Yahoo Finance General Dynamics (NYSE:GD) Surprises With Q2 Sales
Aerospace and defense company General Dynamics (NYSE:GD) reported Q2 CY2024 results exceeding Wall Street analysts' expectations , with revenue up 18% year on year to $11.98 billion. It made a GAAP profit of $3.26 per share, improving from its profit of $2.70 per share in the same quarter last year.
Is now the time to buy General Dynamics? Find out in our full research report.
General Dynamics (GD) Q2 CY2024 Highlights:
Revenue: $11.98 billion vs analyst estimates of $11.5 billion (4.1% beat)
EPS: $3.26 vs analyst expectations of $3.33 (2% miss)
Free Cash Flow of $613 million is up from -$437 million in the previous quarter
Backlog: $91.3 billion at quarter end, in line with the same quarter last year
Market Capitalization: $80.66 billion
"This was a strong quarter overall, as reflected by solid growth in all key measures from a year ago. Our businesses continue to focus on disciplined execution of their programs, cost and schedule," said Phebe N. Novakovic, Chairman and Chief Executive Officer.
Creator of the famous M1 Abrahms tank, General Dynamics (NYSE:GD) develops aerospace, marine systems, combat systems, and information technology products.
Defense Contractors
Defense contractors typically require technical expertise and government clearance. Companies in this sector can also enjoy long-term contracts with government bodies, leading to more predictable revenues. Combined, these factors create high barriers to entry and can lead to limited competition. Lately, geopolitical tensions–whether it be Russia’s invasion of Ukraine or China’s aggression towards Taiwan–highlight the need for defense spending. On the other hand, demand for these products can ebb and flow with defense budgets and even who is president, as different administrations can have vastly different ideas of how to allocate federal funds.
Sales Growth
Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Regrettably, General Dynamics's sales grew at a weak 3.3% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. General Dynamics's annualized revenue growth of 8.1% over the last two years is above its five-year trend, suggesting some bright spots.
We can better understand the company's revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. General Dynamics's backlog reached $91.3 billion in the latest quarter and averaged 3.3% year-on-year growth over the last two years. Because this number is lower than its revenue growth, we can see the company fulfilled orders at a faster rate than it added new orders to the backlog. This implies General Dynamics was operating efficiently but raises questions about the health of its sales pipeline.
This quarter, General Dynamics reported robust year-on-year revenue growth of 18%, and its $11.98 billion of revenue exceeded Wall Street's estimates by 4.1%. Looking ahead, Wall Street expects sales to grow 7.3% over the next 12 months, a deceleration from this quarter.
Today’s young investors likely haven’t read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.
Operating Margin
Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
General Dynamics has managed its expenses well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10.7%.
Looking at the trend in its profitability, General Dynamics's annual operating margin decreased by 1.1 percentage points over the last five years. Even though its margin is still high, shareholders will want to see General Dynamics become more profitable in the future.
This quarter, General Dynamics generated an operating profit margin of 9.7%, in line with the same quarter last year. This indicates the company's overall cost structure has been relatively stable.
EPS
We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
General Dynamics's weak 2.7% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For General Dynamics, its two-year annual EPS growth of 4.2% was higher than its five-year trend. Accelerating earnings growth is almost always an encouraging data point.
In Q2, General Dynamics reported EPS at $3.26, up from $2.70 in the same quarter last year. Despite growing year on year, this print slightly missed analysts' estimates. Over the next 12 months, Wall Street expects General Dynamics to grow its earnings. Analysts are projecting its EPS of $12.83 in the last year to climb by 23.3% to $15.81.
Key Takeaways from General Dynamics's Q2 Results
We were impressed by how significantly General Dynamics blew past analysts' revenue expectations this quarter. On the other hand, its backlog missed and its EPS fell short of Wall Street's estimates. Overall, this was a mediocre quarter for General Dynamics. The stock remained flat at $295 immediately after reporting.
So should you invest in General Dynamics right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
