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How Has GD Performed 30 Days Post Earnings

A month has gone by since the last earnings report for General Dynamics (GD). Shares were flat in that time frame, outperforming the S&P 500.

Will the recent trend continue leading up to its next earnings release, or is General Dynamics due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

General Dynamics' Q2 Earnings Beat, Backlog Up Y/Y

General Dynamics reported second-quarter 2019 earnings from continuing operations of $2.77 per share, which beat the Zacks Consensus Estimate of $2.68 by 3.4%. Operating earnings also improved 5.7% from $2.62 in the year-ago quarter.

Total Revenues

General Dynamics’ second-quarter revenues of $9,555 million surpassed the Zacks Consensus Estimate of $9,402 million by 1.6%. Further, revenues increased 4% from $9,186 million in the year-ago quarter. In fact, revenues grew year over year in all the company’s segments (except the Information Systems and Technology segment).

Backlog

General Dynamics recorded a total backlog of $67.6 billion, up 1.96% year over year. The year-over-year increase in backlog was due to higher orders received by its Marine System segment. Funded backlog at the quarter-end was $54.4 billion.

Segmental Performance

Aerospace: The segment reported revenues of $2,136 million, up 12.7% year 

over year. However, operating earnings of $331 million declined 14.2% from the prior-year quarter’s $386 million.

Combat Systems: Segment revenues rose 8.1% from the prior-year quarter to $1,659 million. Moreover, operating earnings were up 2.5% from the year-ago quarter to $242 million.

Information Systems and Technology: The segment reported revenues of $2,158 million, which declined 11.6% year over year. Operating earnings also dropped 1.3% from the prior-year period to $154 million.

Marine Systems: The segment’s revenues of $2,325 million were up 7.2% from the year-ago quarter’s $2,168 million. Operating earnings also improved 1% from the year-ago level to $197 million.

Mission Systems: The segment’s revenues of $1,277 million increased 11.3% from the year-ago quarter’s $1,147 million. Operating earnings of $162 million also increased 5.9% from the year-ago quarter’s $153 million.

Operational Highlights

Company-wide operating margin contracted 40 basis points (bps) to 11.4% from the year-ago quarter’s 11.8%.

In the quarter under review, General Dynamics’ operating costs and expenses rose 14.3% from the year-ago period to $16,712 million.

Interest expenses in the reported quarter increased 81.5% year over year to $236 million.

Financial Condition

As of Jun 30, 2019, General Dynamics’ cash and cash equivalents were $702 million compared with $963 million on Dec 31, 2018.

Long-term debt as of Jun 30, 2019 was $8,975 million, which massively declined from the 2018-end level of $11,444 million.

In the first six months of 2019, the company’s cash used for operating activities was $504 million compared with $291 million cash provided by operating activities in the comparable year-ago period.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, General Dynamics has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise General Dynamics has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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