It has been about a month since the last earnings report for General Dynamics (GD). Shares have lost about 8.3% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is General Dynamics due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
General Dynamics Q4 Earnings Top Estimates, Sales Up Y/Y
General Dynamics Corporation (NYSE:GD) reported fourth quarter and 2019 results. Fourth-quarter earnings from continuing operations of $3.51 per share beat the Zacks Consensus Estimate of $3.46 by 1.45%. Earnings were up 14.3% from $3.07 in the year-ago quarter.
For 2019, earnings were $11.98 per share, up 6.8% from $11.22 in the year-ago quarter. Moreover, full-year earnings exceeded the Zacks Consensus Estimate of $11.92 by 0.5%.
Total Revenues
General Dynamics’ fourth-quarter revenues of $10,773 million surpassed the Zacks Consensus Estimate of $10,602 million by 1.6%. Further, revenues increased 3.8% from $10,378 million in the year-ago quarter. Revenues grew year over year in four of the company’s five segments.
In 2019, total revenues increased 8.7% year over year to $39.35 billion. Full-year revenues surpassed the Zacks Consensus Estimate of $39.19 billion by 0.4%.
Backlog
The company recorded a total backlog of $86.95 billion, up 28.1% year over year. Funded backlog at the quarter-end was $57.53 billion.
Segment Performance
Aerospace: The segment reported revenues of $2,930 million, up 8.4% year over year. Operating earnings of $480 million increased 25.7% from the prior-year quarter’s $382 million.
Combat Systems: Segment revenues increased 13.1% to $1,972 million. Operating earnings were up 8.8% to $284 million in the quarter.
Information Systems and Technology: The segment reported revenues of $2,024 million, which fell 15% year over year. Operating income also declined 11.3% to $172 million.
Marine Systems: The segment’s revenues of $2,565 million were up 11.7% from the year-ago quarter’s $2,297 million. However, operating income declined 6.6% year over year to $199 million.
Mission Systems: The segment’s revenues of $1,282 million were up 2.5% from the year-ago quarter’s $1,251 million. Operating income grew 3.9% to $188 million from the year-ago quarter’s $181 million.
Operational Highlights
Company-wide operating margin expanded 50 basis points (bps) to 12.3% from the year-ago quarter’s 11.8%.
In the quarter under review, General Dynamics’ operating costs and expenses rose 3.2% to $9,445 million.
The company paid out $1,152 million in dividends in 2019 compared with $1,075 million in 2018.
Financial Condition
As of Dec 31, 2019, General Dynamics’ cash and cash equivalents were $902 million compared with $963 million as of Dec 31, 2018.
Long-term debt as of Dec 31 was $9,010 million compared with the 2018-end level of $11,444 million.
As of Dec 31, the company’s cash provided by operating activities was $2,981 million compared with $3,148 million in the year-ago period.
Free cash flow from operations at the end of the fourth quarter was $2,013 million compared with $1,824 million in the year-ago period.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -12.77% due to these changes.
VGM Scores
Currently, General Dynamics has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, General Dynamics has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
General Dynamics Corporation (GD): Free Stock Analysis Report
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