GD earnings drop on global defense slowdown
General Dynamics reported Wednesday that it lost $2.1 billion in the fourth quarter of 2012.
Phebe N. Novakovic, GD's chairman and chief executive officer, said the fourth-quarter results reflect contracting markets as government budgets shrink at home and abroad.
General Dynamics recorded a $2 billion goodwill impairment charge related to its Information Systems and Technology Group in the fourth quarter, and $867 million in other charges. Since its formation in 1997, the segment has completed 38 acquisitions, and defense spending in this area has slowed, according to GD.
General Dynamics, which owns the Electric Boat shipyard in Groton, reported that net earnings for the fourth quarter declined steeply, from a profit of $603 million in the fourth quarter of 2011 to now a loss of $2.1 billion, or $6.07 per share.
For the year, net earnings were reported as a loss of $332 million, or 94 cents a share. But, when adjusted to take out one-time charge-offs, earnings were $2.3 billion, or $6.48 a share.
Revenues decreased nearly 12 percent during the fourth quarter, from $9.1 billion in 2011's comparable quarter to $8.1 billion in 2012. Novakovic said the single largest cause of the revenue drop is the decline at GD's European Land Systems.
GD is restructuring the European side of the business in recognition of the fiscal realities overseas, she added.
For the year, revenues at GD declined 3.6 percent to $31.5 billion.
Fourth-quarter revenues for the company's Marine Systems group, which includes the submarine business, were down 5.3 percent to $1.66 billion, while operating earnings were up 3.2 percent to $196 million. Revenues for the year were down 0.6 percent to $6.6 billion, while operating earnings were up 8.5 percent to $750 million.
Novakovic said the marine group remains steady.
"I particularly like the story at Electric Boat, the largest business," Novakovic said. "Revenue was down very modestly."
For 2013, Novakovic said revenue should be flat or up by less than 1 percent over 2012. In the marine group, sales are expected to be up almost 2 percent from 2012, but earnings will be down, she said. The T-AKE Program to build dry cargo/ammunition ships ended at NASSCO in 2012.
GD's recently finalized operating plan contemplates a full year's continuing federal budget resolution, but is subject to some risk should automatic spending cuts known as sequestration and more draconian budget cuts occur, Novakovic said. GD will implement cost-cutting initiatives across all sectors of the business, she added.
General Dynamics shares dropped $3.24, or 4.6 percent, to $67.47 Wednesday morning, but recovered to finish the day higher by 74 cents, or slightly more than 1 percent. More than 92,000 people work for the contractor worldwide.
2012 results for General Dynamics
Adjusted earnings: $2.3 billion
Adjusted earnings per share: $6.48
Revenues: $31.5 billion
Operating earnings: $833 million
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