Massive charges resulting from shrinking government defense spending hammered General Dynamics in the fourth quarter, as the weapons systems and aerospace giant reported a huge fourth-quarter loss of more than $2 billion.
Shares of General Dynamics (NYSE: GD) fell more than 4 percent in midday trading Wednesday, rallying later to close up 1 percent as three of the company’s four business units — combat, marine and information systems — reported revenue losses for the quarter.
Only aerospace, which includes Jet Aviation’s maintenance and completions business and Gulfstream business jets, reported revenues in the black.
Phebe Novakovic, who took over as chairman and CEO of General Dynamics on Jan. 1, said the charges “reflect the fact that some of our markets are contracting as government budgets shrink at home and abroad.”
“They also suggest opportunities for improvement in some areas of our performance, which we are addressing,” she said.
The Falls Church, Va.-based company said it lost $2.13 billion, or $6.07 per share during the October-December quarter, compared with net income of $603 million, or $1.68 per share, a year earlier.
Revenue fell almost 12 percent to $8.08 billion from $9.15 billion.
Excluding the charges, the company earned $491 million, or $1.39 per share, falling far short of Wall Street expectations of $1.90 per share on revenues of $8.8 billion.
The charges were a necessary step given the recent arrival of a new CEO, Sterne Agee analysts Peter Arment and Josh Sullivan wrote Wednesday in a note to investors. They have rated the stock as “Buy,” meaning they expect it to outperform the industry during the next year, and they set an $82 price target for the next 12 months.
The fourth-quarter results “reflect the difficult environment presented by defense budget dynamics partially offset by tremendous opportunity in the aerospace segment,” the analysts wrote, adding that the stock will be under near-term pressure, but there’s potential gain once it settles in the mid-$60s, because of a stable backlog of Gulfstream jet orders.
“Aerospace showed notable growth in 2012, with both sales and earnings increasing by double digits,” Novakovic said in a conference call Wednesday with analysts.
“At Gulfstream, revenue was up $800 million, while earnings were up $110 million.
“In all, aerospace had a good year and delivered on its promises.”
The plan for aerospace in 2013, Novakovic said, reflects a 16 percent sales growth with operating earnings up 19 percent from the previous year.
“And aerospace has added revenue and earnings potential beyond the plan,” she said.
Projected green deliveries for 2013 will include 113 large-cabin aircraft and 26 mid-cabin aircraft, with a 50 percent increase in outfitted deliveries.
A green aircraft is one that has come through the initial manufacturing phase and is deemed airworthy but has not gone through the completion phase, where the exterior is painted, the interior customized and any optional avionics are added.
Demand for Gulfstream’s large-cabin airplanes — the G450, G550 and G650, all built in Savannah — is very solid, Novakovic said.
“We’re seeing the largest demand coming from within the Fortune 500 companies as they replenish their fleets,” she said. “But our order book is very diverse, including Europe, the Middle East and Asia as well as North America.”
Approximately 30 percent of orders are from individuals, 30 percent from private companies and 40 percent from publicly traded companies, she said.
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Shares of General Dynamics closed at $71.45 Wednesday, up 74 cents.