Earnings Scorecard: General Dynamics

| About: General Dynamics (GD)
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General Dynamics Corporation (NYSE:GD) reported mixed third quarter 2011 financial results with EPS exceeding the Zacks Consensus Estimate, but revenue missed the target.

Third Quarter Highlights

General Dynamics Corporation reported third-quarter 2011 operating earnings of $1.83 per share, which surpassed the Zacks Consensus Estimate of $1.77. The results of the company were 13 cents ahead of the year-ago figure of $1.70.

General Dynamics generated total revenue of $7.85 billion in the reported quarter versus $8.01 billion in the year-ago quarter, reflecting a decline of 2.0%. The year-over-year revenue decline was primarily due to lower contribution from its Marine Systems and Information Systems and Technology segments, marginally offset by growth in Aerospace, and Combat Systems. Reported quarter revenue also failed to meet the Zacks Consensus Estimate of $8.3 billion.

Agreements of Analysts

General Dynamics, following the earnings release, witnessed mixed estimate revision trends for the short and the long term. Over the past month, only 5 analysts (out of 19) revised estimates positively for the ongoing quarter, while 10 revised their estimates downward. The pessimism stems from increased budgetary pressure and the company’s defense exposure.

However, the market trend has rebounded for the company’s performance for the ongoing fiscal year. Over the past month, 14 out of 21 analysts revised their estimates upward for fiscal 2011, with only 2 downward revisions. An upward revision by an overwhelming degree clearly depicts analysts’ optimism about Gulfstream’s positioning in the late cycle business jet market.

The current Zacks Consensus EPS Estimate for the fourth quarter of 2011 is pegged at $2.00 with the projected annual growth rate of 4.63%. Similarly, for the first quarter of 2012, the current Zacks Consensus EPS Estimate of $1.77 indicates a gain of 8.06% year over year.

Magnitude of Estimate Revisions

For the fourth quarter of 2011, the Zacks Consensus Estimate has fallen by a penny to $2.00 over the past month. On the other hand, for fiscal 2011 over the past month, the Zacks Consensus Estimates rose by 4 cents to $7.24.

Earning Surprises

With respect to earnings surprises, the company has produced an average earnings surprise of 2.83% in the trailing four quarters. The ongoing quarter and first quarter of 2012 are expected to witness an upside potential (essentially a proxy for future earnings surprises) of 4.63% and 8.06%, respectively. Similarly, fiscal 2011 and 2012 hold an upside potential of 6.16% and 5.83%, respectively.

Background & Recommendation

Based in Falls Church, Virginia, General Dynamics along with its units operate in business aviation, land and expeditionary combat systems, armaments and munitions, shipbuilding and marine systems as well as information systems and technologies.

Total backlog of General Dynamics at the end of the third quarter was $58.52 billion, which slipped 5.3% from $61.8 billion reported in the year-ago comparable quarter. However, funded backlog increased by 0.7% year over year. The decline in total backlog was attributable to lower orders in the Combat and Marine Systems segments of the company compared with year-ago levels.

Despite the dip in total backlog, the total potential contract value of the company increased by 3.8% from the prior-year period. We believe this factor along with the company’s ability to get consistent contracts will boost the top line of the company going forward.

General Dynamics currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Given the continuing uncertainty in the defense budget, the lateral stance is consistent with its defense peers, Raytheon Company (NYSE:RTN) and Northrop Grumman Corporation (NYSE:NOC).

GENL DYNAMICS: Free Stock Analysis Report

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RAYTHEON CO: Free Stock Analysis Report

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