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General Dynamic Profit Up on Warships

By Reuters
Published | Updated

NEW YORK – Defense contractor General Dynamics Corp. (GD) on Wednesday posted a 24 percent jump in second-quarter net earnings on sales of warships and communication technology.

The Falls Church, Va.-based company, which also makes jets, tanks and battlefield communication systems, reported earnings of $300 million, or $1.49 per share, compared with $242 million, or $1.22 per share, a year earlier.

Analysts, on average, had expected $1.40 per share, according to Reuters Estimates.

Second-quarter revenue rose to $4.8 billion from $3.94 billion a year earlier. Analysts had forecast $4.68 billion.

Funded backlog, a closely watched measure of unfilled orders, was $26.4 billion during the quarter, up from $23.5 billion a year earlier.

Operating margins improved to 10.4 percent from 9.6 percent on improved cost controls, particularly in the company's commercial jet business.

Government demand for military communication systems, warships and land combat vehicles has surged since the Sept. 11, 2001, attacks on the United States and the war in Iraq.

General Dynamics said revenue from information technology jumped 49 percent in the second quarter to $1.7 billion. Marine systems revenue rose 20 percent to $1.1 billion, while revenue from combat systems, which include land vehicles, munitions and guns, was largely unchanged at about $1 billion.

The company reported signs of improvement in the battered business-jet market. Its business jet revenue for the quarter totaled $771 million, up from $715 million a year earlier.

Operating profit for the business more than doubled, to $94 million from $45 million, helped by stringent cost controls.

For investors who believe military spending will slow over the next decade, signs of growth outside the defense industry are important. Analysts closely monitor how much General Dynamics can charge for its business jets as a measure of sustainable demand.

The company received $8.2 billion of contracts from the Defense Department (search) in 2003, and analysts said it stands to gain from an expected increase in orders for its Stryker armored vehicles (search) as well as a pickup in demand for munitions.

Earlier this week, the company won a contract worth up to $1 billion to design and develop new portable radios for U.S. troops.