General Dynamics Boosts Forecast on Luxury Jets, Submarines

  • Gulfstream's outfitted aircraft deliveries rise to 43 from 31
  • Marine Systems posted 15 percent sales gain in third quarter

General Dynamics Corp. raised its full-year profit forecast after third-quarter results beat analysts’ estimates on higher deliveries of Gulfstream business jets and surging sales at the submarine-building unit.

Earnings will be $8.90 to $9 a share, Chief Executive Officer Phebe Novakovic said on a conference call Wednesday, more than the previous range of $8.70 to $8.80. Gulfstream handed over 43 outfitted business jets, a dozen more than a year earlier. Revenue climbed 15 percent at the Marine Systems business, whose products include surface warships as well as U.S. Navy subs.

“It’s nice to see a beat on earnings and sales, something that we haven’t necessarily been seeing” with other companies, Jeff Windau, an analyst with Edward Jones & Co., said in a telephone interview. “They are improving profitability in a couple of their businesses.”

Corporate aircraft are a crucial offering for General Dynamics, the third-largest U.S. defense contractor. The Gulfstream unit is increasing production of the G650, the largest and farthest-flying purpose-built business jet, even as rivals struggle with a slump in that industry segment. Marine Systems finished the quarter with a $26.5 billion backlog, the most among a $68.7 billion total for all of General Dynamics.

Gulfstream had “nice, broad order activity” even in Brazil, China and Eastern Europe where economies have been “challenged,” Novakovic said on the call. Half of Gulfstream orders came from outside the U.S., the company said.

‘Solid’ Earnings

Earnings were “solid” and will be helped through 2017 by “a relatively stable defense portfolio coupled with Gulfstream generating over 40 percent of total profits,” Peter Arment, an analyst with Sterne Agee CRT, said in a note.

General Dynamics rose 2.2 percent to $151.65 at 9:39 a.m. in New York. The stock’s 7.8 percent gain this year through Tuesday was almost twice as much as the advance for the Standard & Poor’s 500 Aerospace & Defense Index.

Third-quarter earnings from continuing operations of $2.28 a share topped the $2.13 average of 18 estimates compiled by Bloomberg. Revenue of $7.99 billion exceeded the average $7.84 billion projection.

General Dynamics also has been buoyed by overseas defense orders, including a contract announced in September to refurbish and upgrade 150 Abrams tanks for sale to the Kingdom of Morocco. 

Aerospace profit margins rose to 18.2 percent even as the company spends to build two new jet models, the G500 and G600, that are scheduled to enter into service 2018 and 2019.

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