General Dynamics Joins Northrop With Boost in 2015 ForecastRichard Clough, Lauren Thomas and Thomas Black
General Dynamics Corp., the defense contractor that also makes luxury business jets, raised its 2015 profit forecast after a second-quarter earnings boost from its aerospace and information-technology businesses.
Northrop Grumman Corp., the maker of Global Hawk drones, increased its full-year outlook, too. Operating margins rose in the quarter, Northrop said Wednesday in posting a profit that also outpaced estimates. The shares of both companies rose in early U.S. trading.
General Dynamics has leaned on the Gulfstream business jet unit to cushion Defense Department cuts over the last five years, especially for its U.S. Army contracts on systems including tanks. The aerospace and marine systems divisions helped lead a 5.5 percent jump in sales to $7.88 billion.
The revised forecast marked “an uncharacteristically aggressive hike” from the third-largest U.S. defense contractor, Cai von Rumohr, a Cowen & Co. analyst, said in a note to clients. General Dynamics delivered a “strong Q2 beat.”
Investors found a lot to like in the results, even as a drop in Northrop’s sales left the company with only one gain in revenue in the past 21 quarters. Falls Church, Virginia-based Northrop surged 6.2 percent to $173.44 at the close in New York, the most since April 2009. General Dynamics gained 3.9 percent to $149.96.
General Dynamics said operating earnings jumped in the information systems and technology business as well as at Gulfstream. The aerospace unit delivered 41 fully outfitted aircraft during the quarter, up from 38 a year earlier.
Annual profit from continuing operations now will range from $8.70 to $8.80 a share, according to General Dynamics, which is also based in Falls Church. The projection topped a previous forecast of $8.05 to $8.10 and analysts’ average estimate of $8.61.
Earnings from continuing operations at the third-largest U.S. defense contractor rose 16 percent to $752 million, or $2.27 a share, The average of 18 analysts’ estimates was $2.06.
Northrop’s quarterly profit excluding a tax benefit was $2.54 a share, topping the $2.33 average of 18 analysts’ estimates compiled by Bloomberg. Efficiency continues to improve, Northrop said, with its segment operating margin rate rising 30 basis points to 12.6 percent.
Earnings for 2015 will be in a range of $9.55 to $9.70, Northrop said, citing gains in cash flow after pension contributions. The previous forecast was for $9.40 to $9.60. Northrop maintained its outlook for revenue of $23.4 billion to $23.8 billion.
Second-quarter sales fell 2.4 percent to $5.9 billion, in line with estimates.
The fifth-largest U.S. defense contractor is vying for a $55 billion Air Force contract to build a new bomber that could be awarded as soon as next month. Winning that deal would boost the aerospace business that has been a focus for Northrop since it spun off its shipbuilding operations in 2011.
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