Please ensure Javascript is enabled for purposes of website accessibility

General Dynamics Earnings: Beating Estimates and the Potential for Growth

By Daniel Miller - Jan 22, 2014 at 12:00PM

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

Here's what investors need to know about General Dynamics' fourth quarter, and what to watch for in the year ahead.

What: On Wednesday, General Dynamics (GD 2.64%) reported its 2013 fourth-quarter results, beating estimates on earnings and revenue. Starting from the top, revenues for the fourth quarter totaled $8.1 billion. On the bottom, General Dynamics' earnings from continuing operations totaled $624 million, or $1.76 per share on a fully diluted basis -- ahead of Thomson Reuter's estimates of $1.75 per share.

For the full year, 2013 revenues totaled $31.2 billion and earnings from continuing operations totaled $2.5 billion, or $7.03 per share.

What you need to know: Net earnings for the fourth quarter came in at $495 million, or $1.40 per share fully diluted, due to a $129 million loss in discontinued operations related to the A-12 litigation settlement. When that's included into the full-year report, net earnings for 2013 dropped to $2.4 billion, or $6.67 per share fully diluted.

For full-year 2013, company margins checked in at 11.8%, increasing over 2012 margins of 2.6% (a low mark due to General Dynamics' information systems and technology segment). Two strong points of improvement are its aerospace and combat systems segments, which improved from 12.4% and 8.3% to 17.4% and 14.8%, respectively, from 2012 to 2013.

Another good sign for General Dynamics is that its total backlog of orders was at $46 billion at the end of 2013. Here's where it can get a little tricky because the government works with "indefinite delivery, indefinite quantity", or IDIQ, contracts, which essentially means that the government can only guarantee a minimum purchase order, yet often the value of the entire contract exceeds that guaranteed minimum amount. When you consider management's estimation of its potential value including IDIQ contracts, the sum of all backlog components soars to $73.6 billion at the end of last year. That's more than double the amount of revenue generated in 2013.

"General Dynamics performed well in 2013, reflecting our continued focus on operations, cost management, cash generation and our commitment to meeting our customers' requirements," said Phebe N. Novakovic, chairman and CEO, in a press release. "As promised, we managed our company prudently, adjusting our business to reflect the realities of the current defense spending environment and retiring risk throughout the organization."

What to watch: The biggest thing to watch will be if General Dynamics' growth in its aerospace segment, which includes a full lineup of business jets, can offset the potential losses in combat and marine systems as the Department of Defense cuts budget spending by nearly $1 trillion until 2021. Last year's results give investors reason to believe that the company can do so, considering that operating earnings in the aerospace segment surged 65%. Also, the company owns almost 30% of the ex-light-jet market, and growth in this part of the aerospace segment will likely come from its two recent product introductions: the G280 and G650.

Ultimately, General Dynamics' products play an important role for the U.S. military, a fact that should help lessen the blow from inevitable defense budget cuts, and its continuing growth in aerospace should be more than enough to keep the company on a more profitable path. 

Fool contributor Daniel Miller has no position in any stocks mentioned. The Motley Fool owns shares of General Dynamics. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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
$237.95 (2.64%) $6.13

*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 08/13/2022.

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.