Please ensure Javascript is enabled for purposes of website accessibility

Investors Shrug Off General Dynamics' Earnings Beat

By Rich Smith - Apr 28, 2021 at 2:09PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There were lots of reasons not to be excited.

Defense contracting giant General Dynamics (GD 2.35%), maker of M1 Abrams main battle tanks, nuclear-powered submarines, and Gulfstream business jets, too, beat analyst earnings estimates with a stick in its first-quarter 2021 financial report this morning -- and investors could hardly care less.

The company earned $2.48 per share in the first quarter, well ahead of Street estimates for $2.30, and it recorded $9.4 billion in sales, a cool half-billion dollars more than the $8.9 billion it was predicted to generate. But despite all the good news, General Dynamics stock was up a bare 1% at noon EDT on Wednesday.  

Blue vitals monitor spells out life as it flatlines

Image source: Getty Images.

Why the muted reaction? While the company undeniably did better than expected, when you look at its numbers objectively, they weren't all that exciting. The $9.4 billion in sales, for example, grew only 7% year over year. Its $2.48 per share in profit was up just 2% from last year.

And while all four segments of its business experienced rising sales, operating profit margins only held steady in its largest business unit (Technologies); declined slightly in its second biggest unit (Marine Systems); suffered a steep 250-basis-point decline at the all-important Gulfstream Aerospace division; and grew only in its smallest division by revenue, Combat Systems -- and even there, only by 30 basis points.

Nor is General Dynamics promising much more excitement in the near future. Although management says orders remained strong in the quarter, order backlog actually grew only 4.5% to $89.6 billion, and the company's total book-to-bill ratio (i.e., orders divided by revenue) was flat at 1-to-1, implying little prospect of faster sales growth anytime soon.

On balance, it was a ho-hum report, and investors are treating it as such.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Dynamics Corporation Stock Quote
General Dynamics Corporation
$219.56 (2.35%) $5.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.