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General Dynamics (GD) Earnings Preview

 January 22, 2013 02:19 PM

(By Balachander) General Dynamics Corp. (NYSE: GD) may report a fall in earnings and could guide lower for fiscal 2013 when the aerospace and defense company announces its quarterly results.

Wall Street analysts, on average, expects GD's earnings per share (EPS) to decline 6 percent to $1.90 and revenue to drop 3.70 percent to $8.80 billion for the three months ended December.

The Falls Church, Virginia-based company - whose business groups include aerospace, combat systems, marine systems and information systems and technology - is due to report its fourth-quarter results on Jan.23.

"We're modeling EPS behind consensus...but inclusive of a charge with our clean EPS closer at $1.99," wrote Deutsche Bank analyst Myles Walton. "As usual, we expect stock performance to hinge on the positives from Aero (G650, overall book:bill, margin/top-line growth trajectory) vs.concerns about revenue declines ahead for the IS&T/Combat."

[Related -Northrop Grumman Corporation: How Defense Budget Will Fare In 2014?]

"However, with this Q being the first for the new CEO, we'd also expect/welcome a very conservative guide into 2013," said Walton. "Operationally, we are below the Street, but with the help of lower interest (from a 4Q swap) and tax credits, we are at $7.33 vs. the Street's $7.30."

The analyst said any greater clarity on capital deployment would also be welcomed by investors and in particular the easing of concerns re: larger deals.

[Related -Lockheed Martin Corporation (NYSE:LMT): How A Small Budget Deal Impacts Defense Contractors?]


"General Dynamics (GD) could proactively guide low for next year (we'd view as bullish for shares) given budget uncertainty coupled with the introduction of a new CEO looking to reverse the trend of chasing guidance lower through the year as was the case in ‘11/'12," Walton said.

Last July, General Dynamics announced that Jay Johnson will retire as chairman and chief executive officer on December 31, 2012. The company named Phebe Novakovic to succeed Johnson effective January 1, 2013.

During the current month, six analysts have recommended GD as "Strong Buy" and seven analysts as a "Buy" rating  while four analysts gave a "Hold" rating on the stock. One analyst has recommended a "Sell" on the stock.

In the preceding third quarter, General Dynamics posted an 8 percent decline in quarterly earnings on higher operating costs and expenses. Earnings from continuing operations fell to $600 million or $1.70 per share from $665 million or $1.83 per share in the year-ago quarter. Revenue increased 1 percent to $7.93 billion.

The stock has been trading in the 52-week range of $61.09 to $74.54.



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