General Dynamics [GD] on Wednesday posted strong first quarter earnings driven mainly by gains in its business jet and aircraft services business with a nice boost also from its segment that makes tanks, fighting vehicles and weapons.
Net income in the quarter jumped 19 percent to $763 million, $2.48 earnings per share (EPS), from $641 million ($2.04 EPS) a year ago, beating consensus estimates by 16 cents per share. In addition to higher operating profits at the Aerospace and Combat Systems segments, GD’s bottom line also benefited from lower taxes.
The rise in per share earnings in the quarter was also helped by a lower share count as a result of stock buybacks.
Operating income was up more than 33 percent at the Aerospace Segment and nearly 10 percent at Combat Systems, which benefited from strong performance in the European Land Systems division, Phebe Novakovic, GD’s chairman and CEO, said on the company’s earnings Call. Income in the Marine Systems business was down 13 percent due to a delay in delivering to the Navy one Virginia-class Block III attack submarine, she said, adding that performance on the program “continues to be solid.”
The Information Systems and Technology (IS&T) segment posted flat earnings.
Operating margins rose nicely to 13.9 percent from 12.4 percent a year ago, with performance at Aerospace particularly strong. Only the Marine Systems segment saw a decline in margins.
Sales in the quarter dipped a half-percent–$35 million—to just over $7.4 billion from just under $7.5 billion. Declines in sales at the Marine Systems and IS&T segments more than offset a strong showing at the Aerospace segment. Combat Systems sales were up slightly.
Novakovic said sales at Marine Systems were down due to lower revenue on the Virginia-class Block III program. She also highlighted that the design of the Navy’s Columbia-class ballistic missile submarine is 40 percent complete, adding that “this performance is far better than any submarine first of class design maturity to construction start date in history.”
GD’s Electric Boat division last year won the prime contractor role on the Columbia submarine program and construction is set to begin in four years.
Novakovic said GD won’t update its outlook for 2017 until the second quarter earnings call but pointed out that results so far this year are “a bit ahead of the operating plan” that the guidance is based on. Even if the federal government operates under a continuing budget resolution for the entire year, she said this would not have a material impact on the company’s results in 2017, in large part due to the strength of its backlog.
Total backlog at the end of the quarter stood at $60.4 billion, of which $53.3 billion is funded. A year ago total backlog was 66.7 billion, $56.6 billion of it funded.
Free cash flow in the quarter was $471 million. Jason Aiken, GD’s chief financial officer, said the company spent $454 million on share repurchases in the quarter and $130million on dividends, which adds to 125 percent of free cash returned to shareholders.