have gained 5.5 percent before today.
Sales at the company’s Aerospace unit, maker of Gulfstream jets, rose 20 percent to $1.62 billion, and profit gained 18 percent to $271 million, the company said.
Demand for Gulfstream jets was “healthy” in the quarter with “particularly strong interest from North American customers,” General Dynamics said in the statement.
The Aerospace unit had a funded backlog of $16.7 billion at the end of the first quarter, the company said.
In its defense business, the company’s “high exposure to Army spend is a concern,” Douglas Harned, an analyst at Sanford C. Bernstein LLC in New York, wrote in an April 23 note to clients. In addition to the Abrams tanks, the company makes Stryker combat vehicles for the U.S. Army. Harned rates the stock market-perform.
The Pentagon plans to cut about $490 billion from its planned spending over the next 10 years under budget-reduction legislation, with an additional $500 billion if the automatic cuts take effect starting in January.
Revenue at the Combat Systems unit, maker of Abrams and Stryker vehicles, fell 2.3 percent to $1.91 billion and unit income declined 27 percent to $203 million, the company said.
Sales at the Marine Systems unit, maker of the Navy’s destroyers and nuclear-powered submarines, fell 4.2 percent to $1.61 billion and profit gained 11 percent to $185 million.
Information Systems and Technology sales fell 13.3 percent to $2.44 billion and profit declined 21 percent to $218 million, the company said.