10-QPeriod: Q1 FY2019

GENERAL DYNAMICS CORP Quarterly Report for Q1 Ended Mar 31, 2019

Filed April 24, 2019For Securities:GD

Summary

General Dynamics Corporation (GD) reported solid revenue growth of 22.9% year-over-year to $9.26 billion for the first quarter of 2019, driven by its Information Technology segment's post-CSRA acquisition performance and increased deliveries across its Aerospace and Combat Systems segments. However, operating earnings saw a modest increase of 0.6% to $1.01 billion, with the operating margin contracting to 10.9% from 13.4% in the prior year. This margin compression was primarily attributed to a less favorable aircraft delivery mix in Aerospace and increased intangible asset amortization from the CSRA acquisition. The company's backlog remained strong at $69.2 billion, indicating robust future revenue potential. Despite a decline in free cash flow from operations to negative $976 million from negative $600 million in the prior year, largely due to working capital timing and increased capital expenditures, GD maintained its commitment to shareholder returns through dividends and share repurchases. The company reaffirmed its financial position and liquidity, with ample resources to fund its strategic initiatives.

Financial Highlights

49 data points
Beta

Revenue

$9.26B

17.6% Gross Margin

Net Income

$745.00M

8.0% Net Margin

Total Assets

$47.47B

Cash & Equivalents

$673.00M

Free Cash Flow

-$976.00M

Financial Statements
Beta
Revenue$9.26B
Cost of Revenue$7.63B
Gross Profit$1.63B
Operating Expenses$8.26B
Operating Income$1.01B
Net Income$745.00M
Shares Outstanding (Basic)287.92M
Shares Outstanding (Diluted)290.89M

Key Highlights

  • 1Revenue increased by 22.9% to $9.26 billion, primarily driven by the Information Technology segment (post-CSRA acquisition) and growth in Aerospace and Combat Systems.
  • 2Operating earnings increased slightly by 0.6% to $1.01 billion, but operating margin declined to 10.9% from 13.4%, impacted by product mix and amortization expenses.
  • 3The Information Technology segment revenue surged by 90.6% due to the CSRA acquisition, though its operating margin compressed.
  • 4Aerospace segment revenue grew by 22.7%, but operating earnings decreased by 5.2% due to a less favorable aircraft delivery mix (G500 ramp-up).
  • 5Total backlog remained strong at $69.2 billion, up 2% from the previous quarter, indicating sustained future revenue potential.
  • 6Free cash flow from operations was negative $976 million, a decrease from negative $600 million in the prior year, due to working capital changes and increased capital expenditures.
  • 7The company declared an increased quarterly dividend of $1.02 per share, demonstrating continued commitment to shareholder returns.

Frequently Asked Questions

The primary driver of the significant revenue increase was the acquisition of CSRA Inc., which substantially boosted the Information Technology segment's revenue by 90.6%. Additionally, growth in the Aerospace segment due to increased aircraft deliveries and the Combat Systems segment from higher volumes on military vehicle programs also contributed.

The operating margin decreased primarily due to a less favorable mix of aircraft deliveries in the Aerospace segment, specifically the ramp-up of the G500 aircraft which typically has lower initial margins. Additionally, increased intangible asset amortization expenses stemming from the CSRA acquisition in the Information Technology segment also contributed to the margin compression.

General Dynamics reported a total backlog of $69.2 billion as of March 31, 2019, an increase from $67.9 billion at the end of 2018. The company expects to recognize approximately 65% of this backlog as revenue by the end of 2020, indicating a strong and visible revenue pipeline for the near to medium term.

Cash used by operating activities increased to $795 million in Q1 2019 from $496 million in Q1 2018. The free cash flow from operations was negative $976 million, down from negative $600 million in the prior year. This was largely due to negative impacts from working capital, particularly timing of payments on international contracts in the Combat Systems segment, and increased capital expenditures, especially to support growth at shipyards.