General Dynamics Corporation (NYSE:GD) Q4 2014 Earnings Conference Call - Final Transcript

Jan 28, 2015 • 09:00 am ET


General Dynamics Corporation (NYSE:GD) Q4 2014 Earnings Conference Call - Final Transcript


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Good day ladies and gentlemen and welcome to the Fourth Quarter 2014 General Dynamics Earnings Conference Call. My name is Shantelay and I will be your facilitator for today's call. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Erin Linnihan. Please proceed.

Erin Linnihan

Thank you Shantelay and good morning everyone. Welcome to the General Dynamics' fourth quarter conference call. (Forward-Looking Cautionary Statements) These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K and 10-Q filings.

With that, I would like to turn the call over to our Chairman and Chief Executive Officer, Phebe Novakovic.

Phebe Novakovic

Thanks, Erin. Earlier today we reported fourth quarter earnings from continuing operations of $2.19 per fully diluted share on revenue of $8.36 billion and earnings from continuing operations of $737 million. It was our strongest revenue performance in the past 12 quarters, the highest operating earnings ever and the highest earnings from continuing operations. For the year we had fully diluted earnings per share of $7.83 on revenue of $30.85 billion and earnings from continuing operations of $2.7 billion, a return on sales of 8.7%. It was a year of solid achievement from both an operating perspective and the development of significant backlog.

As you can see from schedule H to the press release, funded backlog grew from $38.3 billion at year end 2013 to $52.9 billion at the end of last year. The story for total backlog is much the same. We were at $45.9 billion at the end of 2013 and sit at $72.4 billion at the end of 2014. As a result, we are well positioned for growth in 2016 and 2017.

Free cash flow from operations was a negative $254 million in the quarter. However for the year we had free cash flow from operations of $3.2 billion or 123% of earnings from continuing operations. This outpaced 2013 by 532 million.

Phebe Novakovic

Let me give you some detail on the quarter and the year in each of the business groups. First, aerospace. Revenue and earnings were up nicely over the year ago quarter. Sales were up 105 million, 4.9% and earnings were up 64 million, a significant 18.4% on very strong margin improvement. This is particularly impressive when one considers that G&A and net R&D were up $40 million over the year ago quarter.

On a sequential basis, sales were up $49 million but earnings were up 1 million on a 40 basis point improvement in operating margins. I should add that Jet remained nicely profitable in the quarter with a better contribution on both a year ago and sequential comparison basis.

The order activity in the quarter was robust as one would expect with the announcement of two new aircraft. As you can observe, on Exhibit H, funded backlog -- total backlog and total potential