UPDATE 2-General Dynamics shares fall on 2008 forecast

Wed Jan 23, 2008 10:56am EST

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NEW YORK Jan 23 (Reuters) - General Dynamics Corp (GD.N) stock fell by about 4 percent on Wednesday after the company offered a forecast for 2008 earnings that was below analysts' expectations.

The company released the 2008 guidance at the same time it reported profits rose 42 percent in the fourth quarter of 2007, boosted by strong sales of its business jets and military vehicles.

The No. 4 U.S. defense contractor, which makes Abrams tanks and Gulfstream aircraft, is the first major military supplier to report quarterly earnings this year. The sector is expected to report higher profits generally, as record U.S. defense spending shows no signs of slowing.

But for 2008, General Dynamics said it expected earnings of $5.55 to $5.65 per share, slightly below analysts' average forecast of $5.73 per share.

General Dynamics shares opened sharply lower and traded as low as $75.46 on the New York Stock Exchange before recovering to $77.00.

Defense industry analyst Rob Stallard at Bank of America told investors to stay calm.

"Given the firm's history of starting the year with an element of conservatism, we remain confident in our estimate and do not believe that investors should take fright from this range," Stallard wrote in a research report.

General Dynamics, based in Falls Church, Virginia, reported fourth-quarter net profit of $579 million, or $1.42 per share, compared with $408 million, or $1 per share, in the year-ago quarter.

That beat Wall Street's average forecast by a penny, according to Reuters Estimates. Sales rose 15 percent to $7.5 billion, in line with analysts' average estimate.

The company was buoyed by continuing strong sales of its Gulfstream business jets, which are benefiting from the longest civil aerospace boom on record, and demand for its armored vehicles by U.S. forces in Iraq and Afghanistan.

Sales at its aerospace unit rose 17 percent to $1.2 billion, while its combat systems unit's sales rose 46 percent to $2.6 billion. (Reporting by Bill Rigby; Editing by Steve Orlofsky)

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