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General Dynamics Corporation (NYSE:GD) announced its first-quarter 2011 earnings from continuing operations of $1.64 per share, surpassing the Zacks Consensus Estimate of $1.61. Results comfortably beat earnings of $1.54 in the year-ago quarter, up 6.5%. Earnings were $618 million, up 3.2% from $599 million in the first quarter of 2010.

Operational Performance

General Dynamics generated total revenues of $7.8 billion in the quarter, up 0.6% year over year. Strong performance across Marine Systems and Information Systems and technology led to the increase. Results were, however, marginally below the Zacks Consensus Estimate of $7.9 billion.

Operating costs and expenses increased 0.5% year over year to gross $6.9 billion in the first quarter of 2011.

Operating earnings were $929 million in the quarter, up 1.2% year over year. Operating margin increased one basis point to 11.9% from the year ago period driven by margin improvement in the Aerospace, Combat Systems and Marine Systems segment.

Segment Performance

Marine Systems posted a revenue increase of 2.3% year over year in the quarter, with revenue of $1.68 billion. Operating earnings in the quarter increased 3.7% year over year to $167 billion.

Revenues at Information Systems and Technology recorded a growth of 2.3%. Revenue at the segment totaled $2.81 billion in the quarter. However, this segment reported a decline of 4.8% year over year in operating earnings.

On the other side, Combat Systems revenue decreased 2.3% year over year to gross $1.96 billion in the quarter. Operating earnings were $277 million, up 3% year over year.

Aerospace segment reported revenues of $1.35 billion, down 0.3% year over year. The segment reported the highest growth in operating earnings. It increased 5.5% year over year to $230 million in the first quarter.

Backlog

General Dynamics ended the first quarter 2011 with a total backlog of $57.6 billion, down from $63.9 billion in the year ago quarter. Marine Systems had the highest backlog of $18.7 billion followed by $17.9 billion in the Aerospace segment.

The Aerospace backlog increased for a second consecutive quarter, driven by continued demand for Gulfstream aircraft. Combat Systems and Information Systems and Technology also received several notable orders in the first quarter.

Financial Performance

General Dynamics ended the first quarter with cash and cash equivalents of $2.5 billion, down from $2.6 billion at year-end 2010. Long-term debt declined to $2.41 billion as of April 3, 2011, from $2.43 billion at 2010 end.

In first quarter, General Dynamics generated cash from operating activities of $327 million compared with $210 million in first quarter 2010. Capital expenditure incurred by the company totaled $61 million in the first quarter, compared with $60 million incurred in first quarter 2010. Free cash flow for the quarter totaled $266 million.

Our View

Looking forward, key drivers for General Dynamics include the reviving fortunes for the business jet market (Gulfstream), its stable business of U.S. military vehicles (Stryker combat vehicles and Abrams tanks), an ongoing share repurchase program and strong cash flow generation.

Headquartered in Falls Church, Virginia, General Dynamics engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation. Some of its competitors are The Boeing Company (NYSE:BA) and Lockheed Martin Corporation (NYSE:LMT).

Source: General Dynamics Flies High in Q1