* Non-cash charge of $2 billion in IT business
* Adjusted profit $1.39/shr vs $1.68 a year earlier
* Shares dip 5 pct, then recover to nearly unchanged
By Andrea Shalal-Esa
WASHINGTON, Jan 23 General Dynamics Corp
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
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 Jan. 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
"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
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
"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.