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General Dynamics fourth quarter profit rises nearly six per cent

Jan. 28, 2009, Washington, DC - U.S. defence contractor General Dynamics Corp. said Wednesday that its fourth-quarter earnings rose on higher profits in its business jet and shipbuilding units.


January 28, 2009
By Stephen Manning

Jan. 28, 2009, Washington, DC – U.S. defence contractor General Dynamics Corp. said Wednesday that its fourth-quarter earnings rose on higher profits in its business jet and shipbuilding units, gains that outweighed a drop in the company's division that makes armoured vehicles and tanks.

The Falls Church, Va.-based company posted net earnings of US$612 million, or $1.57 per share. That was a 5.7 per cent increase from the $579 million, or $1.42 per share, it reported a year ago. Revenue was up 4.5 per cent to $7.85 billion.

Without one-time charges connected to the sale of assets in Spain, the company earned $630 million, or $1.62 per share.

Analysts polled by Thomson Reuters were expecting $1.59 per share in quarterly earnings on revenue of $7.87 billion.

General Dynamics shares rose $3.99, or 7.2 per cent, to $59.71 in morning trading.

The defence industry has been a relative safe harbour during the turmoil that has engulfed the broader economy. Record levels of Pentagon spending on new equipment and the wars in Iraq and Afghanistan has largely insulated the nation's weapons suppliers from the large layoffs and credit problems wracking other industries.

But uncertainty looms over whether President Barack Obama will curtail defence spending as the government spends heavily on infrastructure and other programs to revive the broader economy. Sharp drops in the value of pension plans has forced some defence companies to trim their earnings outlooks and devote cash to propping up their funds. And airplane makers like General Dynamics, which owns the Gulfstream private jet business, face the prospect of
lower demand as the worldwide recession saps air travel.

However, General Dynamics said Wednesday that it expects results in line with Wall Street estimates for 2009. Much of its fourth-quarter earnings growth was also driven by higher profits at Gulfstream, which until the financial crisis this fall had seen robust sales. The company also has a $74.1-billion backlog of orders going into this year.

General Dynamics said it expects to make between $6.70 to $6.75 per share this year, while analysts expect $6.71 per share in 2009.

Profits at Gulfstream rose 24.5 per cent to $264 million, a gain that came despite eroding demand for the pricey planes after several years of steady growth. Private jets have also become equated with corporate excess as automakers and companies like Citigroup Inc. dumped planes due to bad publicity as they seek federal aid.

Analyst Cai von Rumohr of SG Cowen wrote in an investor note that the company's 2009 outlook suggests General Dynamics “still expects solid results at Gulfstream.''

The company's shipbuilding division posted a 31 per cent profit gain to $132 million. The company also won a contract to build eight new submarines at its Electric Boat business during the quarter, part of a $14-billion Navy contract.

Combat systems earnings fell 4.6 per cent to $308 million. General Dynamics was one of several companies that built thousands of heavily armoured mine-resistant vehicles for the Army to use in Iraq. That contract, which pumped up General Dynamics' earnings in
recent quarters, is winding down.

For all of 2008, General Dynamics earned $2.5 billion, or $6.17 per share. Wall Street had expected a profit of $6.18 per share. Revenue of $29.3 billion was in line with analysts' estimates.

THE ASSOCIATED PRESS