January 24, 2018 / 12:51 PM / a year ago

General Dynamics cites slow government action for sales miss

(Reuters) - General Dynamics Corp (GD.N) said on Wednesday the U.S. administration’s lack of appointees at the Pentagon and failure of Congress to pass a federal budget contributed to the aerospace and defense company missing analysts’ sales expectations.

FILE PHOTO: A General Dynamics sign is shown at the International Association of Chiefs of Police conference in San Diego, California, U.S. October 17, 2016. REUTERS/Mike Blake/File Photo

Although revenue grew to $8.28 billion from $7.65 billion last year, it was below expectations for $8.38 billion.

General Dynamics Chief Executive Phebe Novakovic said on a call with analysts the company was not able to convert its backlog of orders into revenue quickly enough last year, blaming the new administration and the use by Congress of Continuing Resolutions in lieu of a federal budget.

She said the situation had changed later in 2017 and during 2018, growth would come back in the company’s information systems and technology business unit. The business was hit because its shorter sales-cycle service contracts likely slowed when the contracting process stalled.

Shares rose 2.3 percent in morning trading after Novakovic’s call with analysts, after falling in premarket trading.

Last August, Novakovic said during her company’s quarterly earnings conference call that “without these (Pentagon) appointments, it is difficult to process contracts” and to make progress on defense-related projects. By mid-2017, the Pentagon had yet to fill many positions.

The Pentagon and White House did not immediately provide comment.

General Dynamics beat expectations for fourth-quarter profit, helped by higher sales for its combat systems unit that makes tanks.

Sales in the combat systems unit rose 7.6 percent to $5.95 billion. In December, the General Dynamics unit was awarded a $2.6 billion contract for upgrading M1A1 configured Abrams vehicles and for upgrading M1A1 vehicles.

Sales in the aerospace division, its biggest, rose 4 percent to $8.13 billion as it delivered 30 Gulfstream aircraft in the quarter, up from 28 a year earlier.

General Dynamics is expected to benefit from a move by the U.S. military to increase spending after Defense Secretary Jim Mattis unveiled the “National Defense Strategy” on Friday that put countering China and Russia at the center of a new strategy.

Shares of U.S. defense companies have rallied since November on U.S. President Donald Trump’s election promise to spend more on defense.

Earnings from continuing operations rose to $636 million, or $2.10 per share, in the quarter ended Dec. 31, from $570 million, or $1.89 per share, a year earlier.

The company recorded a $119 million one-time, non-cash charge in the quarter related to U.S. tax changes.

Reporting by Mike Stone in Washington and Arunima Banerjee in Bengaluru; Editing by Arun Koyyur and Bernadette Baum

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