General Dynamics [GD] on Wednesday posted higher first quarter sales due to gains in each of its business segments but net income fell on higher interest expenses and slightly higher taxes, which combined to more than offset a small rise in segment income.
Net income dropped 7 percent to $745 million, $2.56 earnings per share (EPS), from $799 million ($2.65 EPS) a year ago, but still beat consensus estimates by 14 cents a share. Segment operating margin slid 350 basis points to 10.9 percent, in part due to amortization related to the acquisition of CSRA last year.
Operating profit at the company’s segments was up nearly a percent, or $6 million, to just over $1 billion, on increases at Information Technology on the CSRA deal, and Mission Systems on higher sales.
Operating income was down at the Aerospace, Combat Systems and Marine Systems segments. Profit declined at Aerospace on a shift toward lower margin business jet sales, and at Combat Systems on a shift in product mix and a charge at Combat Systems due to a legal dispute arising from a dispute at a former operating site in Europe.
GD Chairman and CEO Phebe Novakovic said on the company’s earnings call that the year is “off to a good start,” particularly with increases in sales and backlog and that results so far are a “bit ahead” of the company’s operating plan. Guidance will be updated during GD’s second quarter call in July, she said.
Sales increased 23 percent to $9.3 billion from $7.5 billion a year ago, lifted by the acquisition of CSRA, double-digit increases at the Aerospace and Combat Systems segments, and single-digit expansion at Mission Systems and Marine Systems. Excluding the deal for CSRA, organic growth was still 10 percent with each operating segment contributing, Novakovic said.
Integration of CSRA, which is part of GD’s IT segment, is going well and is “a bit ahead of the plan,” Novakovic said. She said the segment is “positioned for growth going forward,” noting that orders in the quarter exceeded sales and for the past year has won between 70 and 75 percent of the programs it has bid on amid budget growth of 5 percent. She added later that the addressable market for GDIT is about $120 billion.
At Combat Systems, growth was driven by the M1 Abrams tank and Mobile Protected Firepower programs and munitions, Novakovic said. When defense budgets were severely constrained several years ago, GD was producing one Abrams per month and by the end of this year will churn out 30 a month, she said.
At Marine Systems, detailed design of the Columbia-class nuclear missile submarine is 97 percent complete and almost 43 percent through construction design drawings and will be 83 percent complete when construction begins, which is well above historical metrics for any warship, Novakovic said.
Backlog at the end of the quarter stood at $69.2 billion, up 2 percent from the end of 2019, driven by increases at every segment except Combat Systems. The company tallied $10.7 billion in orders in the quarter.