General Dynamics Tops Earnings Ests - Analyst Blog

Defense and aerospace operator General Dynamics Corp. GD announced first-quarter 2014 operating earnings of $1.71 per share, surpassing the Zacks Consensus Estimate by 4.9%. Earnings were ahead of the year-ago figure of $1.62 by 5.6%.

Total Revenue

Total revenue of $7.32 billion in the first quarter beat the Zacks Consensus Estimate of $7.15 billion by 2.4%. However, total revenue was down 1.1% from $7.40 billion in the year-ago quarter.

The year-over-year decline was due to lower contribution from Combat Systems, Marine Systems and Information Systems and Technology, partially offset by higher sales from the Aerospace segment.

Segment Performance

The Aerospace segment reported first quarter 2014 revenues of $2.12 billion, up 19.5% from the prior year. Operating income from this segment was $0.4 billion, reflecting a jump of 30.3% from $0.31 billion in the year-ago quarter.

Combat Systems reported revenues of $1.31 billion, down 15.2% year over year. Operating income from this segment was $0.14 billion, down 36.7% from $0.21 billion in the prior year.

Marine Systems reported revenues of $1.6 billion, down 1.5% year over year. Operating income from this segment was $0.17 billion, up 4.4% from $0.16 billion in the prior year.

Information Systems and Technology reported revenues of $2.28 billion, reflecting a decline of 6.8% from the year-ago quarter. Operating income from this segment was $0.18 billion, down 1.1% year over year.

Operational Highlights

Operating costs and expenses during the quarter declined 1.6% year over year to $6.45 billion, thereby boosting operating income by 2.8% to $0.87 billion.

Interest expense declined 4.4% year over year to $22 million.

Total backlog at the end of the first quarter was $56 billion, up more than 20% from the 2013-end level. Worth mentioning among these is a 14-year $10 billion contract from the Canadian Commercial Corporation to provide military and commercial vehicles, training, and support services to an international customer.

Financial Condition

Cash and cash equivalents as of Mar 30, 2014 were $4.3 billion versus $5.3 billion as of Dec 31, 2013.

Long-term debt as of Mar 30, 2014 was $3.4 billion versus $3.9 billion as of Dec 31, 2013.

Cash flow from operating activities in the first quarter of 2014 was $428 million versus $504 million in the year-ago period. Free cash flow was $341 million versus $429 million a year ago.

During the first quarter the company repurchased 14.4 million shares worth $1.43 billion and disbursed $198 million as dividends.

Other Releases

Rockwell Collins Inc. COL reported second quarter fiscal 2014 earnings per share of $1.07, beating the Zacks Consensus Estimate by 0.9%.

Lockheed Martin Corporation LMT reported first quarter 2014 earnings from continuing operation of $2.87per share, beating the Zacks Consensus Estimate of $2.52 by 13.9%.

The Boeing Company BA reported first quarter 2014 earnings from continuing operation of $1.76 per share, beating the Zacks Consensus Estimate of $1.54 by 14.3%.

Our View

General Dynamics was able to keep the earnings streak alive taking it to five straight quarters. Cost containment helped the company to expand its margins over the prior year.

A sizable increase in backlog is also a testament to the company's diversified product offering. Combat Systems and Marine Systems received the bulk of these new orders.

General Dynamics currently has a Zacks Rank #2 (Buy).