Defence contractor General Dynamics Corp reported a higher-than-expected quarterly profit yesterday, and said it saw signs that the business jet market was stabilizing.
The maker of tanks, ships and submarines raised its full-year forecast, and its shares moved up 2 % in afternoon trading.
“We’re seeing signs of the economy in general bottoming,” said Matt Collins, senior capital-goods analyst at Edward Jones. “You usually get a little bit of a lag in the business jet market, so it is nice to see it bottoming out as well.”
Second-quarter net earnings fell 3.6 % to $618 million (R4881 million), or $1.60 a share, from $641 million (R5063 million), or $1.60 a share, a year earlier.
Excluding discontinued operations, profit was $1.61 a share, topping the analysts’ average forecast of $1.57, according to Reuters Estimates.
Revenue rose 11 % to $8.10 billion (about R63 billion), while analysts were expecting $8.14 billion (about R64 billion).
Analysts cited better-than-expected margin performance, particularly in business jets.
Aerospace operating margins came to 15.2 % in the second quarter, down from 18.1 % a year earlier but up from 13.7 % in the first quarter.
During a conference call, General Dynamics said the business jet market, which has seen falling shipments as corporations cut back discretionary spending, remained difficult but was gradually improving. Aerospace accounted for 17.5 % of the company’s second-quarter revenue.
“There continue to be several encouraging signs that the business jet market is stabilizing,” General Dynamics Chief Executive Jay Johnson said.
They include increased flying hours at the Gulfstream jet division, a drop in customer defaults and increased new-order interest.
At Gulfstream, “we saw margins improve on lower deliveries,” showing progress at keeping costs under control, Collins said.
General Dynamics said its combat systems segment, which supplies tanks and machine guns, had a quarterly revenue increase of 19 %, while operating profit rose 6 %. Its marine systems and information systems divisions posted revenue increases of 17 percent and 4 %, respectively.
The company, which expects to complete the acquisition of imaging systems maker Axsys Technologies Inc in the third quarter, said it expected continued support for its tanks and armoured vehicles from the US Defence Department, which is moving to scale back some traditional weapons programs and devote more funds to irregular warfare.
Concerns that US defence spending will slow is weighing on military contractors.
“The defence business is going to be modest-to-no-growth, and aerospace isn’t getting worse, but that doesn’t mean that we’re back to growth,” said James McIlree, an analyst with financial advisory firm Collins Stewart.
General Dynamics said it expects full-year profit from continuing operations of $6.05 to $6.15 a share, compared with an April forecast of $6.00 to $6.10 a share.
Pic: General Dynamic navy 7300 ship