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General Dynamics Corporation (GD - Analyst Report) announced second-quarter 2014 adjusted earnings of $1.88 per share, surpassing the Zacks Consensus Estimate of $1.76 by 6.8%. Earnings also increased 3.9% from the prior-year figure.
 
On a GAAP basis, the company’s earnings per share were $1.58 versus $1.81 a year ago. The variance between GAAP and adjusted earnings was due to a charge of 30 cents related to discontinued operations for the sale of a business under the company’s Combat Systems segment.
 

 

Total Revenue

In the second quarter, General Dynamics’ total revenues of $7,474 million missed the Zacks Consensus Estimate of $7,532 million by 0.8%. Total revenues were down 4.6% from $7,834 million in the year-ago quarter.
 
The year-over-year decline was due to lower contribution from the Aerospace, Combat Systems, and Information Systems and Technology segments; partially offset by higher sales from the Marine Systems segment.
 
Segment Performance
 
Aerospace: The segment reported second-quarter 2014 revenues of $1,995 million, down 2.8% year over year. Operating income was $384 million, reflecting a decrease of 1.3% from $389 million in the year-ago quarter.
 
Combat Systems: Segmental revenues decreased 0.5% year over year to $1,465 million. Operating income from this segment was $220 million, up 0.5% from $219 million in the prior year.
 
Marine Systems: The segment’s revenues of $1,851 million were 5.2% higher than $1,759 million a year ago. Operating income from the segment was $174 million, down 2.2% from the prior-year figure of $178 million.
 
Information Systems and Technology: The segment reported revenues of $2,163 million, declining 15.2% from the year-ago quarter. Operating income from this segment was down 5.1% year over year to $188 million.
 
Operational Highlights
 
In the quarter under review, General Dynamics’ operating costs and expenses decreased 5.1% year over year to $6,525 million.
 
The company’s interest expenses increased 12.2% year over year to $46 million.
 
Total backlog at the end of the second quarter was $71,093 million, up 44.2% year over year primarily due to higher backlogs at Combat Systems and Marine Systems.
 
Financial Condition
 
As of Jun 29, 2014, General Dynamics’ cash and cash equivalents were $3.8 billion versus $5.3 billion as of Dec 31, 2013.
 
Long-term debt as of Jun 29, 2014, was $3.4 billion versus $3.9 billion as of Dec 31, 2013.
 
During the first half of 2014, the company’s cash flow from operating activities was around $1.29 billion versus $1.09 billion in the year-ago period. Free cash flow from operations was roughly $0.8 billion.
 
During the second quarter, General Dynamics repurchased 10.7 million shares worth $1.2 billion and disbursed around $0.2 billion as dividends.
 
Other Releases
 
Rockwell Collins Inc. (COL - Analyst Report) reported third-quarter fiscal 2014 earnings per share of $1.19, beating the Zacks Consensus Estimate by a penny.
 
Lockheed Martin Corporation (LMT - Analyst Report) reported second-quarter 2014 earnings of $2.76 per share, beating the Zacks Consensus Estimate of $2.66 by 3.8%.
 
The Boeing Company (BA - Analyst Report) reported second-quarter 2014 adjusted earnings of $2.42 per share, beating the Zacks Consensus Estimate by 19.8%.
 
Our View
 
General Dynamics’ second-quarter earnings were well supported by its cost control efforts and share repurchases, helping the company beat the Street estimates in spite of soft revenues.
 
A sharp rise in backlog backed by significant improvement at the Combat Systems and Marine Systems segments is expected to boost General Dynamics’ forthcoming results.
 
General Dynamics currently has a Zacks Rank #3 (Hold).

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