By Andrea Shalal-Esa
WASHINGTON Jan 22 General Dynamics Corp
shares rose more than 5 percent on Wednesday after the maker of
Gulfstream business jets and Navy ships posted
higher-than-expected quarterly results, and pledged to buy back
11.4 million shares in the first quarter.
Chief Executive Phebe Novakovic, marking her first year on
the job, forecast lower earnings and revenues in 2014 but said
there was more upside than downside on revenues and that the
company would likely adjust its earnings guidance upward in the
second quarter after the share repurchase.
The news sent the company's shares as high as $100.55 on the
New York Stock Exchange, although they slipped to trade at
$98.90 by early afternoon, up 3.8 percent from Tuesday.
"Phebe Novakovic likes to underpromise and overdeliver,"
said Christian Mayes, an analyst with Edward Jones Equity
Research, who has a buy rating on the stock. "With the company
targeting to return nearly all free cash flow to shareholders in
2014 through dividends and buybacks, investors are happy."
The Falls Church, Virginia-based company reported earnings
of $624 million, or $1.76 per share, from continuing operations
in the fourth quarter of 2013, on revenue of $8.1 billion.
Analysts polled by Thomson Reuters I/B/E/S had expected
earnings from continuing operations of $615 million, or $1.75
per share, on revenue of $7.99 billion.
For the full year, General Dynamics posted earnings from
continuing operations of $2.5 billion, or $7.03 per share, while
sales edged lower from a year earlier to $31.2 billion.
Fourth quarter net profit was $495 million, or $1.40 per
share, including a $129 million loss in discontinued operations
related to the pending settlement of a long-standing dispute
over the A-12 stealth plane, which was canceled in 1991.
The company had reported a $2.1 billion loss and
lower-than-expected revenue in the fourth quarter of 2012. At
the time, Novakovic vowed to improve operating margins and
develop more realistic operating plans.
The company's fourth quarter report showed strong
improvements in operating margins in all four of the company's
sectors: aerospace, combat systems, marine systems and
information systems and technology.
Its quarterly operating margin was 11.4 percent versus a
negative margin of 23.5 percent a year earlier. Operating
margins rose to 11.8 percent in 2013 from 2.6 percent in 2012.
Novakovic told analysts on an earnings call that the company
remained focused on improving operating margins in 2014 and
expected international sales to account for 30 percent of
revenue, up from 25 percent in 2013.
She said the combat systems business expected to land a $1.2
billion foreign order in the first quarter that had initially
been expected last quarter. If the deal slipped again, revenues
in that division could erode further, she said, adding that she
was confident that it would be booked soon.
She said Gulfstream business jets remained the primary
growth engine for earnings and revenue across the company, but
other business areas were producing steady revenues and profit.
"Only two of our 11 businesses are in a significant down
cycle," Novakovic said, citing the company's land systems and
information systems business with the U.S. Army, which has been
hard hit by U.S. military spending reductions.
She said the company was reducing its exposure to Army
orders and the other units were "earnings and cash powerhouses."
"We're getting close to the bottom," Novakovic said, adding
that a two-year budget deal reached by Congress had given the
company a greater sense of stability in funding.
General Dynamics said its backlog totaled $46 billion at the
end of the year, boosted by significant orders for Gulfstream
jets, additional double V-hulled Stryker combat vehicles and
early work on new Navy submarines.
The backlog totaled $51.3 billion at the end of 2012.