October 24, 2018 / 11:50 AM / 21 days ago

General Dynamics sales miss estimates, shares fall

(Reuters) - U.S. aerospace and defense company General Dynamics Corp (GD.N) quarterly profit beat Wall Street estimates on Wednesday, but sales came in below expectations, sending its shares down nearly 5 percent in early trading.

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

Total revenue rose 20 percent to $9.09 billion, but fell short of estimates of $9.38 billion.

Analysts were also disappointed to see how much of the earnings were attributable to lower tax payments, as compared to income from operations. Lower business jet deliveries also raised investor concerns.

Revenue from the company’s aerospace division, which makes business jets, rose 1.8 percent. Total new Gulfstream deliveries, a key metric for investors, fell to 27 from 30 compared with the third quarter last year.

The company closed its $9.7 billion purchase of IT services-heavy CSRA Inc in the middle of the year. This was the first full quarter for General Dynamics to report the results of that business as the U.S. government is in the midst of a broad modernization effort.

Revenue rose at all of the company’s businesses, with its information technology unit recording the biggest jump.

Revenue from the IT business more than doubled to $2.31 billion, as integration of CSRA continued, coupled with several contracts wins during the quarter. These included a $330 million contract from the U.S. Census Bureau and a $210 million contract from the Centers Medicare & Medicaid Services.

Profit margins at the IT services business slipped from 9.5 percent to 6.8 percent compared to the same period a year ago. Total operating margins for General Dynamics were 12.5 percent, down from 14 percent in the same period last year.

Net earnings rose 11 percent to $851 million in the third quarter ended Sept. 30.

On an adjusted basis, the company earned $2.89 per share, beating Refinitiv estimates of $2.76.

The company’s total backlog at the end of third-quarter 2018 was $69.5 billion, up 4.9 percent from second-quarter 2018. The biggest backlog contributor came from a $3.9 billion contract from the U.S. Navy for the construction of four Arleigh Burke-class (DDG-51) guided-missile destroyers.

Reporting by Mike Stone in Washington and Sanjana Shivdas in Bengaluru; Editing by Shounak Dasgupta and Susan Thomas

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