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Earnings & Sales Beat at General Dynamics

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Defense and aerospace operator General Dynamics Corp. (GD - Free Report) announced third-quarter 2013 operating earnings of $1.84 per share, surpassing the Zacks Consensus Estimate of $1.68 by 9.5%. Earnings were also ahead of the year-ago figure of $1.70, backed by robust aerospace activity.

Operational Highlights

General Dynamics generated total revenue of $7,796 million in the reported quarter versus $7,934 million in the year-ago quarter, reflecting a decline of 1.7%. Revenue was, however, higher than the Zacks Consensus Estimate of $7,730 million.

The year-over-year decline in revenue was primarily attributable to lower sales from its Combat System segment. Improved sales from Aerospace, Marine Systems and Information Systems and Technology marginally offset the negative impact.

General Dynamics ended the third quarter with a total backlog of $47,941 million, down year over year as well as quarter over quarter. Of the backlog, $13,823 million belonged to the Aerospace segment and $7,118 million to the Combat Systems segment. The rest was made up of $17,565 million for Marine Systems and $9,435 for Information Systems and Technology.

Operating costs and expenses during the quarter declined 2.7% year over year to $6,839 million, thereby expanding operating margins by 90 bps to 12.3%.

Segment Performance

The Aerospace segment reported revenue of $2,152 million, up 17.2% from the prior-year period. Operating income from this segment was $369 million, reflecting a solid jump of 41.4% from $261 million a year ago.

Combat Systems reported revenue of $1,367 million, down 30.1% year over year. Operating income from this segment was $224 million, down 18.2% from $274 million in the prior-year period.

Marine Systems reported revenue of $1,697 million, up 1.6% from the year-earlier period. Operating income from this segment was $170 million, down 8.6% from $186 million in the prior-year period.

Information Systems and Technology reported revenue of $2,580 million, reflecting growth of 4.4% from the previous year. Operating income from this segment was $216 million, up 7.5% year over year.

Financial Condition

Cash and cash equivalents as of Sep 30, 2013, were $4,065 million versus $3,296 million as of Dec 31, 2012. Long-term debt as of Sep 30, 2013 was $3,908 million, almost in line with the 2012 end level.

Cash flow from operating activities during the quarter was $467 million versus $704 million in the comparable year-ago period.

During the quarter, the company repurchased 1.6 million shares. Recently, in a meeting, the company authorized to repurchase up to 10 million additional shares.

Peer Comparison

Recently, Lockheed Martin Corp. (LMT - Free Report) posted third quarter 2013 earnings of $2.57 per share, comfortably surpassing the Zacks Consensus Estimate of $2.26 by 13.7%. Earnings in the reported quarter also surged almost 16.3% from the year-ago profit level of $2.21 per share.

Northrop Grumman Corp. (NOC - Free Report) reported third quarter 2013 results before the opening bell today. Adjusted earnings per share of $1.97 comfortably surpassed the Zacks Consensus Estimate of $1.81. Also, the figure was above the year-ago figure by 13.9%.


General Dynamics’ top and bottom line succeeded in meeting the Zacks Consensus Estimate. The decline in operating expenses demonstrates that the company is proactive in lowering costs and improving competitiveness. We note that the company’s revenue exposure is spread over a broad portfolio of products and services, which will help in keeping the overall growth momentum steady.

However, the threat of sequestration and defense budget cuts continued to dent the backlog. General Dynamics currently retains a Zacks Rank #3 (Hold). In the near term, we would advise investors to accumulate its short-term Zacks Rank #2 (Buy) peer Erickson Air-Crane Inc. .

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