General Dynamics [GD] on Wednesday said its net income in the second quarter edged up a bit despite a slight drop in sales on improved operating margins and the bottom line topped analysts’ estimates.
Net income rose nearly a percent to $758 million, $2.44 earnings per share (EPS), from $752 million ($2.27 EPS) a year ago, topping Wall Street’s estimates by 13 cents EPS. The earnings results benefited from lower taxes in the quarter and a 30 basis point improvement in operating margin to 14 percent.
GD’s per share results were up nearly 8 percent on a lower share count due to GD’s stock buybacks in the quarter.
GD raised its earnings guidance for the year by 50 cents to $9.70 on the back of strong performance in the first half of 2016 that is ahead of internal plans. Phebe Novakovic, GD’s chairman and CEO, said on the company’s earnings call that 24 cents of the improved earnings outlook is due to better operating results, 17 cents from share repurchases, and nine cents from taxes.
The increased earnings guidance is 20 cents EPS above consensus estimates.
At the segment level, operating income was off a percent to $1.1 billion on low single-digit declines in the Aerospace, Combat Systems and Marine Systems segments. Operating margins were higher at every segment but Marine Systems.
Sales in the quarter slid 3 percent to $7.7 billion as declines in Aerospace, Combat Systems and Marine Systems more than offset a slight gain at Information Systems and Technology. Sales were down at the Aerospace segment on fewer deliveries of business jets.
Jason Aiken, GD’s chief financial officer, said that if foreign currency conversion rates had remained stable with a year ago, sales would have been $75 million higher, mainly in Combat Systems.
Novakovic said GD expects sales of $31.5 billion this year, $100 million to $300 million below guidance provided in January and flat with 2015 results.
Free cash flow in the quarter was $324 million and total backlog stood at $63.2 billion, down 10 percent from $70 billion a year ago. Funded backlog in the quarter was $53.1 billion versus $55.4 billion a year ago.