General Dynamics Lifts Profit Outlook as IT Sales Increase

  • Military contractor increases target for profit margin
  • Sales forecast is trimmed on weak business-jet demand

General Dynamics Corp. raised its annual profit outlook, though cut its sales forecast on weak demand for business jets.

The company’s defense businesses have helped offset sagging sales at Gulfstream, which has struggled to maintain orders for older private aircraft as it gets set to introduce two new business jets over the next several years. The transition has been made more difficult by reduced demand for large-cabin jets as oil and mining companies cut costs in a commodities slump.

“Our principal concern for GD has been weakness in the large-cabin business-jet market, which is taking away from strong defense performance,” Douglas Harned, an analyst at Sanford C. Bernstein & Co., said in a note Wednesday.

Second-quarter profit rose to $2.44 a share, the maker of nuclear submarines, Abrams battle tanks and Gulfstream aircraft said in a statement. Analysts had predicted $2.32, according to the average of estimates compiled by Bloomberg. Revenue fell 2.8 percent to $7.67 billion, compared with an estimate of $7.87 billion.

Revised Guidance

The Falls Church, Virginia-based company increased its outlook for full-year earnings to $9.70 a share from $9.20, spurred by share repurchases, higher profit margins and a lower tax rate. The new figure exceeded analysts’ expectations of $9.52. Profit margins will be as much as 13.8 percent, General Dynamics said, up from a January forecast of 13.3 percent.

Sales, however, were forecast at $31.5 billion, down from a range of $31.6 billion to $31.8 billion. Analysts had predicted $31.7 billion.

Information Systems and Technology, the only unit to post a sales gain in the period, has won contracts at a higher rate than completed work for eight of the last 10 quarters. The U.S. government has been turning to the company for jobs such as maintaining networks and providing computer equipment that can withstand battlefield conditions.

“We believe all this leaves us poised for a good second half,” Chief Executive Officer Phebe Novakovic said of the business segment on a conference call with analysts.

IT Sales

Revenue for Information Systems and Technology increased 0.6 percent to $2.2 billion. It was the sole segment to post a gain in sales as well as operating earnings, which rose 3 percent.

Aerospace sales dropped 5.5 percent to $2.1 billion. The unit delivered 31 Gulfstream aircraft with unfinished interiors. That compared with deliveries of 36 jets a year earlier. General Dynamics in January said it would deliver 104 large-cabin aircraft and 34 midsize planes this year, down from last year.

The company repurchased 1.1 million shares in the quarter. That added to the 7.8 million shares bought back for more than $1 billion in the first quarter.

Shares rose less than 1 percent to $145.09 at 12:34 p.m. in New York. General Dynamics’ stock climbed 5.2 percent this year through Tuesday.

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