General Dynamics Tops Profit Estimates On Shipyard Backlog

By Mike Stone (Reuters) – General Dynamics on Wednesday reported a 28% jump in its backlog due to a shipyard order for US Navy submarines.

Shares fell 1.7% during morning trading after CEO Phebe Novakovic offered guidance during a conference call with investors. She said the company expects “slightly more than” $40.7 billion of revenue, up 4% over 2019,” with an operating margin of 11.9%. Earnings per share in 2020 were expected between $12.55 and 12.60, up from $11.98 in 2019.

Weapons makers are expected to benefit from U.S. tensions with Iran over the past few months.

In December, General Dynamics was named lead contractor on a $22.2 billion U.S. Navy contract to build nine Virginia-class submarines, the Navy’s largest-ever shipbuilding award.

Eighteen Virginia-class submarines have already been delivered to the Navy. The first ship of the nine new orders will be delivered in 2024. The Navy plans to buy 40.

The award is a major contributor to the General Dynamics backlog of orders which now totals $86.9 billion, up 28.1% from a year ago.

General Dynamics Land Systems unit had the only on-time submission to replace the U.S. Army’s Bradley fighting vehicle, but the service went back to the drawing board and will restart the competition later.

Net earnings rose to $1.02 billion, or $3.51 per share, in the fourth quarter ended Dec. 31, from $909 million, or $3.07 per share, a year earlier.

Analysts, on average, expected a profit of $3.44 per share, according to Refinitiv data.

The maker of a wide range of weapons and communications systems for the U.S. military posted a 3.8% rise in revenue at $10.77 billion.

Defense contractors like General Dynamics, Lockheed Martin (LMT.N) and Northrop Grumman Corp (NOC.N) are expected to outperform this year, a general pattern for the sector during U.S. presidential election years.

Under President Donald Trump, defense spending has gone up. This year’s $738 billion defense policy bill for fiscal 2020 increased defense spending by about $20 billion over last year.

Reporting by Ashwini Raj in Bengaluru and Mike Stone in Washington, D.C.; Editing by Shailesh Kuber, Chizu Nomiyama and David Gregorio

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