General Dynamics Corp., which makes the U.S. Army’s main battle tank, said on Wednesday its second-quarter earnings fell 8 percent in part because of lower profit on sales of its Gulfstream business jets.
Nevertheless, General Dynamics stock rose 4.7 percent to close at $77.49 because the company’s defense businesses exceeded forecasts.
The company’s information-technology group performed better than expected and the business-jet market is stabilizing, chief executive Nicholas Chabraja said in a conference call.
General Dynamics Decision Systems, which is part of the information-technology group, is based in Scottsdale and makes equipment and communications systems for the defense industry, such as combat search and rescue radios. Sales of information systems and technology rose 22 percent to $1.15 billion.
The Scottsdale unit played a significant role in command and control operations in Iraq, and more than 30 engineers were sent there as field engineers, said Fran Jacques, a spokeswoman for the unit.
Business jets had been General Dynamics’ largest profit source since it bought Gulfstream in 1999 to expand beyond military sales. The company cut prices late last year because of slow sales due to economic weakness.
"Gulfstream’s weakness was made up by tremendous strength in the Information Systems and Technology unit and Combat Systems," said Matthew Lamphier, an analyst at Northern Trust Corp.
"Those really supplied the engine for growth in the quarter."
General Dynamics is the fifth-largest Pentagon contractor and the secondbiggest builder of warships for the Navy.
Second-quarter net income dropped to $242 million, or $1.22 a share, from $263 million, or $1.29, a year earlier. Sales rose 12 percent to $3.9 billion from $3.5 billion, the company said.
The report beat Wall Street’s expectations. Analysts surveyed by Thomson Financial were looking for a profit of $1.17 a share on sales of $3.67 billion.
"Defense is doing well, so they beat the numbers," said Robert Stallard, an analyst at Banc of America Securities in London.
General Dynamics gets more than 70 percent of sales from the military. The federal government is set to boost defense spending for a sixth straight year.
Sales of Abrams tanks and other combat systems rose 48 percent to $1.02 billion last quarter, helped by the March purchase of General Motors Corp.’s defense unit. Excluding that purchase, combat-systems sales rose 11 percent, Chabraja said.
The information systems and technology group, which makes the world’s fastest encryption devices to protect data for the U.S. National Security Agency, boosted profit by 37 percent to $141 million. In a May interview, Chabraja said the business group could be the company’s largest source of profit on an annual basis for the first time this year.
Chabraja said General Dynamics’ sales next year will be about $18 billion, with about $6 billion from the technology group and about $3 billion from aerospace. Last year, the company had $13.8 billion in sales.
