General Dynamics revenue beats on defense demand; supply woes persist

General Dynamics' Combat Systems unit, which makes tanks, posted a 14.8% rise in revenue from a year earlier. However, pandemic-related disruptions in labor and ongoing supply-chain snags are hampering efforts to deliver on these record weapons orders by increasing expenses - a headwind for profit margins.

General Dynamics beat Wall Street expectations for fourth-quarter revenue on Wednesday, as a tense global political climate sustained demand for its military equipment even as supply-chain pressures drove up costs. Net earnings at the Reston, Virginia-based defense contractor came in at $3.64 per share, below analysts' average estimates of $3.68, according to LSEG data.

The company's quarterly revenue increased 7.5% to $11.7 billion. Analysts on average were expecting $11.4 billion. Shares were up 1.2% in pre-market trading.

Still awaiting Federal Aviation Administration (FAA)certification of its new G700 business jet, General Dynamics CEO said in the company earnings statement they were "well positioned for a surge in deliveries upon FAA certification of the G700." Last fall, the company foreshadowed that without FAA approval in December, G700 deliveries would slip to 2024.

Robert Stallard an analyst at Vertical Research said in a research note published Wednesday the certification in 2024 would help earnings per share and cash flow. Escalating tensions between China and the Philippines, the Russia-Ukraine war and conflicts in the Middle East have boosted orders for U.S. defense firms such as General Dynamics, Lockheed Martin and RTX's defense arm Raytheon.

Annual revenue was $42.3 billion, up 7.3% compared to 2022. General Dynamics' Combat Systems unit, which makes tanks, posted a 14.8% rise in revenue from a year earlier.

However, pandemic-related disruptions in labor and ongoing supply-chain snags are hampering efforts to deliver on these record weapons orders by increasing expenses - a headwind for profit margins. The company said profit margins were 10% in 2023, versus 10.7% in 2022.

Analysts have also raised concerns that supply-related risks are unlikely to dissipate quickly.