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General Dynamics announces $2.1B loss


Defense industry titan General Dymanics reported on Wednesday a $2.1 billion loss in the fourth quarter of 2012.

The announcement comes on the heels of three major submarine contract awards to General Dynamics' Electric Boat Division that amounted to more than $4 billion.

In 2012, General Dynamics lost $332 million compared to the profit of $2.55 the company reported in 2011.

Defense analysts expect similar calls throughout the industry as the Pentagon braces for the coming defense budget cuts that could be more severe if sequestration is executed. Industry executives worry that sequestration combined with the extension of the Continuing Resolution will put contracts in jeopardy.

General Dynamics reported $31.5 billion total revenue for 2012 and $8.1 billion for the fourth quarter. The company's operating margin was 2.6 percent through 2012 after taking a 23.5 percent hit in the fourth quarter. The defense firm credited additional Styrker orders and the contract to develop the next generation Ohio-class submarine for not creating a greater fourth quarter loss.

Company CEO Phebe Novakovic said on the earnings call that she expected future growth of international orders in combat systems. However, she did criticize the company's acquisition process.

Much like other defense companies, General Dynamics hopes to stem portions of domestic losses with additional international business. Novakovic signaled that the company is placing focus on Europe where she said she's worried about recent performance.

General Dynamics did recognize the impact of shrinking budgets on the company's Information Systems and Technology group where it reported a $2 billion goodwill impairment in the fourth quarter. Novakovic said the company needs to improve in its IS&T accounts.

The CEO said that despite the reported loss at the end of 2012, General Dynamics will remain aggressive in 2013.

"General Dynamics is a strong corporation with relevant product and service offerings that are critical to our customers' missions. We will continue to manage our business aggressively as we approach the opportunities and the challenges of the future," Noakovic said in a statement.

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