General Dynamics Bags Army Contract

General Dynamics Corp. (GD) received a $2.2 billion contract from the U.S. army to supply 724 light armored vehicles to Canada. The U.S. Army TACOM Life Cycle Management Command, in support of the U.S. Army Security Assistance Command (USASAC), has awarded the contract to General Dynamics Land Systems, Canada. General Dynamics Land Systems is a business unit of General Dynamics. The contract was signed through the Canadian Commercial Corporation, a Crown Agency of the Canadian Government.
 
Vehicles provided under this contract will be the LAV II version, a 300 horsepower 8x8 vehicle with a gross vehicle weight of up to 32,000 lbs (14,500 kg). The vehicles will be produced in 10 different variants. Vehicle deliveries are set to begin in the month of April 2011.
 
The contract will maintain the status quo of the Combat Systems segment to be the revenue growth leader in the first nine months of fiscal 2009. The segment’s organic growth rate was 22% in the recent quarter and 17% in the first nine months of fiscal 2009.
 
The multibillion dollar contract also maintained its brisk pace in order booking of General Dynamics. In the recent quarter, the company took the total backlog to $66.2 billion, compared to the $60.5 billion figure in the year-ago quarter.
 
General Dynamics engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation. The company operates through four segments − Information Systems & Technology (IS&T), Combat Systems, Marine Systems, and Aerospace.
 
We view General Dynamics as a well-run company that is likely to continue to deliver on expectations driven by strong revenue growth, margin expansion and cash flow generation. Strong defense outlays should further improve the company’s outlook for shareholders while an increasing funded backlog and an improving balance sheet signal additional positive factors for the company. We maintain our Neutral recommendation on the shares.

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