Will Increased Opex Hurt General Dynamics (GD) Q4 Earnings?

General Dynamics Corporation GD is set to release fourth-quarter 2021 results on Jan 26 before market open.

General Dynamics delivered an earnings surprise of 3.15% in the last four quarters, on average. Segmental performance must have been strong for its fourth-quarter results, while increased expenses might have hurt earnings.

Aerospace Unit Remains a Key Catalyst

General Dynamics’ Aerospace business unit suffered at the onset of the COVID-19 spread last year due to the pandemic’s impact on commercial aerospace. However, the segment started to make a rebound since the third quarter of 2021 buoyed by the gradual recovery witnessed in commercial aerospace.

With an increase in air travel, there has been an improvement in demand for new aircraft over the past couple of quarters, which must have boosted delivery figures for General Dynamics in the fourth quarter. This is likely to have bolstered the aerospace segment’s quarterly revenues.

The Zacks Consensus Estimate for the Aerospace segment’s revenues in the fourth quarter is pegged at $2,697 million, indicating a 10.8% improvement from revenues reported in the year-ago quarter.

Marine Systems – Another Growth Driver

The Marine Systems segment of General Dynamics, alike its solid performance in the third quarter of 2021, can be expected to deliver an improved top line in the soon-to-be-reported quarter as well. This estimation is based on the solid backlog of the new construction and repair work for ships that this unit currently boasts.

The Zacks Consensus Estimate for the Marine segment’s revenues in the fourth quarter is pegged at $2,949 million, indicating a 32% improvement from revenues reported in the year-ago quarter.

Dismal Factors to Note

The strong program performance from most of its segments, a favorable product mix and continued cost reduction efforts by the company are expected to have benefited its fourth-quarter earnings.

However, increased research and development expenses associated with ongoing product development efforts, including flight test activities for the G700, are likely to have had an adverse impact on General Dynamics’ soon-to-be-reported quarterly earnings. Also, witnessing improved demand across the board, with the gradual recovery of the economy, GD has increased its production rate in recent times. This must have pushed its operating expenses, thereby weighing on its bottom line since revenue realization from such productions will be achieved once the finished products are delivered.

General Dynamics Corporation Price and EPS Surprise

General Dynamics Corporation Price and EPS Surprise

General Dynamics Corporation price-eps-surprise | General Dynamics Corporation Quote

Fourth-Quarter Estimates

The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $10.7 billion, suggesting growth of 2.1% from the year-ago quarter.

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $3.37 per share, indicating a decline of 3.4% from the prior-year reported figure.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for General Dynamics this time. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for an earnings beat. However, that is not the case here as given below.

General Dynamics has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell). You can uncover the best stocks to buy or sell, before they’re reported, with our Earnings ESP Filter.

Stocks to Consider

Here are a few defense companies that you may want to consider as these have the right combination of elements to post an earnings beat this season:

The Boeing Company BA has an Earnings ESP of +61.40% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Boeing has a four-quarter average negative earnings surprise of 219.73%. The long-term earnings growth rate of BA stands at 4%. The Zacks Consensus Estimate for Boeing’s fourth-quarter sales and earnings is pegged at $17.6 billion and a loss of 14 cents per share, respectively.

Textron TXT has an Earnings ESP of +7.66% and a Zacks Rank #3. Textron delivered a four-quarter average earnings surprise of 27.89%.

The long-term earnings growth rate of TXT is pegged at 28.3%. The Zacks Consensus Estimate for Textron’s fourth-quarter sales and earnings is pegged at $3.4 billion and 97 cents per share , respectively.

Triumph Group TGI has an Earnings ESP of +1.01% and a Zacks Rank #3. Triumph Group delivered a four-quarter average earnings surprise of 101.89%.

The Zacks Consensus Estimate for TGI’s fourth-quarter sales and earnings is pegged at $368.8 million and 20 cents per share , respectively.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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