10-QPeriod: Q2 FY2017

GENERAL DYNAMICS CORP Quarterly Report for Q2 Ended Apr 2, 2017

Filed April 26, 2017For Securities:GD

Summary

General Dynamics Corporation (GD) reported solid financial results for the first quarter of 2017, demonstrating robust operational performance with operating earnings exceeding $1 billion and a record-high operating margin of 13.9%. Revenue remained largely stable, with a slight decrease of 0.5% year-over-year to $7.44 billion. This was primarily driven by reduced work in the Marine Systems and Information Systems and Technology segments, partially offset by growth in Aerospace and Combat Systems. The company's strategic focus on its core aerospace and defense businesses appears to be paying off, as evidenced by the significant 12.0% increase in operating earnings to $1.035 billion. This growth outpaced the slight revenue decline, indicating effective cost management and improved operational efficiency across multiple segments, particularly Aerospace, Combat Systems, and Information Systems and Technology. The company also continues to actively return capital to shareholders through share repurchases and dividend increases.

Financial Highlights

50 data points
Beta

Revenue

$7.44B

53.8% Gross Margin

Net Income

$763.00M

10.3% Net Margin

EPS (Diluted)

$2.48

Total Assets

$33.21B

Cash & Equivalents

$2.17B

Free Cash Flow

$471.00M

Financial Statements
Beta
Revenue$7.44B
Cost of Revenue$3.44B
Gross Profit$4.00B
Operating Expenses$6.39B
Operating Income$1.05B
Net Income$763.00M
EPS (Basic)$2.53
EPS (Diluted)$2.48
Shares Outstanding (Basic)301.77M
Shares Outstanding (Diluted)307.28M

Key Highlights

  • 1Operating earnings increased significantly by 12.0% to $1.035 billion, driven by improved operational performance.
  • 2Record-high operating margin of 13.9% reflects enhanced efficiency across key business segments.
  • 3Aerospace segment showed strong revenue growth of 16.5% to $2.074 billion, boosted by increased Gulfstream aircraft deliveries.
  • 4Total backlog remained substantial at $60.4 billion, with a funded portion growing to $53.3 billion, indicating strong future revenue visibility.
  • 5Free cash flow from operations increased by 13.5% to $471 million, demonstrating healthy cash generation.
  • 6The company repurchased approximately 1.9 million shares for $355 million in the quarter and increased its quarterly dividend for the 20th consecutive year.
  • 7Adopted ASC Topic 606, Revenue from Contracts with Customers, and ASU 2015-17, Income Taxes, with minimal impact on current results but a restatement of prior periods.

Frequently Asked Questions

Revenue remained relatively stable, with a slight decrease of 0.5% to $7.44 billion. The primary drivers for this were decreased volume in the Marine Systems and Information Systems and Technology segments, which was offset by increased revenue in the Aerospace and Combat Systems segments. Aerospace revenue saw a significant increase due to higher Gulfstream aircraft deliveries.

Operating costs and expenses decreased by 2.2% year-over-year to $6.406 billion. This decrease was more pronounced than the slight dip in revenue, leading to improved operating profitability. The company highlighted improved operating performance in its Aerospace, Combat Systems, and Information Systems and Technology segments as key contributors to margin expansion.

General Dynamics provided positive outlooks for most segments. The Aerospace group is expected to see revenue increase about 6% with operating margins in the low 19% range. Combat Systems revenue is projected to grow 6-7% with mid-15% operating margins. Information Systems and Technology anticipates a slight revenue increase with operating margins around 11%. Marine Systems expects a slight revenue decrease but improved operating margins in the mid-8% range.

The company is actively returning capital through share repurchases and dividends. In the first quarter of 2017, General Dynamics repurchased approximately 1.9 million shares for $355 million. Additionally, the board declared an increased quarterly dividend of $0.84 per share, marking the 20th consecutive annual increase, demonstrating a commitment to consistent dividend growth.