Trend: Calm amid the storm?General Dynamics 4Q profit rises nearly 6 percent

The other day, writing about the impressive FY2008 and Q4 2008 financial results of IT security innovator Check Point, we said that one sparrow does not a summer make (we were reflecting on the fact that defense and homeland security companies keep showing good financial results even during this period of economic turmoil). How about two or three sparrows? Defense contractor General Dynamics said yesterday that its fourth-quarter earnings rose on higher profits in its business jet and shipbuilding units, gains that outweighed a drop in the company’s division that makes armored vehicles and tanks. The Falls Church, Virginia-based company posted net earnings of $612 million, or $1.57 per share. This was a 5.7 percent increase from the $579 million, or $1.42 per share, it reported a year ago. Revenue was up 4.5 percent to $7.85 billion. Without one-time charges connected to the sale of assets in Spain, the company earned $630 million, or $1.62 per share. This was slightly better than what analysts polled by Thomson Reuters expected — which was $1.59 per share in quarterly earnings on revenue of $7.87 billion.

AP’s Stephen Manning writes that the defense industry has been a relative safe harbor during the turmoil that has engulfed the broader economy (see these HS Daily Wire’s stories: Check Point’s financial results — 27 January 2009; CBP’s 2009 hiring goals — 26 January 2009; India’s IT security expansion — 26 January 2009). Record levels of Pentagon spending on new equipment and the wars in Iraq and Afghanistan has largely insulated the nation’s weapons suppliers from the large layoffs and credit problems wracking other industries.

There is uncertainty, however, over whether the Obama administration will curtail defense spending as the government spends heavily on infrastructure and other programs to revive the broader economy. Sharp drops in the value of pension plans has forced some defense companies to trim their earnings outlooks and devote cash to propping up their funds. Airplane makers like General Dynamics, which owns the Gulfstream private jet business, face the prospect of lower demand as the worldwide recession affects air travel.

Manning writes that these uncertainties notwithstanding, General Dynamics said Wednesday that it expected results in line with Wall Street estimates for 2009. Much of its fourth-quarter earnings growth was also driven by higher profits at Gulfstream, which until the financial crisis this fall had seen robust sales. The company also has a $74.1 billion backlog of orders going into this year. General Dynamics said it expects to make between $6.70 to $6.75 per share this year, while analysts expect $6.71 per share in 2009.

Here is a look at some of the company’s products:

• Profits at Gulfstream rose 24.5 percent to $264 million, a gain that came despite slowing demand for the pricey planes after several years of steady growth. Corporate jets have also become equated with corporate excess as automakers and companies like Citigroup dumped planes due to bad publicity as they seek federal aid.
• The company’s shipbuilding division posted a 31 percent profit gain to $132 million. The company also won a contract to build eight new submarines at its Electric Boat business during the quarter, part of a $14 billion Navy contract.
• Combat systems earnings fell 4.6 percent to $308 million. General Dynamics was one of several companies that built thousands of heavily armored mine-resistant vehicles for the Army to use in Iraq. That contract, which pumped up General Dynamics’ earnings in recent quarters, is winding down.

General Dynamics shares rose $3.73, or 6.7 percent, to $59.45 in pre-market trading.