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General Dynamics (GD) Down 7.5% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for General Dynamics (GD - Free Report) . Shares have lost about 7.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is General Dynamics due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

General Dynamics Q1 Earnings Beat, Revenues Up Y/Y

General Dynamics Corporation reported first-quarter 2019 earnings from continuing operations of $2.56 per share, which beat the Zacks Consensus Estimate of $2.38 by 7.6%. However, reported earnings declined 3.4% from $2.65 in the year-ago quarter.

Total Revenues

General Dynamics’ first-quarter revenues of $9,261 million surpassed the Zacks Consensus Estimate of $8,890 million by 4.2%. Further, revenues increased 22.9% from $7,535 million in the year-ago quarter. In fact, revenues grew year over year in all of the company’s segments.

Backlog

The company recorded a total backlog of $69.2 billion, up 11.4% year over year. Funded backlog at the quarter-end was $34 billion.

Segment Performance

Aerospace: The segment reported revenues of $2,240 million, up 22.7% year over year. Operating earnings of $328 million declined 5.2% from the prior-year quarter’s $346 million.

Combat Systems: Segment revenues rose 13.6% to $1,636 million. Operating earnings were down 8% to $206 million in the quarter.

Information Systems and Technology: The segment reported revenues of $2,169 million, which surged 90.6% year over year. Operating earnings also surged 54.5% to $156 million.

Marine Systems: The segment’s revenues of $2,058 million were up 1.2% from the year-ago quarter’s $2,034 million. However, operating earnings declined 2.2% to $180 million.

Mission Systems: The segment’s revenues of $1,158 million increased 5.5% from the year-ago quarter’s $1,098 million. Operating earnings increased 1.4% from the year-ago quarter’s $146 million.

Operational Highlights

Company-wide operating margin contracted 250 basis points (bps) to 10.9% from the year-ago quarter’s 13.4%.

In the quarter under review, General Dynamics’ operating costs and expenses rose 26.35% to $8,247 million.

The company repurchased 525,000 of its outstanding shares in the first quarter of 2019. In March, the board of directors increased the quarterly dividend to $1.02 per share. This 9.7% increase marked the company’s 22nd consecutive annual dividend increase.

Financial Condition

As of Mar 31, 2019, General Dynamics’ cash and cash equivalents were $673 million compared with $963 million as of Dec 31, 2018.

Long-term debt as of Mar 31, 2019 was $11,451 million, which witnessed a massive rise from the 2018-end level of $3,980 million.

As of Mar 31, 2019, the company’s cash used by operating activities were $795 million compared with $496 million used in the year-ago period.

Free cash outflow from operations at the end of the first quarter of 2019 was $976 million compared with $600 million at the end of the first quarter of 2018.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, General Dynamics has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, General Dynamics has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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