General Dynamics Profit Edges Up; Shares Drop
General Dynamics reported that fourth-quarter earnings rose slightly less than expected, due to lower profit margins in its army vehicle and shipbuilding units, sending its shares down sharply.
The No. 4 U.S. defense contractor, like rivals Lockheed Martin, Raytheon and Boeing, is enjoying a boom in military and commercial aircraft spending, but last October chief executive Nicholas Chabraja warned analysts against expecting a "blow-away" quarter due to shrinking margins in some areas.
General Dynamics shares fell after hitting an all-time high on Tuesday.
"We suspect that the market was expecting more given the recent share-price strength, which has coincided with a torrent of positive newsflow on the defense budget and the 'surge' in Iraq," said Bank of America analyst Robert Stallard in a research note.
The company, which makes Abrams tanks and Stryker combat vehicles for the U.S. Army as well as Gulfstream jets, reported net profit of $408 million, or $1 a share, compared with $406 million, or $1 a share, a year earlier.
Excluding charges related to the expected sale of its coal-mining business, the company reported profit from continuing operations of $1.13 a share. On that basis, analysts' average forecast was $1.14, according to Reuters Estimates.
Sales rose 13% to $6.5 billion. Analysts had expected $6.62 billion.
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General Dynamics shares are still up about 40% from a year ago, hitting an all-time high of $81.28 on Tuesday, as investors anticipate greater profits from building and repairing army vehicles being used in Iraq and Afghanistan.
The Falls Church, Va.-based company is also expected to benefit further from last year's purchase of Anteon International, which makes secure network systems for U.S. intelligence agencies, and the continuing boom in business jet sales lifting its Gulfstream unit.
General Dynamics' overall profit margin rose to 10.8% in the quarter from 10.6% in the 2005 fourth quarter. But margins declined slightly in its combat systems and marine systems units, which respectively include its armored vehicle and shipbuilding operations.
The company's Gulfstream unit delivered 30 jets in the quarter, compared with 24 a year ago. It took orders for 159 jets in 2006, up from 124 the year before.
The total year-end value of work on its books for which government funds have already been set aside -- known as funded backlog -- rose 14% to $32.7 billion from the end of 2005.
