General Dynamics Forecasts Earnings Short of Estimates

General Dynamics Corp. (GD), citing weakening defense sales, forecast 2012 earnings below analysts’ estimates.

The maker of Abrams battle tanks and Gulfstream business aircraft estimates its full-year net income from continuing operations at $7.10 to $7.20 a share, Jay Johnson, the chairman and chief executive officer, said today. The average estimate of 25 analysts surveyed by Bloomberg was $7.62 a share.

General Dynamics’ defense sales may fall 1 percent to 2 percent this year amid uncertainty about the U.S. defense budget, Johnson said on a conference call with analysts. He cited presidential and congressional elections and “the looming shadow” of automatic budget cuts, known as sequestration, that might lead to Pentagon spending cuts of as much as $1 billion over a decade.

“If sequestration were to occur as laid out today. it would be very bad for defense and frankly for our country,” Johnson said today. He said the decline in defense sales may be offset by sales in the company’s aerospace unit, the maker of Gulfstream business jets.

General Dynamics rose 23 cents to $71.57 at the close in New York.

Fourth-quarter profit declined 17.3 percent because performance fell short of expectations at a unit that outfits and overhauls business jets, the Falls Church, Virginia-based company said earlier today.

Net Income Fell

Net income fell to $603 million, or $1.68 a share, from $729 million, or $1.91 a share, a year earlier, General Dynamics said in a statement. It missed the profit estimate of $1.99 a share, the average of 23 analysts surveyed by Bloomberg. Sales rose 6.3 percent to $9.15 billion.

The company said the quarter’s earnings were reduced by charges of $189 million at the company’s Switzerland-based Jet Aviation unit, which maintains and refurbishes business jets other than the company’s own Gulfstream aircraft. The company took a writedown reflecting a loss of contracts and “an outlook with substantially fewer business jets” than projected when it acquired Jet Aviation in 2008, Johnson said.

The company’s defense business, which provided about 82 percent of its revenue last year, may be at risk because it is more dependent on U.S. Army programs than its peers as defense spending declines, Douglas Harned, an analyst at Sanford C. Bernstein LLC in New York, wrote in a Jan. 20 note to clients. Harned rates the stock market-perform.

Pentagon Cuts

The Pentagon must cut about $490 billion from its planned spending over the next 10 years under budget-reduction legislation, with an additional $500 billion if the automatic cuts go through.

To counter the Pentagon’s budget reductions, Johnson has said he has stepped up acquisitions to expand the company’s reach beyond defense and aerospace.

In September, the Falls Church, Virginia-based company spent $960 million to acquire Vangent Inc., a provider of health-care information technology services. In December, General Dynamics bought Force Protection Inc. (FRPT), a maker of mine- clearing vehicles and armored trucks, in a deal valued at $360 million.

General Dynamics sees opportunities for more acquisitions of defense companies “at good value,” Johnson said today on the conference call.

Gulfstream Jets

Sales at the Aerospace unit, which makes Gulfstream jets and also includes Jet Aviation, rose 47 percent to $1.86 billion in the fourth quarter, while income fell 65 percent to $73 million.

Gulfstream deliveries of so-called green, or unfinished, airplanes rose 75 percent, to 35 units, during the quarter compared with the same period last year, the company said.

Johnson said he expected Gulfstream’s G650 and G280 business jets to win Federal Aviation Administration certification and go into service by midyear.

Revenue at the Marine Systems unit, which builds nuclear- powered submarines and U.S. Navy destroyers, rose 3.4 percent to $1.76 billion. Profit rose 7.3 percent to $190 million. The unit received a $280 million order from the U.S. Navy to convert nuclear submarines for use in training.

Revenue at the Combat Systems unit, which manufactures Abrams tanks and Stryker vehicles, fell 3.2 percent to $2.6 billion, and profit fell 3 percent to $388 million. The unit received a $950 million order from Canada to upgrade that country’s fleet of LAV III light armored vehicles.

Sales at the Information Systems and Technology unit fell 0.5 percent to $2.9 billion, and profit rose 1.3 percent to $315 million.

For 2011, sales rose less than 1 percent to $32.7 billion, aided by a 13.2 percent increase in the Aerospace unit. Sales at the three other units fell. Profit from continuing operations declined 2.9 percent for the year to $2.55 billion, or $6.94 a share.

To contact the reporters on this story: Roxana Tiron in Washington at rtiron@bloomberg.net; Gopal Ratnam in Washington at gratnam1@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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