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Defense and aerospace operator General Dynamics Corporation (GD - Analyst Report) announced fourth quarter and full year 2012 earnings. The company reported fourth quarter earnings of $1.39 per share, missing the Zacks Consensus Estimate of $1.90 per share.

The reported figures were below the year-ago figure of $2.20 per share. The results reflect negative impact of defense budget.

Including one-time charges of $7.46 per share related to the goodwill impairment and other charges, the company’s GAAP loss per share was $6.07 as compared to earnings per share of $1.69 in the year-ago period.

Pro forma earnings per share for full year 2012 were $6.48, down from the Zacks Consensus Estimate of $7.10 and the year-ago figure of $7.46. Including one-time charges of $7.42, GAAP loss per share was 94 cents versus earnings per share of $6.87 in the year-ago period.

Total Revenue

General Dynamics generated total revenue of $8.08 billion in the reported quarter versus $9.15 billion in the year-ago quarter, reflecting a decrease of 11.7%. The year-over-year decrease in revenue reflects declining revenues at all segments, except Aerospace. Reported quarter revenue also failed to meet the Zacks Consensus Estimate by $731 million.

In full year 2012, the company clocked revenue of $31.51 billion, down 3.56% year over year. The top line also failed to meet the Zacks Consensus Estimate of $32.71 billion.

In the reported quarter, operating loss was $1.90 billion compared with an operating profit of $0.95 billion in the year-ago period. The company reported operating income of $0.83 billion for full year 2012, down from $3.83 billion in the year-ago period.

At the end of fourth quarter 2012, the company’s total backlog was $51.3 billion compared with $57.4 billion at the end of the fourth quarter of 2011. Total potential contract value at the end of fourth quarter 2012 was $78.1 billion versus $85.4 billion at the end of fourth quarter 2011.

Segment Performance

The Aerospace segment reported revenues of $1.86 billion in the fourth quarter, up 0.2% from the prior-year period.

Combat Systems reported quarterly revenue of $1.98 billion, down 24.3% year over year. During the quarter, the segment received a contract worth $355 million for Stryker wheeled combat vehicle program, contractor logistics support and for the production of 62 Nuclear, Biological, Chemical Reconnaissance vehicles.

Marine Systems reported revenue of $1.66 billion, down 5.3% from the year-earlier period. The segment received a sizeable contract worth $1.8 billion for research and development work for a new class of ballistic-missile submarines under the Ohio Replacement Program. It also received many other contracts.

Information Systems and Technology reported revenue of $2.58 billion, reflecting a decline of 11.8% from the previous year. In the fourth quarter of 2012, the segment received a contract for the production of 3,726 Handheld, Manpack and Small Form-Fit (HMS) radios and accessory kits worth $250 million.

Financial Condition

Cash and cash equivalents as of Dec 31, 2012 were $3.30 billion year over year, up from $2.65 billion at the end of Dec 31, 2011. For full-year 2012, long-term debts were $3.91 billion, approximately flat year over year.

In full year 2012, capital expenditure of the company decreased to $0.45 billion from $0.46 billion in the year-ago period. Net cash provided by operating activities were $2.69 billion in full year 2012, down 17% year over year.


The company expects earnings from continuing operations to be in the range of $6.60 to $6.70 per share.

Our Take

General Dynamics missed the Zacks Consensus Estimates. The results indicate that some of its markets are contracting as government budgets dip. However, the company’s ability to get consistent contracts will boost the top line going forward. Moreover, its relevant product and service offerings are important for its customers.

Like Northrop Grumman Corporation (NOC - Analyst Report), and Raytheon Co. (RTN - Analyst Report), General Dynamics presently retains a short-term Zacks Rank #3 (Hold). One other Zacks Rank #3 (Hold) rating company Textron Inc. (TXT - Analyst Report) also announced fourth quarter 2012 adjusted earnings of 56 cents per share versus 49 cents in the year-ago quarter. The fourth quarter result, however, came below the Zacks Consensus Estimate of 57 cents.

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