General Dynamics’ segment performance in Q3 2014



General Dynamics’ segment performance

In this article, we’ll analyze General Dynamics’ (GD) segment performance in Q3 2014.

GD Q3 revenue comparison

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General Dynamics’ (GD) aerospace segment, which is the company’s highest contributor to Q3 revenues (29.53%), saw year-over-year revenue growth of 6.37% from the same quarter last year. The company’s operating earnings increased by 11.4% year-over-year to $411 million—its highest-ever quarterly earnings. Operating margins rose by 0.9% to 18% due to improved performance in manufacturing and outfitting of G650 and G280 as well as good contributions from Jet Aviations.

Overall, it was a very good quarter for the segment with positive growth in revenues, earnings, and margins.

Combat systems

The combat systems segment also saw a rise in sales of about 6.8% year-over-year. Its earnings rose 1.8%. The segment posted strong operating margins, though they were down from last year’s all-time-high margins. The overall impact was due to two main reasons.

  1. The segment underwent restructuring activities in the past 18 months, which included combining two US-based businesses last year.
  2. The European cost base reduced, positioning the segment well to execute its strong backlog.
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Marine Systems

This segment’s revenue increased by 7.2% to $1.82 billion, while its operating margins saw a decline of 0.70% year-over-year for the quarter. You can attribute the growth to the submarine programs and the commercial shipbuilding activities in the first three out of ten Jones Act ships, Virginia-class submarines, and development activities in Ohio-class submarine replacement programs.

Information Systems and Technology

This segment saw a major decline of 12.9% year-over-year in revenues and 6.5% in its operating earnings. Yet it remains the company’s second-highest revenue contributor for Q3 2014. The segment has still outperformed the company’s estimated 20% decline, which it had declared in 2013. You can attribute the decline largely to the reduced defense spending and award delays on major production programs in the mobile communication systems business. Since the decline in earnings was about half of the decline in revenues, margins increased by 60 basis points to 9% in the quarter. The company also decided to combine its Advance Information System and C4 System sub groups to form Mission System, which aims to be more efficient, profitable, and responsive.

In our next article in this series, we’ll explore the company’s advantages over competitors like L-3 Communications Holdings (LLL), TransDigm Group (TDG), and Huntington Ingalls Industries (HII). Some of these companies are part of the Industrial Select Sector SPDR (XLI).


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