GD Gets Virginia Submarines Contract

Zacks

Electric Boat, a business wing of General Dynamics Corporation (GD), has received a contract modification for the supply of on-board repair parts for Virginia-class submarines from the U.S Navy. The contract worth $11.5 million has a potential value of $85 million, if all options are exercised.

The current contract is a part of the originally awarded Dec 2008 contract worth $14 billion. Per the contact, Electric Boat along with its teammate Northrop Grumman Shipbuilding had to construct eight Virginia-class submarines. Northrop Grumman Shipbuilding was then a subsidiary of Northrop Grumman Corporation (NOC), which later was spun-off and now trades independently as Huntington Ingalls Industries, Inc. (HII).

The Virginia-class submarine is the first U.S. Navy warship that is capable of performing all mission requirements, which includes anti-submarine and surface ship warfare, delivering special operation forces; strike; intelligence, surveillance and reconnaissance; irregular warfare; and mine warfare.

Apart from this contract, the company is also working on a contract to provide research and development and lead-yard services for Virginia class nuclear-powered attack submarines. This contract has a cumulative value of $881 million through 2014 if all options are exercised and funded.

The company received the contracts as a result of its proven technical capabilities. The employees working under this contract cover all aspects of the submarine life cycle, which includes concept formulation and design through construction, maintenance and modernization, and finally inactivation and disposal.

Based in Falls Church, Virginia, General Dynamics engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation.

Going forward, General Dynamics’ revenue exposure to a number of uncorrelated markets is expected to keep the overall growth momentum steady. Moreover, these types of contracts will add to the top line of Combat Systems and Marine Systems segments.

Recently, the company announced fourth quarter and full year 2012 earnings. The company reported fourth quarter earnings of $1.39 per share, missing the Zacks Consensus Estimate of $1.90 per share. General Dynamics generated total revenue of $8.08 billion in the reported quarter versus $9.15 billion in the year-ago quarter, reflecting a decrease of 11.7%. Reported quarter revenue also failed to meet the Zacks Consensus Estimate by $731 million.

Like Lockheed Martin Corporation (LMT) which is one other defense major, the future prospects of General Dynamics is also tied to the U.S. defense budget. The company presently retains a short-term Zacks Rank #3 (Hold).

 

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