Charge, government spending cuts hammer General Dynamics results
WASHINGTON (Reuters) - General Dynamics Corp (GD.N) reported a $2.1 billion loss and lower-than-expected revenue for the 2012 fourth quarter as one-time charges and shrinking government orders hammered results at the weapons and aircraft maker.
The company's new chief executive, Phebe Novakovic, told analysts she had worked with General Dynamics' business units to develop more realistic operating plans and expected significant upside for future margins. But she said she was keeping her guidance for 2013 conservative for now.
"We will focus this year on operations, drive cost out of our businesses and improve performance. But I do not intend to guide you to higher operating margins than are currently embedded in our plan because we have yet to earn them," Novakovic said in her first quarterly call with analysts. She took over as CEO on January 1.
Distancing herself from her predecessor, Jay Johnson, Novakovic said she was not a "particular fan" of some of the acquisitions made in recent years. But she said she had no plans for divestitures or significant portfolio reshaping at the moment.
"It ought to be clear from the charges that in some respects we took our eye off the ball," Novakovic said, vowing to be "focused like a laser beam" on returning value to shareholders.
"We are not going to chase revenue. We are going to stick to our knitting and do what we know how to do," she said, calling 2013 a year for reset.
General Dynamics' earnings report weighed on the company's shares initially, driving them down as much as 5 percent on the New York Stock Exchange. But Novakovic's remarks appeared to reassure investors and the stock recouped all its losses. The shares were up 50 cents at $71.21 in afternoon trading.
"Phebe Novakovic used her first earnings call to set a different tone for the company and to clear the decks for improved performance in the future," said Virginia-based defense consultant Loren Thompson.
The company, which builds warships, ground combat vehicles and business jets, said its quarterly loss amounted to $6.07 per share, mainly due to a $2 billion noncash charge in its information systems business that reflected lower U.S. defense spending. It posted a profit of $603 million in the year-earlier period.
Excluding one-time items, earnings per share dropped to $1.39 from $1.68 a year earlier.
General Dynamics also took $867 million in other charges in the latest quarter, including $301 million in its aerospace and information systems businesses.
Revenue declined nearly 12 percent to $8.08 billion, missing analysts' average forecast of $8.8 billion. Three of the company's four divisions reported lower revenue, and the aerospace division saw a sales increase of only 0.2 percent.
For the full year 2012, the company posted a loss $332 million. Excluding one-time charges, it earned $6.48 per share.
Novakovic forecast earnings per share from continuing operations of $6.60 to $6.70 in 2013 and said revenue would likely be flat to up 1.5 percent.
"We have cleaned up our business, 2013 is our reset year," she said, calling that a prudent strategy given continued uncertainty about future U.S. budget levels.
She said the information systems business was likely past the worst pressures, shipbuilding programs were stable, and the combat systems division was poised to pick up some significant orders in the first quarter.
The company's aerospace business, which introduced two new Gulfstream business jet models in 2012, was gearing up for strong production in 2013 and should generate a 16 percent increase in revenue, Novakovic said.
Overall, she said General Dynamics, one of the biggest Pentagon contractors, was well positioned to weather expected declines in U.S. military spending, barring any draconian new cuts.
"The first quarter in charge for new CEO Phebe Novakovic has included some anticipated clearing of the decks, though the scale of the writedowns are pretty eye-watering," analyst Rob Stallard of RBC Capital Markets wrote in a note.
General Dynamics overpaid for some acquisitions, and the company's short-cycle and vehicle businesses were declining faster than expected, he said.
But the Gulfstream business is in good shape and shipbuilding looks stable, he said.
The company, based in Falls Church, Virginia, said its backlog at the end of the fourth quarter was $51.3 billion, down from $57.4 billion at the end of 2011.
(Reporting by Andrea Shalal-Esa; editing by Matthew Lewis and John Wallace)
- North Korea says Kim's powerful uncle dismissed for 'criminal acts'
- Thai PM calls snap election, protesters press on
- Protesters fell Lenin statue, tell Ukraine's president 'you're next'
- Billy Joel, Shirley MacLaine feted at Kennedy Center Honors
- Singapore hit by rare outbreak of rioting, 27 arrested |