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General Dynamics Finds Profit on the Battlefields

By Renae Merle
Washington Post Staff Writer
Thursday, July 20, 2006

Ninety Stryker armored vehicles. Thousands of tank shells. Millions of bullets.

Even as General Dynamics Corp. is transforming itself into a technology firm, wartime demand for old-line defense products has meant steady profits for the Falls Church defense contractor, including an 84 percent jump in the three months that ended June 30, compared with the same period a year ago.

Of the large defense contractors, General Dynamics' concentration in Army programs has given it the most direct benefit from the Iraq war, analysts said.

"The combat-systems business . . . it's a cash cow for them, it's a solid business," said Eric Hugel, an industry analyst for Stephens Inc.

Though part of the leap in earnings came from sales of its Gulfstream Jets and other items, the conflicts in Iraq and Afghanistan have meant a steady flow of orders for products such as the eight-wheeled Stryker.

The vehicle made its debut during the 2003 U.S.-led invasion of Iraq. General Dynamics has delivered 1,658 Strykers to the Army, with about 90 from April to June.

Repair work on battered Abrams tanks coming home from Iraq is also increasing the company's business.

Bullets have been a big seller, too. In addition to large-caliber tank ammunition, the company recently got into the business of small-caliber ammunition, which the Army has considered in short supply since the Sept. 11, 2001, terrorist attacks. Last year, the company received contracts to supply up to 500 million rounds, according to Securities and Exchange Commission records.

The "conventional ammo business has been very strong, both nationally and internationally," Nicholas D. Chabraja, the company's chief executive, said in a conference call with analysts.

The company's war-related revenue also includes selling armored trucks to Canada for use in Afghanistan, and technology to counter roadside bombs to the Army and Marine Corps.

During the second quarter of this year, the combat-systems unit reported a 29.2 percent increase in revenue, to $1.4 billion, compared with $1.1 billion last year. The unit reported net income of $172 million, up 39.8 percent, from the same quarter last year.

Since just before the 2001 terrorist attacks, the unit's revenue and profit have tripled.

General Dynamics said that overall revenue increased 15.5 percent, to $5.9 billion, during the second quarter, compared with $5.1 billion a year ago. Its aerospace division, which includes the Gulfstream business jet, reported a 28.9 percent increase in revenue, to $1 billion. The quarter also included a one-time gain of $216 million from the sale of a construction business that sold sand and gravel.

The information-technology business reported a 7 percent increase in revenue, to $2.1 billion, during the quarter, compared with $2 billion during the same quarter last year. Most of the increase was because of the recent acquisition of Anteon International Inc., the company said. The unit "was surprisingly weak, both in terms of organic growth and profitability," J.P. Morgan Securities Inc. analyst Joseph B. Nadol III said yesterday in a research note.

General Dynamics raised its profit forecast for the year, saying it now expects to earn $4.15 per share, up from its previous prediction of $3.90 to $3.92 per share. The company's stock fell 36 cents on the New York Stock Exchange to close at $67.99 a share.

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