21 Jan 04. Defense contractor General Dynamics Corp. (NYSE:GD – News) said on Wednesday fourth-quarter profits jumped 78 percent, boosted by a lower tax rate and strong government spending on military vehicles and defense technology.
Results also appeared strong compared with the year-ago quarter when the company took a multi million dollar charge for discontinuing its undersea cable-laying business.
“We finished 2003 on an exceptional note,” said Nicholas D. Chabraja, General Dynamics chairman and CEO. “Net cash was almost $900 million in the quarter, further strengthening our very solid balance sheet. We had revenue growth of 23 percent over the same period last year, and total backlog at the end of 2003 totaled more than $41 billion, an increase of 42 percent from a year ago.”
Chabraja continued, “Our business aviation group performed well in the fourth quarter, signing 34 new orders in the period and continuing a trend of quarter-over-quarter earnings improvement starting with the second quarter of 2003. Pre-owned sales activity was strong, leaving only one aircraft available for sale at the end of the year. Gulfstream continued to manage its costs effectively, maintained high productivity and strengthened its core business by bringing new products to market.
“In other areas, the Information Systems and Technology and Combat Systems groups were bolstered by many new contracts in the quarter,” Chabraja continued. “Highlights include a $2 billion contract award to Combat Systems for development of manned ground vehicles for the U.S. Army’s Future Combat Systems, or FCS; several FCS-related awards to Information Systems and Technology units; and an award for continued technical and engineering support of the Joint C4ISR Battle Center, which leads the transformation of joint-force command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) capabilities. In addition, Marine Systems received funding for two DDGs, and conversion of the first of four submarines in the SSGN program commenced.
“Looking ahead in 2004, we anticipate continued solid performance from Combat Systems and Information Systems and Technology and margin improvement in Marine Systems. We are also cautiously optimistic regarding improved performance at Gulfstream,” Chabraja said. “We anticipate revenue growing to over $19 billion, earnings at the high end of the previous guidance range of $5.40 to $5.50 per share, with free cash flow from operations closely approximating net income.”
The Falls Church, Virginia-based maker of nuclear submarines and tanks posted net earnings of $279 million, or $1.40 per share, up from $157 million, or 78 cents per share, a year earlier. Excluding the charge, the company had earned $269 million, or $1.33 per share, in the fourth quarter of last year.
Earnings beat Wall Street’s average estimate of $1.37 per share as compiled by Reuters Research, a unit of Reuters Group Plc. But analysts expressed concern that results were boosted by lower taxes, saying tax rates fluctuate and may not represent sustainable growth.
“The quality of fourth-quarter earnings is questionable to us since the tax rate was unusually low at 25.6 percent, versus 32 percent expectations,” Prudential Equity Group Inc. analyst Rory Cohen wrote in a note to clients.
Shares of General Dynamics closed down 1.7 percent.Still, others said they were heartened by improving margins in the company’s aerospace unit, which makes Gulfstream business jets. The aviation unit racked up margins of 10 percent, and the company projected margins in the 11 percent to 12 percent range for the unit next year.
“We liked the aerospace side,” said Deutsche Bank Securities analyst Chris Mecray. “It was a bright spot.” Profit margins, a sign of corporate strength, show the difference between the price received for a product or service and the cost of producing it.