General Dynamics 3Q profit falls on low jet demand

General Dynamics Corp.'s third-quarter earnings suffered from a drop in demand for business jets, but higher sales of defense products led the military contractor to boost its profit outlook for the year and it now expects business with foreign governments to grow next year, and beyond.

The company has benefited recently from strong demand from the Pentagon for equipment like heavily armored vehicles that can protect troops against roadside bombs in Iraq and Afghanistan. Now, foreign governments are looking for similar protection for their military. Sales of armored vehicles and tanks to Saudi Arabia, Iraq and Canada are forecast to grow in 2010, and become even stronger in 2011, the company said Wednesday in a conference call with investors and analysts.

Even as the administration debates future U.S. strategy in Afghanistan, and Congress completes the fiscal 2010 defense spending bill, President and CEO Jay Johnson said he remains confident its current defense programs will be supported in the budget process.

"While we await outcomes of these reviews it is clear to me that the fundamental need to fully equip our forces has not changed. The world is an increasingly dangerous place and our armed forces must have modern and capable systems in sufficient quantity," said Johnson.

In the third quarter, sales grew in all three of the company's defense-related businesses, a trend that is helping to offset fewer orders for business jets in the company's Gulfstream Aerospace unit and to position it for a solid performance going forward.

General Dynamics now predicts full-year earnings between $6.15 and $6.20 per share. Analysts expect $6.18 per share, according to a survey by Thomson Reuters. The company previously forecast profit of $6.05 to $6.15 per share.

"General Dynamics continues to perform very well and is positioned to have a good fourth quarter," Johnson said.

Sales in its combat systems unit are expected to be up 21 percent from 2008 and revenue in the company's marine systems, which makes the Littoral Combat Ship, a speedy combat ship that can travel in shallow waters, will also improve slightly, but not nearly as strong as the first half of 2009, according to Johnson. General Dynamics says total sales of its marine unit will be up 15 percent for the year.

In the third quarter, Falls Church, Va., General Dynamics' profit declined to $572 million, or $1.47 per share, from $634 million, or $1.59 per share, a year earlier. Analysts surveyed by Thomson Reuters expected $1.40 per share, on average. Earnings from continuing operations were $1.48 per share, down from $1.60 per share in the year-ago period. The company is selling a nitrocellulose plant in Spain and is reporting costs related to it as discontinued operations until the sale is complete.

Nitrocellulose is an explosive component used to make ammunition and propellants.

Revenue grew 8.1 percent to $7.72 billion led by the company's combat systems division, which builds the Stryker armored wheeled vehicle. That fell below Wall Street's forecast of $7.75 billion.

In the July-September period, total unfilled orders rose nearly 10 percent to $66.25 billion from a year earlier. In the quarter, the contractor also received a $950 million Army contract for services for the Stryker vehicle.

The company's division that makes military vehicles and armaments posted a 26.9 percent gain in sales to $2.35 billion, while its information systems and technology saw sales grow nearly 9 percent to $2.73 billion.

Sales at Gulfstream fell 18.4 percent to $1.12 billion, while the segment's operating profit fell 55.5 percent to $125 million as the number of aircraft it delivered slipped to 17 from 39 in the same period last year.

A scheduled five-week furlough at Gulfstream resulted in a double-digit reduction of aerospace sales, but that didn't prevent the unit from cutting costs, said Johnson, on the call. The unit is on pace to meet its 2009 production goals, he added.

In afternoon trading, shares fell $1.36, or 2.1 percent, to $64.42.