General Dynamics Corp. beat analysts’ quarterly profit estimates with a boost from warship production and the first revenue gain at the defense contractor’s mobile-communications unit since 2013. The company will probably raise its full-year outlook, the chief executive officer said.
Sales rose at all three defense units, lead by the Marine Systems arm after winning an $18 billion Navy contract last year for 10 Virginia-class attack submarines, the biggest weapons deal by the military in more than a dozen years. Earlier this month the company won a $610 million contract from the Navy to build an Arleigh Burke-class destroyer, part of a five-ship contract worth about $3.4 billion.
Military budgets may rise for the fiscal year starting Oct. 1 as politicians “strike a strong defense posture” before the 2016 elections, according Bloomberg Intelligence analyst George Ferguson.
General Dynamics likely will beat the current profit forecast, but is holding off on changing it until after the second quarter, said CEO Phebe Novakovic on a conference call with analysts. The company in January forecast 2015 earnings of $8.05 to $8.10 a share and revenue of $31.3 billion to $31.5 billion.
“So we’re off to a very good start to the year,” she said. “Suffice it to say that we’re ahead of the operating plan upon which our guidance was based.”
General Dynamic shares rose 3.8 percent to $138.53 at the close in New York, their biggest gain in three months.
Northrop Grumman Corp., the fifth-largest Pentagon contractor, raised its 2015 outlook Wednesday as it predicted no interruption in U.S. funding for crucial military programs.
General Dynamics’ first-quarter profit from continuing operations rose 20 percent to $716 million, or $2.14 per share, from $596 million, or $1.71, a year earlier, General Dynamics said Wednesday in a statement. Analysts had predicted $1.95, according to the average of 17 estimates compiled by Bloomberg.
Revenue at the Marine Systems arm, which builds submarines and surface ships for the Navy, jumped 21 percent. Information Systems and Technology, which provides mobile telecommunications equipment and services to troops, saw sales gain 3.9 percent, the first increase since the end of 2013.
General Dynamics, the third-largest U.S. defense contractor, said quarterly sales rose 7.1 percent to $7.78 billion, beating analysts’ estimates of $7.43 billion.
Sales, outstripping estimates for shipbuilding and information technology, may “signal some stabilization in the end markets,” Robert Stallard, an analyst with RBC Capital Markets, said in a note to clients.
Sales at the Aerospace unit, which makes the Gulfstream business jet, fell 0.8 percent, the first drop since 2011. Gulfstream delivered 32 fully outfitted jets during the quarter, seven fewer than a year earlier.
General Dynamics had leaned on Gulfstream to grow earnings in the last two years as Pentagon budget cuts and the pullback in Afghanistan crimped defense sales.
Even with the decline in revenue, profit rose at the Aerospace unit on production efficiencies for its flagship G650 jet, for which deliveries began in December 2012. Howard Rubel, an analyst with Jefferies LLC, said the unit’s profit margins topped his estimate by 2 percentage points.
“Aerospace exhibited the largest margin beat,” Rubel said in a note after the earnings release.