General Dynamics Corp., maker of the M1 Abrams tanks that helped U.S. troops to rout Iraqi forces, reported lower profit in the first quarter as a surge in its defense income failed to make up for a sluggish business-jet market.
The Falls Church company reported a 3.5 percent decline in profit, to $221 million ($1.11 per share), from $229 million ($1.13) in the first quarter of last year. Revenue jumped 10.3 percent, to $3.42 billion.
The combat systems unit led the company. Revenue grew 42.2 percent, to $815 million. General Dynamics became the world's largest supplier of armored combat vehicles in February when it completed the $1.1 billion purchase of General Motors Corp.'s defense business.
The aerospace unit, which experienced a 72 percent decline in operating earnings, dragged on the company's bottom line. The unit, which includes the business-jet operation, reported a 22.1 percent drop in quarterly revenue, to $594 million. The number of aircraft delivered to customers slid to 17, from 25 last year. Even the market for used planes remained tough. The company said "pricing pressure" forced it to sell some of the aircraft at a loss.
If the market remains tight, the company is likely to reduce the number of planes it produces, said Nicholas D. Chabraja, chairman and chief executive. But, he added, the business environment remains murky, and no decisions have been made.
"It's going to be a tough fight through the remainder of the year, we think," Chabraja told analysts in a conference call.
Chabraja declined to comment on the financial impact on the company of the war in Iraq. Industry analysts have said General Dynamics is likely to benefit as ammunition needs replenishing and Navy ships returning from the Persian Gulf require repairs.
The company also could benefit if, as some observers have predicted, the Army recommits to modernizing its aging heavy-armor fleet. General Dynamics has already made millions of dollars installing updated technology in the 10-year-old M1 Abrams tanks.
"It's relatively obvious that the tank performed very well and was a significant factor among many, including the brilliance of our young men and women in uniform in all our services who performed both courageously and brilliantly in this engagement," Chabraja said.
The submarine and shipbuilding unit reported an 11 percent drop in operating earnings in the quarter despite a 13 percent increase in revenue. Two commercial ships at General Dynamics' San Diego shipyard experienced design and manufacturing problems, company executives said, but the contract should be completed during the second quarter, and the business unit is otherwise performing well.
The problems with the two ships "frankly hurt us significantly in the quarter, but the real financial impact is behind us," Chabraja said. "We are close to the end."