It has been about a month since the last earnings report for General Dynamics (GD). Shares have added about 13.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is General Dynamics due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
General Dynamics Q1 Earnings & Revenues Miss Estimates
General Dynamics Corporation reported first-quarter 2020 earnings from continuing operations of $2.43 per share, which missed the Zacks Consensus Estimate of $2.46 by 1.2%. Moreover, earnings declined 5.1% from $2.56 in the year-ago quarter.
General Dynamics’ first-quarter revenues of $8,749 million missed the Zacks Consensus Estimate of $9,284 million by 5.8%. Further, revenues declined 5.5% from $9,261 million in the year-ago quarter. The decline was primarily attributable to lower sales from the Aerospace segment on a year-over-year basis.
The company recorded a total backlog of $85.7 billion, up 23.9% year over year. Funded backlog at the quarter-end was $47.6 billion.
Aerospace: The segment reported revenues of $1,691 million, down 24.5% year over year. Operating earnings of $240 million also declined 26.8% from the prior-year quarter’s $328 million.
Combat Systems: Segment revenues rose 4.4% to $1,708 million. Moreover, operating earnings were up 8.3% to $223 million in the quarter.
Information Systems and Technology: The segment reported revenues of $1,988 million, which decreased 8.3% year over year. Operating earnings also declined 3.8% to $150 million.
Marine Systems: The segment’s revenues of $2,246 million grew 9.1% from the year-ago quarter’s $2,058 million. Moreover, operating earnings rose 2.2% to $184 million.
Mission Systems: The segment’s revenues of $1,116 million declined 3.6% from the year-ago quarter’s $1,158 million. Operating earnings remained flat at $148 million on a year-over-year basis.
The operating margin contracted 10 basis points (bps) to 10.8% from the year-ago quarter’s 10.9%.
In the quarter under review, General Dynamics’ operating costs and expenses declined 5.3% to $7,808 million.
The company repurchased 3.4 million of its outstanding shares in the first quarter of 2020. In March, the board of directors increased the quarterly dividend to $1.10 per share. This 7.8% increase marked the company’s 23rd consecutive annual dividend increase.
As of Mar 31, 2020, General Dynamics’ cash and cash equivalents were $5,330 million compared with $902 million as of Dec 31, 2019.
Long-term debt as of Mar 31, 2020, was $12,951 million, which witnessed a rise from the 2019-end level of $9,010 million.
As of Mar 31, 2020, the company’s cash used by operating activities was $666 million compared with $795 million used in the year-ago period.
Free cash outflow from operations at the end of the first quarter of 2020 was $851 million compared with $976 million at the end of the first quarter of 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -22.2% due to these changes.
Currently, General Dynamics has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions 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.
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