Will Order Growth Fuel General Dynamics' (GD) Q2 Earnings?

General Dynamics Corporation GD is scheduled to release second-quarter 2018 results on Jul 25, before the opening bell.

We expect a consistent inflow of military contracts from the Pentagon, which should continue boosting the military shipbuilder’s revenues in the second quarter. Moreover, completion of the CSRA acquisition at the onset of the yet-to-be reported quarter is likely to drive the company’s operational results.  

Let’s take a detailed look at the factors influencing General Dynamics’ quarterly results.

New Products & Orders to Boost Sales

Order flows from the Pentagon as well as foreign allies of the United States generally boost quarterly sales of defense bellwethers, and General Dynamics is no exception. Keeping up with its usual trend, in the second quarter, the company secured a $259 million modification contract to upgrade Stryker flat-bottom vehicles to the patented double V-hull design and a $225 million modification contract for economic ordering quantity material associated with the fiscal 2019-2023 Virginia class submarines. The shipbuilder also clinched a $144-million contract for the operation, maintenance and expansion of the global U.S. Battlefield Information Collection and Exploitation System Extended (US BICES-X) federated trusted network environment infrastructure as well as a $126 million modification contract for purchasing missile tube long-lead-time material to support the Columbia-class fleet ballistic missile submarines.

Coming to product innovation, the company continues to proceed toward its anticipated U.S. Federal Aviation Administration (FAA) type certification and entry into service of the new G500 and G600 aircraft. Considering the fact that, General Dynamics witnessed a handful of orders for these jets in the first quarter of 2018, similar order trend is expected in second quarter as well.  No doubt, the aforementioned contract wins along with the company’s progress in its latest products will boost the total revenues.  In sync with this, the Zacks Consensus Estimate for the company’s second-quarter sales is pegged at $9.1 billion, reflecting 18.7% year-over-year growth.

General Dynamics Corporation Price and EPS Surprise

General Dynamics Corporation Price and EPS Surprise | General Dynamics Corporation Quote

Will Aerospace Segment be a Spoilsport?

General Dynamics’ Aerospace business segment has not been performing very well lately. During the first quarter, this unit suffered a 12% year-over-year sales deterioration while its bottom line plunged more than 20%. As the company continues to be engaged in production of new aircraft under this segment’s Gulfstream unit, cost of sales remains considerably high. This, in turn, is weighing on the segment’s bottom-line performance.

Meanwhile, lower aircraft deliveries have been hurting the top line, which is expected to continue in the second quarter as well. This downtrend may continue until the company starts delivery of new G500 jets as per management’s expectation in the second half of 2018.

The Zacks Consensus Estimate for the segment’s second-quarter revenues is pegged at $2,056 million, reflecting a year-over-year decline of 5.1%. Operating earnings for this business unit is also expected to reduce by 10.2% to $386 million, per our consensus estimate.

Acquisitions to Aid Bottom-Line Growth

In the first week of April 2018, General Dynamics successfully completed the acquisition of CSRA Inc., an IT service provider, for $9.7 billion, thereby winning the bidding war against CACI International. The deal is poised to position General Dynamics as the largest provider of integrated information technology services to the federal government. Management also expects the buyout to boost the company’s 2018 revenues by $3.6 billion. Notably, CSRA is well known for its cyber security and data-analytics business along with its information technology know-how. We expect this aquisition to be accretive to its second-quarter revenues as well, which in turn, should boost the company’s bottom-line growth.

In the second quarter, General Dynamics also completed the acquisition of Hawker Pacific for $250 million, which in turn should bolster its aviation services performance.

Consequently, the Zacks Consensus Estimate for General Dynamics’ second-quarter earnings is pegged at $2.49 per share, reflecting 1.6% annual improvement.

What the Zacks Model Unveils

Our proven model does not conclusively show that General Dynamics is likely to beat estimates in the second quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen.

Zacks ESP: General Dynamics has an Earnings ESP of -2.16%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: General Dynamics has a Zacks Rank #4 (Sell).

Stocks That Warrant a Look

Here are some companies in the Aerospace sector that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Raytheon Company RTN is expected to report second-quarter 2018 results on Jul 26. The company has an Earnings ESP of +1.10% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Curtiss-Wright CW is expected to report second-quarter 2018 results on Jul 25. The company has an Earnings ESP of +0.15% and a Zacks Rank of 2.

Embraer ERJ is expected to report second-quarter 2018 results on Jul 27. The company has an Earnings ESP of +26.12% and a Zacks Rank #3.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Embraer-Empresa Brasileira de Aeronautica (ERJ) : Free Stock Analysis Report
 
General Dynamics Corporation (GD) : Free Stock Analysis Report
 
Curtiss-Wright Corporation (CW) : Free Stock Analysis Report
 
Raytheon Company (RTN) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.