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Why Is General Dynamics (GD) Down 4.2% Since its Last Earnings Report?

Zacks Equity Research
Updated

It has been about a month since the last earnings report for General Dynamics Corporation GD. Shares have lost about 4.2% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is GD due for a breakout? 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 drivers.

General Dynamics Tops on Q1 Earnings, Revenues Lag

General Dynamics reported first-quarter 2018 earnings from continuing operations of $2.65 per share, beating the Zacks Consensus Estimate of $2.47 by 7.3%. Reported earnings were up 6.9% from $2.48 recorded in the year-ago quarter.

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Total Revenues

In the quarter, General Dynamics’ total revenues of $7,535 million missed the Zacks Consensus Estimate of $7,543 million by 0.1%.

However, reported revenues were up 1.3% from $7,441 million in the year-ago quarter. The year-over-year increase in total revenues was primarily due to increased contribution from all reportable segments except Aerospace.

Segment Performance

Aerospace: The segment generated revenues of $1,825 million, down 12.0% year over year. Operating earnings of $346 million were down 21.2% from the prior-year quarter’s figure of $439 million.

Combat Systems: The segment’s revenues rose 11.9% to $1,440 million. Operating earnings were up 9.3% to $224 million in the quarter.

Information Systems and Technology: The segment generated revenues of $2,236 million, up 4.2% from a year ago. Operating income rose 4.7% from the year-ago quarter to $247 million.

Marine Systems: The segment’s revenues of $2,034 million were up 5.2% from the year-ago figure of $1,934 million. Operating income improved 14.3% from the prior-year quarter to $184 million.

Operational Highlights

The company recorded a total backlog of $62.1 billion. Including the value in unfunded indefinite delivery, indefinite quantity contracts and unexercised options, at the end of first-quarter 2018 were $87.6 billion.

Operating costs and expenses in the reported quarter were $6,527 million, up 2.1% from the year-ago quarter.

Operating income at the end of the quarter was $1,008 million compared with $1,046 million in the year-ago quarter.

Financial Condition

As of Apr 1, 2018, General Dynamics’ cash and cash equivalents were $4,332 million, compared with $2,983 million as of Dec 31, 2017.

Long-term debt as of Apr 1, 2018 was $3,981 million, up from the 2017-end level of $3,980 million.

The company’s cash flow (used)/provided from operating activities was ($496) million in the first quarter of 2018, compared with $533 million in the first quarter of 2017.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter. In the past month, the consensus estimate has shifted downward by 5.6% due to these changes.

General Dynamics Corporation Price and Consensus

General Dynamics Corporation Price and Consensus | General Dynamics Corporation Quote

VGM Scores

At this time, GD has a poor Growth Score of F, however its Momentum is doing a lot 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and momentum investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, GD has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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