By Calvin Biesecker
General Dynamics [GD] yesterday reported fourth quarter sales and earnings that were essentially level with a year ago as strong increases across its defense businesses were offset by continued weakness in the business jet market.
GD also offered up its initial guidance for 2010, saying that earnings are projected to rise.
Net income in the quarter was $614 million, $1.59 earnings per share (EPS), versus $612 million ($1.57 EPS) a year ago. Consensus estimates were for $1.57 EPS. Sales were about $7.9 billion in both periods.
GD’s Aerospace segment, which consists of its Gulfstream business jet operations and an aviation services business, saw sales and earnings tumble in the quarter as it delivered about half the number of aircraft as it did a year ago. The decline in deliveries was mostly for mid-size aircraft. Compared to the third quarter, though, Aerospace sales and operating earnings rose.
Aerospace sales declined 23 percent to $1.2 billion while earnings fell 37 percent to $167 million. Margins fell over 3 percent to 14.1 percent.
There are signs of recovery–albeit slow–in the business aviation market, GD said. There is continued strength in order activity, fewer customer defaults and improved service volume, Jay Johnson, GD’s president and CEO, said during an earnings call. He said Aerospace sales this year would be up low to mid-single digits and that margins would be around 14 percent, up slightly from 2009.
Johnson said his estimate for business aviation is “admittedly conservative” based on current market conditions.
Gains at the defense operations in the quarter were led by strong earnings at each of the segments, with Combat Systems leading the way. Earnings at Combat Systems increased 19 percent to $367 million due to higher margins on U.S. and European vehicle programs and the mix of guns and weapons programs.
Combat System sales were up nearly 7 percent to $2.5 billion on Stryker, M1 Abrams, and armor and weapon systems programs. GD said sales were lower than it expected due to timing issues on several programs. This year growth is forecast between 4 and 5 percent.
The Marine Systems segment produced a strong quarter all around, with earnings up 18 percent to $156 million on a 12 percent boost in sales to $1.6 billion. Johnson credited the Virginia-class submarine and ship repair work as the sales drivers and increased bookings on several programs pushing up earnings. Sales this year will grow between 7 and 8 percent, he said.
The Information Systems and Technology segment also posted double-digit earnings gains on higher margins, which were driven by tactical communications and intelligence, surveillance and reconnaissance work. Sales in the segment were up slightly. The outlook for 2010 is growth between 8 and 9 percent.
“Execution remains paramount,” Johnson said, regarding the outlook for GD’s defense businesses.
The company is forecasting earnings this year between $6.40 and $6.50 per share, excluding impacts from capital deployments, Johnson said.
Overall in 2009, GD’s net income subsided nearly 3 percent to $2.4 billion ($6.21 EPS) from $2.5 billion ($6.21 EPS) a year ago. Sales increased 9 percent to $32 billion from $29.3 billion. Free cash flow was $2.5 billion and total backlog $65.5 billion, $45.9 billion of it funded.