U.S. MAJORS BEGIN TO FEEL PRESSURE OF DEFENSE CUTS
In the latest round of Results from the U.S. majors, we begin to see cracks appearing in the stellar growth reported over the past few years. With the Supplementals running out of steam this trend is likely to continue for some time with divestments expected for non-core operations. (See: BATTLESPACE UPDATE Vol.14 ISSUE 04, 26 January 2012, BOEING Q4 – MANY A SLIP! By Howard Wheeldon, Senior Strategist at BGC Partners)
25 Jan 12. General Dynamics (NYSE: GD) reported 2011 fourth-quarter earnings from continuing operations of $603m, or $1.68 per share on a fully diluted basis, compared to 2010 fourth-quarter earnings from continuing operations of $729m, or $1.91 per share fully diluted. Fourth-quarter earnings were impacted by charges taken at the company’s Switzerland-based aircraft-completions business totaling $189m. The charges comprise a $111m non-cash impairment of an intangible asset related to the business and $78m in contract losses.
“Jet Aviation’s aircraft-completions business continued to face lower OEM business-jet volume and delays in several narrow-body and wide-body aircraft which are nearing delivery,” said Jay L. Johnson, chairman and chief executive officer. “We have taken appropriate steps to address these issues. “The charges taken in our completions business mask an otherwise solid fourth-quarter performance by General Dynamics, marked by excellent cash generation, delivery of the first 12 Gulfstream G650 production aircraft to the final phase of manufacturing, and strong margins in our defense businesses.”
Revenue and Full-year Earnings
Fourth-quarter 2011 revenue was $9.1bn, and revenue was $32.7bn for the full year. Full-year 2011 earnings from continuing operations were $2.55bn, or $6.94 per share on a fully diluted basis, compared to $2.63bn and $6.82 per share, respectively, for 2010.
Company-wide operating margins, which include the impact of the charges in Aerospace, were 10.4 percent for the fourth quarter and 11.7 percent for the full year. These margins reflect the continued strong performance in the company’s defense groups, each of which increased their operating margins in the quarter and for the year.
Net cash provided by operating activities totalled $2bn in the fourth quarter and $3.2bn for the full year. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $1.8bn in the quarter and $2.8bn for the year. Free cash flow exceeded earnings from continuing operations in the fourth quarter and for the full year, benefitting from progress payments received by the Aerospace group as the new Gulfstream G650 business-jet aircraft received provisional type certification and the first 12 production aircraft were delivered into final-phase manufacturing.
The company’s total backlog was $57.4bn at the end of the year. In the fourth quarter, orders were particularly strong for combat vehicle production and improvements, both domestically and internationally. Gulfstream also enjoyed healthy demand across its product portfolio in the quarter, and for the full year recorded the highest number of orders for new aircraft since the introduction of the G650 in 2008.
Estimated potential contract value, representing management’s estimate of the value of unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised contract options, increased to $28bn at year-end 2011. Total potential contract value, the sum of all backlog components, was $85.4bn at the end of the year.
Lockheed Martin Corporation
26 Jan 12. Lockheed Martin Corporation (NYSE: LMT) reported fourth quarter 2011 net sales of $12.2bn compared to $12.8bn in 2010. Earnings from continuing operations during the fourth quarter of 2011 was $698m, or $2.14 per diluted share, compared to $821m, or $2.28 per diluted share, in 2010. Earnin