General Dynamics Profits Rise 3% on Arms Sales
General Dynamics Corp.‘s first-quarter earnings rose 3 percent, beating Wall Street expectations, as sales of warships and other military equipment made up for lower profits from business jets.
Weapons sales to the Pentagon have buoyed most defense contractors through the recession, but those that have large commercial divisions have faced a difficult balancing act in recent quarters. General Dynamics still has healthy demand for its tanks, submarines and ships, but its Gulfstream corporate jet business has grown steadily weaker as the global economic downturn hurts air travel.
The Falls Church, Va.-based defense contractor on Wednesday reported first-quarter net income of $590 million, or $1.54 per share, up from profit of $572 million, or $1.43 per share, in the same quarter last year. Earnings per share amounted to $1.53, excluding discontinued operations.
Revenue climbed 18 percent to $8.26 billion.
Analysts expected quarterly earnings of $1.46 per share on revenue of $7.82 billion.
Profits rose in all of the company’s divisions except aerospace, which is composed of Gulfstream.
General Dynamics said work on programs like Navy destroyers and the Virginia-class submarine pushed up profits by 33 percent to $163 million at its marine systems unit. Combat systems, where the company makes everything from hulking armored vehicles to bullets, saw profits grow nearly 8 percent to $279 million. Information technology earnings climbed 11 percent to $289 million.
In a sign of possible future business, the company’s backlog of orders rose 43 percent from a year earlier, reaching $71.1 billion in the quarter.
But Gulfstream posted a 15-percent drop in profits, down to $200 million. Total Gulfstream revenues gained 13 percent to $1.46 billion, but General Dynamics said that was due to the purchase of the Jet Aviation plane servicing business last year. Total aircraft deliveries fell by two in the quarter compared with the year-earlier period.
In March, General Dynamics lowered its 2009 earnings guidance and predicted weaker sales of its mid-sized and large cabin jets than previously forecast. The company also said it would lay off 1,200 workers at Gulfstream.
The downturn in aviation has hurt companies like Boeing Co., which said last week that its first-quarter earnings dropped by half due to lower demand for its commercial jets from airlines. Boeing’s defense profits were down for the quarter because of the types of planes it delivered, but the results were far better than the 58-percent profit fall in its commercial division.
Meanwhile, companies that rely primarily on Pentagon sales, like Raytheon Co. and Northrop Grumman, have posted stronger earnings in recent weeks.
There is still uncertainty over how changing priorities on defense spending would affect weapons suppliers.
Defense Secretary wants to cut some big weapons programs as he focuses the military on areas like fighting insurgents in Afghanistan. The shift means greater demand for high tech and more nimble weaponry instead of the heavy equipment used to fight conventional wars.
Under the Gates plan, General Dynamics could lose work building armored vehicles for the Army’s modernization program. The company could also be hurt by the proposal to make only three of the DDG-1000 destroyers for the Navy.
But the company could also be helped by Gates’ desire to increase the number of smaller warships that can operate close to shore, which General Dynamics is building along with Lockheed Martin Corp.
Company shares rose $1.57, or 3.1 percent, to $52.18 in early trading.
4/29/2009 9:40 AM STEPHEN MANNING AP Business Writer WASHINGTON