General Dynamics [GD] on Wednesday posted strong fourth quarter financial results powered by its shipbuilding and business jet operations with solid contributions from its other businesses as well.
Net income soared 42 percent to $701 million, $2.09 earnings per share (EPS), from $495 million ($1.41 EPS) a year ago. Excluding impacts from discontinued operations, which were impacted by an expected $36 million charge related to the sale of its former Axle Tech business, GD’s earnings were up 18 percent to $737 million ($2.19 EPS), topping consensus estimates by six cents EPS.
Completion of the Axle Tech sales had been expected in the fourth quarter but it slipped to the first quarter of 2015.
At the operating level each of the company’s four segments made healthy contributions to the bottom line, led by Marine Systems with a 21 percent gain to $193 million followed by Aerospace, up 18 percent to $412 million. Operating income at Combat Systems and Information Systems & Technology (IS&T) were both 8 percent to $271 million and $212 million respectively.
GD’s operating margins were 12.8 percent in the quarter, up 1.3 percent from a year ago.
Sales in the quarter rose 4 percent to $8.4 billion from $8 billion a year ago, led by a 25 percent surge at Marine Systems to a record $2 billion on growth in the Navy’s Virginia class Block IV submarine program and an uptick in ship repair work, Phebe Novakovic, GD’s chairman and CEO, said on an earnings call.
Aerospace revenue was up 5 percent to $2.2 billion, driven by one more large cabin green aircraft delivery versus a year ago and higher demand for services, while the Combat Systems segment gained a scant 1 percent to $1.6 billion. IS&T was the lone group suffering lower revenue, down 8 percent to $2.5 billion.
Novakovic said that 2014 was supposed to be the bottom for sales at IS&T—which was down 11 percent to $9.2 billion—but will now happen in 2015. She said operating earnings will be higher this year for IS&T.
Overall in 2014, GD’s sales were flat at $30.9 billion while net income increased nearly 8 percent to $2.5 billion ($7.42 EPS) from $2.4 billion ($6.67 EPS) in 2013. Excluding impacts from discontinued operations, earnings were up 8 percent to $2.7 billion ($7.83 EPS).
Novakovic said GD beat its own forecast for earnings from continuing operations for the year, which was originally pegged at between $6.80 and $6.85, primarily due to better than planned operating performance, share repurchases that lowered the overall stock count, and lower than expected taxes.
For 2015, Novakovic said the company expects to boost sales between 1 and 2 percent to between $31.3 billion and $31.5 billion, driven mainly by the Aerospace segment and to a lesser extent Marine Systems. The Combat Systems segment is expected to remain flat although a robust backlog that includes a strong international flavor will lead it to growth in 2016 and 2017, she said. IS&T will be off again this year although only in the mid-single digits, she added.
Earnings this year are projected in the $8.05 to $8.10 range with upside potential coming from improvements over the operating plan and share repurchase activity, Novakovic said. Operating margins are expected to be 12.8 percent, level with 2014.
Funded backlog at the end of the year stood at $52.9 billion, up 38 percent from a year ago, while total backlog increased 58 percent to $72.4 billion. The company’s strong backlog means it is “poised for growth for several years to come,” Novakovic said.
Free cash flow was $3.2 billion for the year although in the quarter cash was negative $254 million. Cash flow is expected to be weaker in 2015 but the company will use cash on its balance sheet to aid with share repurchases and dividend payments to “normalize the year,” Novakovic said.