By Calvin Biesecker
General Dynamics [GD] yesterday lowered its earnings guidance for the year based on a decision it made to cut back on planned aircraft production rates this year at its business jet division due to weakening demand.
The new guidance is between $6 and $6.10 earnings per share (EPS) versus the previous forecast of between $6.70 and $6.75 EPS.
GD said its business jet backlog is deteriorating but provided no specific details. The company will reduce production of large-cabin aircraft and green-aircraft deliveries from 94 down to 73 and reduce production of mid-size aircraft from 30 to 24.
The production cuts in 2009 at Gulfstream will stabilize the backlog and even out production between this year and 2010, GD said. The company didn’t provide specific delivery targets for next year but said the move to level-load production will improve efficiencies and help its suppliers better understand requirements ahead.
GD said the action at Gulfstream will result in the layoff of 1,200 workers.
“Despite the current challenges, we continue to believe that Gulfstream’s backlog provides a solid foundation for the business in this tough market environment,” Nicholas Chabraja, GD’s chairman and CEO, said in a statement.
After experiencing a difficult business environment early this decade, Gulfstream has been on a tear beginning in 2003, improving sales and earnings on heated demand for business jets. However, with the souring of the economy, in the last half of 2008 business jet makers have began to see demand for their products fall.
Last year GD’s Aerospace segment, which includes Gulfstream, had $5.5 billion in sales, nearly 19 percent of the company’s total. Operating earnings cleared $1 billion, more than a quarter of GD’s total.
JP Morgan aerospace and defense analyst Joseph Nadol said in a research note this week that economic data on business jets remained poor in February and that “further weakness likely lies ahead with corporate profit expectations still falling.” There’s no “inflection point” in sight, he said.