General Dynamics forecasts weak 2023 as supply, labor challenges persist

·2 min read

By Nathan Gomes

(Reuters) - U.S. defense contractor General Dynamics Corp on Wednesday forecast lower-than-expected 2023 results, as the industry struggles with labor and supply shortages, though strong demand for weapons helped it beat quarterly estimates.

An "abnormally high retirement" of workers has impacted General Dynamics' electric boat unit, which assembles nuclear-powered submarines, company executives said on an investor call.

General Dynamics said it was working with the U.S. Navy to mitigate the effect of worker shortages, which plagued the defense industry in 2022. Shares of the company fell 4% in early trade amid broader market declines.

"We think the challenge here is the production ramp at Electric Boat," J.P. Morgan analyst Seth Seifman said.

The company forecast 2023 revenue of $41.2 billion to $41.3 billion, below expectations of $41.98 billion, and profit between $12.6 to $12.65 per share, compared with estimates of $13.91, as per Refinitiv data.

Rival Lockheed Martin Corp also forecast annual profit below Street expectations on Tuesday, hurt by supply bottlenecks and higher costs.

According to industry experts, Republican Kevin McCarthy's election as the U.S. House Speaker has clouded near-term prospects for defense contractors.

Meanwhile, GD's unit that makes Gulfstream jets reported a 4% fall in fourth-quarter revenue.

However, the impact was offset by a strong performance in its combat systems unit that makes Abrams tanks and other land warfare systems.

U.S. defense contractors have benefited from the United States and its allies ramping up their defense spend and supporting Ukraine with billions of dollar in military aid after Russia invaded the country last year.

"We're seeing demand signals resulting from the war in Ukraine, but we've only just begun to see that manifest in our backlog," General Dynamics Chief Executive Phebe Novakovic said.

The company's fourth-quarter net earnings rose to $3.58 per share and revenue to $10.85 billion, beating expectations of a profit of $3.54 per share on $10.69 billion in sales.

(Reporting by Nathan Gomes in Bengaluru; Editing by Shinjini Ganguli)