10-QPeriod: Q2 FY2016

GENERAL DYNAMICS CORP Quarterly Report for Q2 Ended Apr 3, 2016

Filed April 27, 2016For Securities:GD

Summary

General Dynamics Corporation (GD) reported a slight decrease in revenue for the first quarter of 2016 compared to the prior year, primarily driven by lower volumes in Combat Systems, Information Systems and Technology, and Aerospace segments, partially offset by increased activity in Marine Systems. Despite the revenue dip, the company demonstrated strong operating performance, with operating earnings exceeding $1 billion for the sixth consecutive quarter and an improved operating margin of 13.6%. This margin expansion was attributed to positive operating leverage as costs decreased more than revenue, and improved performance and cost-reduction initiatives across several segments. The company continued its aggressive share repurchase program, buying back approximately $1 billion of its stock in the quarter, and also increased its quarterly dividend for the 19th consecutive year. GD maintains a strong backlog of $64.7 billion, though slightly down from the previous quarter, reflecting ongoing demand across its diverse business segments. The company's liquidity remains solid with a substantial cash balance and available credit facilities.

Financial Highlights

52 data points
Beta

Revenue

$7.48B

51.4% Gross Margin

Net Income

$641.00M

8.6% Net Margin

EPS (Diluted)

$2.04

Total Assets

$31.70B

Cash & Equivalents

$1.91B

Free Cash Flow

$415.00M

Financial Statements
Beta
Revenue$7.48B
Cost of Revenue$3.63B
Gross Profit$3.84B
Operating Expenses$6.55B
Operating Income$924.00M
Net Income$641.00M
EPS (Basic)$2.08
EPS (Diluted)$2.04
Shares Outstanding (Basic)307.93M
Shares Outstanding (Diluted)313.50M

Key Highlights

  • 1Revenue for the first quarter of 2016 was $7.724 billion, a slight decrease of 0.8% compared to $7.784 billion in the same period of 2015.
  • 2Operating earnings increased by 2.5% to $1.053 billion from $1.027 billion year-over-year, with an improved operating margin of 13.6% compared to 13.2%.
  • 3The Aerospace segment saw a revenue decrease of 5.7%, primarily due to fewer aircraft deliveries, while the Combat Systems segment revenue decreased by 6.6% due to international vehicle sales transitions.
  • 4Marine Systems revenue increased by 9.7%, driven by higher U.S. Navy ship construction activity, particularly on the Virginia-class submarine program.
  • 5General Dynamics repurchased approximately $1 billion of its common stock in the quarter and increased its quarterly dividend by 10%, marking the 19th consecutive annual increase.
  • 6The company's total backlog stood at $64.7 billion at the end of the quarter, a slight decrease from $66.1 billion at year-end 2015.
  • 7Net earnings were $717 million ($2.30 diluted EPS) for the quarter, a slight increase from $716 million ($2.14 diluted EPS) in the prior year, with earnings from continuing operations up to $2.37/$2.34 (basic/diluted).

Frequently Asked Questions

The slight decrease in revenue was primarily driven by lower volumes in several key segments: Combat Systems (due to transition from engineering to production on major contracts), Information Systems and Technology (lower IT services volume), and Aerospace (fewer planned deliveries of large-cabin aircraft). These decreases were partially offset by increased ship construction activity in the Marine Systems group.

The company achieved positive operating leverage as operating costs and expenses decreased at a faster rate than revenue. This was supported by improved performance and continued cost-reduction efforts in the Aerospace, Combat Systems, and Information Systems and Technology groups, leading to an expanded consolidated operating margin of 13.6%.

General Dynamics demonstrated a strong commitment to shareholder returns. In the first quarter of 2016, the company repurchased approximately $1 billion of its common stock and increased its quarterly dividend for the 19th consecutive year, raising it to $0.76 per share. This indicates confidence in its financial position and future cash generation.

The company maintained a substantial backlog of $64.7 billion at the end of the first quarter of 2016. While this represents a slight decrease from the prior quarter, significant awards were received across its defense groups, particularly in Information Systems and Technology which saw backlog growth. The backlog indicates a solid base for future revenue, especially within its core defense and aerospace segments.