General Dynamics Starts the Year with Healthy 1Q15 Results (Part 3 of 5)
Increasing penetration
Traditionally, General Dynamics (GD) has been a key defense player, primarily through its Land Systems division that provides vehicles, combat systems, and munitions. Lately, the company has been trying to strengthen its international services–focused defense market.
General Dynamics’ IS&T (Information Systems and Technology) segment has won many contracts that have positioned it well among competitors such as Honeywell International (HON), Lockheed Martin (LMT), and Rockwell Collins (COL). These companies have a 2.91%, 2.04%, and 0.40% holding, respectively, in the Vanguard Industrials ETF (VIS). GD forms 2.39% of the Industrial Select Sector SPDR ETF (XLI).
The successful IS&T segment
The biggest surprise in General Dynamics’ first quarter earnings came from its IS&T segment. The revenues for this segment were expected to decline 5.5% year-over-year but grew 3.9% year-over-year. The segment’s earnings also grew, accompanied by an improvement in margins. This was primarily driven by a strong sales turnaround during the first quarter.
The company won some major contracts during the first quarter. It landed a $155 million contract for combat and sea frame control systems for U.S. Navy Littoral Combat Ships. It won a $175 million contract to consolidate the operations of the National Geospatial-Intelligence Agency from six locations to one. It got two $70 million contracts, one from the U.S. Army for its CHS-4 (Common Hardware Systems-4) program and one from the U.S. Department of State for SCM (supply chain management) services.
General Dynamics also won an IDIQ (indefinite delivery, indefinite quantity) contract for managing live training sessions for the U.S. Army, which could have a potential value of $415 million over the next five years.
These large contracts and the confirmation of previous contracts led to strong segment growth. This is expected to continue, although the company still hasn’t changed its low guidance for the segment for 2015.
About the segment
General Dynamics’ Information Systems and Technology segment primarily caters to military, civilian, and commercial companies around the world. It deals with the design, development, production, and support of various IT solutions, mobile communication systems, mission support services, naval control systems, ISR (intelligence, surveillance, and reconnaissance), and cyber security solutions.
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