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STRONG PERFORMANCE FROM GENERAL DYNAMICS AND NORTHROP GRUMMAN

gdlogo29 Apr 15. General Dynamics (NYSE: GD) reported first-quarter 2015 earnings from continuing operations of $716m, a 20.1 percent increase over first-quarter 2014, on revenues of $7.8 bn. Diluted earnings per share were $2.14 per share compared to $1.71in first-quarter 2014, a 25.1 percent increase.

“General Dynamics delivered a powerful first quarter,” said Phebe N. Novakovic, chairman and chief executive officer. “As a result of impressive revenue growth and strong operating performance, we expanded operating earnings to more than $1bn, a 17.5 percent increase.”

Margins

Company-wide operating margins for the first quarter of 2015 were 13.2 percent, a 120 basis points improvement when compared to 12 percent in first-quarter 2014. Margins grew in three of the company’s four business groups.

Cash

Net cash provided by operating activities in the quarter totaled $745m. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $647m.

Capital Deployment

The company repurchased 4.65m of its outstanding shares in the first quarter. In addition, in March, the board of directors increased the company’s quarterly dividend by 11.3 percent to $0.69 per share, representing the company’s 18th consecutive annual dividend increase.

Backlog

Funded backlog at the end of first-quarter 2015 grew to $56bn, and total backlog was $70.5bn. In addition to total backlog, estimated potential contract value, representing management’s estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $25.6 bn. Total potential contract value, the sum of all backlog components, was $96.1bn at the end of the quarter.

“Looking ahead, we remain confident that General Dynamics is well-positioned for growth as we maximize the value of our strong backlog and continue to focus on program execution, operations and increasing return on invested capital,” Novakovic said.

Northrop Grumman Corporation

northlog29 Apr 15. Northrop Grumman Corporation (NYSE: NOC) reported first quarter 2015 net earnings of $484 m, or $2.41 per diluted share, compared to $579m, or $2.63 per diluted share in the first quarter of 2014. First quarter 2014 diluted earnings per share included a $51m, or $0.23 per share, tax benefit resulting from the partial resolution of the Internal Revenue Service (IRS) examination of the company’s 2007-2009 tax returns. First quarter 2015 diluted earnings per share are based on 200.5 m weighted average shares outstanding compared with 220.4 m shares in 2014. The company repurchased 5.3m shares of its common stock for $859 m in the first quarter of 2015. As of March 31, 2015, the company had repurchased 47.5 m shares toward its previously announced goal of retiring 60 m shares of its common stock by the end of 2015, market conditions permitting.

“Our team is off to a strong start in 2015 with first quarter results that include solid margin rates at all four of our businesses. Strong operational performance, combined with our share repurchases, resulted in another solid quarter. We continue to execute a balanced cash deployment strategy that includes investing in our business and returning cash to shareholders,” said Wes Bush, chairman, chief executive officer and president.

First quarter 2015 operating income decreased $65 m, or 8 percent, to $780 m. The decline in operating income is principally due to pension items, including a decline in net FAS/CAS pension adjustment and higher corporate unallocated expenses, as well as lower segment operating income. The increase in unallocated corporate expenses is primarily due to higher deferred state taxes resulting from the company’s $500 m discretionary pension contribution in the quarter.

Total backlog as of March 31, 2015, was $38.4bn compared with $38.2bn as of Dec. 31, 2014. First quarter 2015 new awards totaled $6.1bn, and book-to-bill was 103 percent.

For the first quarter of 2015, cash used in operating activities before discretionary pension contributions totaled $329 m, an improvement from the prior year period. During the first quarter of 2015 the company made a $500 m discretionary contribution to its pension plans, which reduced cash from operations by $325 m on an after-tax basis. Changes in cash and cash equivalents include the following for cash from operations, investing and financing activities through March 31, 2015:

Operations

* $654m used in operations

Investing

* $117m used for capital expenditures

Financing

* $825m used for repurchase of common stock

* $156m used for dividends

* $600m net proceeds from issuance of long-term debt

2015 Guidance

The company’s 2015 financial guidance is based on the spending levels provided for in the Bipartisan Budget Act of 2013 and the Consolidated and Further Appropriations Act of 2015. The guidance assumes no disruption or cancellation of any of our significant programs and no disruption or shutdown of government operations resulting from a federal government debt ceiling breach. Guidance for 2015 also assumes adequate appropriations and funding for the company’s programs in the first quarter of the U.S. government’s fiscal year 2016.

First quarter 2015 operating income reflects a $27m decrease in net FAS/CAS pension adjustment, a $22m decrease in segment operating income and a $16m increase in unallocated corporate expenses. The increase in unallocated corporate expenses is primarily due to higher deferred state taxes resulting from the company’s $500m discretionary pension contribution in the quarter.

For the first quarter of 2015, federal and foreign income tax expense increased to $220m from $207m in 2014, and the company’s effective tax rate increased to 31.3 percent from 26.3 percent in 2014. First quarter 2014 tax expense included a $51m tax benefit resulting from the partial resolution of IRS examination of the company’s 2007-2009 tax returns.

Aerospace Systems

Aerospace Systems first quarter 2015 sales increased 3 percent due to higher volume for unmanned and space programs, partially offset by lower volume for manned military aircraft programs. Higher unmanned sales reflect higher volume across a number of programs including the NATO Alliance Ground Surveillance program, and the increase in space programs reflects higher volume for restricted activities. Lower military aircraft volume was principally due to lower volume for the F/A-18 program.

Aerospace Systems first quarter 2015 operating income decreased 3 percent and operating margin rate decreased 80 basis points to 12.6 percent principally due to less favorable performance and higher unallowable expenses than in the prior year period.

Electronic Systems

Electronic Systems first quarter 2015 sales increased 2 percent primarily due to higher volume for space sensors, marine systems and tactical sensors programs, partially offset by lower volume for combat avionics programs.

Electronic Systems first quarter operating income decreased 8 percent, and operating margin rate decreased to 14.7 percent due to business mix changes, which resulted in lower volume for mature fixed price production programs and higher volume for cost-type development programs, as well as less favorable performance, primarily in land and self-protection systems.

Information Systems

Information Systems first quarter 2015 sales were comparable to the prior year period and include higher volume for intelligence, surveillance and reconnaissance, integrated air and missile defense, communications and cyber programs offset by lower volume for command and control and civil programs.

Information Systems first quarter 2015 operating income increased 2 percent, and operating margin rate increased 20 basis points to 10.5 percent. Higher operating income and margin rate are primarily due to improved performance resulting from risk retirements associated with program completions.

Technical Services

Technical Services first quarter 2015 sales increased 10 percent principally due to growth in international programs and higher intercompany sales, which more than offset lower volume for the ICBM program.

Technical Services first quarter 2015 operating income was unchanged from the prior year period. Operating margin rate decreased to 8.8 percent principally due to lower income from an unconsolidated joint venture than in the prior year period.

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