General Dynamics Corp GD
Q1 2013 Earnings Call Transcript

Transcript Call Date 04/24/2013

Operator: Good day, ladies and gentlemen and welcome to the Q1 2013 General Dynamics Earnings Conference Call. My name is Su and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of the session. As a reminder, this call is being recorded for replay purposes.

I would like to turn the call over to Ms. Erin Linnihan, Director of Investor Relations. Please proceed.

Erin Linnihan - Director, IR: Thank you, Su and good morning, everyone. Welcome to the General Dynamics first quarter conference call. As always, any forward-looking statements made today represent our estimates regarding the Company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the Company's 10-K and 10-Q filings.

With that, I would like to turn the call over to our Chairman and Chief Executive Officer, Phebe Novakovic.

Phebe N. Novakovic - Chairman and CEO: Thank you, Erin. I hope to be reasonably brief this morning. The press release and related charts are pretty straightforward and tell a rather compelling story. We reported revenues for the quarter $7.4 billion, operating earnings of $824 million and overall operating margins of 11.4%. This resulted in diluted EPS of $1.62 compared to consensus of $1.50.

Free cash flow was fairly strong across the business, particularly for a first quarter at $429 million or approximately 75% of net income. This was considerably better than the cash performance in the first quarter of 2012 and considerably more than we had anticipated in our plan.

Given the defense market environment, this quarter compares favorably with the first quarter last year, revenue was down modestly 2.3%, operating expense are essentially flat, margins are up 10 basis points, net income is up 7 million and diluted EPS is up $0.05 or 3.2%.

On a sequential basis, there is significant improvement even if we look at the fourth quarter before non-recurring charges. On a non-GAAP basis without charges the operating margins in the first quarter were 10.1% compared to 11.4% this quarter.

Let me give you a little bit of detail on the results of our operating segments and we'll hopefully provide with some color. First, aerospace; aerospace revenue was up $155 million, almost 10% against the year ago quarter and profit is up $39 million, 14.4% on a 70 basis point improvement in operating margin. I am pleased to report that Jet Aviation made a contribution in the quarter; in short, nice operating leverage.

From a market perspective, we are seeing adequate interest in both new and existing product line. The backlog and orders in the quarter make me comfortable with the revenue projections I gave for aerospace for the year. We have some opportunity to outperform our guidance, so far so good.

At Combat Systems revenue declined $358 million against year ago quarter, but operating earnings were up $12 million, almost 6% on 13.8% margin. However, it is well to remember that there was an accounting charge in the year ago quarter for this segment. On a non-GAAP basis, ignoring charges, margins are flat. Sequentially, even after the fourth quarter non-GAAP adjustments, margins improved by 130 basis points. From my perspective, a very good operating performance, despite reduced revenue and continued struggles in Europe.

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