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GENERAL DYNAMICS REPORTS PROFIT SURGE

19 Jul 06. General Dynamics Corp. second-quarter earnings rose 84 percent, driven by demand for tanks, armored vehicles and business jets, and raised its full-year earnings outlook.

The manufacturer of Stryker armored vehicles, Abrams tanks, Gulfstream aircraft and weapons guidance systems said net income rose to $636m, or $1.56 per share, in the April-June period versus $345m, or 85 cents per share, in the year-ago period. The latest quarter included earnings of $216m from discontinued operations.

“We had a strong quarter by almost any measure,” said Nicholas D. Chabraja, chairman and chief executive officer, in a conference call with analysts.

The company, which gets about 25 percent of its annual revenue from the U.S. Army, benefited from robust military spending. Earnings from continuing operations rose to $420m, or $1.03 per share, (2005: $338m, or 83 cents).

Revenue rose 16 percent to $5.93bn from $5.14bn a year ago, beating the Wall Street forecasts for $5.77bn. The company posted increased earnings in all four of its major business groups, led by the combat systems unit, which delivered a 40 percent increase in operating earnings to $172m on 29 percent higher sales of $1.44bn

The aerospace division, which includes Gulfstream, saw operating earnings soar 33 percent to $166m on 29 percent higher sales of $1.07bn.

“This is the first time Gulfstream has exceeded $1 billion in sales, and I expect to see more of that,” Chabraja said.

The largest component of sales and profit, the information systems and technology unit, reported 3.1 percent higher operating income of $232m as sales rose 7.2 percent to $2.16bn. Revenues from the marine division, an area which the company had anticipated to be flat, instead rose 7 percent, Chabraja said.

For the first half of the year, General Dynamics earned $1.01bn, or $2.49 a share, (2005: $681m, or $1.68). Revenue rose to $11.48bn from $9.91bn in the first half of 2005.

The company expects full-year earnings from continuing operations of $4.15 per share, up sharply from its previous forecast range of $3.90 to $3.92 per share, but in line with the average of Wall Street estimates.

But its shares fell 36 cents to $67.99 on the New York Stock Exchange. Analyst Rich Tortoriello of Standard and Poor’s Inc. said General Dynamics has been the strongest performing defense stock in recent months. They are closer to the upper end of their 52-week range of $55.09 to $69.62.”It could just be taking a breather,” he said. Another turnoff for investors could be a wait to take delivery on Gulfstream jets because of the division’s large backlog, he said.

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