General Dynamics (NYSE: GD), parent company of Savannah-based Gulfstream Aerospace, on Friday reported fourth-quarter 2016 earnings per share of $2.62, a full 10 cents better than analysts’ expectations.
Revenue for the quarter was down slightly at $8.2 billion versus the consensus estimate of $8.29 billion.
“The quarter is solid, showing strong growth over the year-ago quarter in both revenue and earnings, and the same was true on a sequential basis. These themes played out throughout the business groups as well,” said Phebe Novakovic, chairman and chief executive officer.
The full year also was strong, Novakovic said, with growth in earnings, margins, return on sales and an 8.7 percent increase in earnings per share over the prior year.
The company’s aerospace group reported fourth-quarter 2016 revenue of $2.22 billion, operating earnings of $436 million and an operating margin of 19.6 percent.
Compared with fourth-quarter 2015, revenue was up 3.8 percent for the segment, earnings were up 6.3 percent and margin was up 50 basis points. For the full year, aerospace revenue was down 5.5 percent, while operating earnings improved slightly and margins were up more than 100 basis points.
The aerospace group had solid order activity in the fourth quarter, as Gulfstream’s two new large-cabin business jets continue to progress ahead of schedule, including the first flight of the G600 in December, Jason Aiken, GD chief financial officer, told analysts on a conference call Monday morning.
“We really saw a very encouraging increase in velocity in the second half of the year at Gulfstream, representative of the entire model portfolio, including the new G500 and G600,” he said. “As we expected, as both get closer to entry into service, we’re seeing order interest beginning to pick up.
“As we are transitioning with the real ramp-up of the G500 starting in 2018 and the G600 starting in 2019, we’ll see modest growth in each of those years from their respective entries into service.
“We’ll see more accelerated growth in 2020, when both are fully ramped up into production,” Aiken said.
Also on Friday’s conference call, Kim Kuryea, General Dynamics vice president and controller, outlined a significant accounting change for 2017 that will specifically affect Gulfstream.
“On Jan. 1 of this year, we adopted the new revenue recognition standard ‘ASC Topic 606,’ which addresses revenue from contracts with customers,” she said. “This new standard outlines how and when to recognize revenue on a contract-by-contract basis.”
For Gulfstream, she said, the change does away with the practice of recognizing revenue at two specific points – green delivery and completion.
“Starting this year, we will have only one revenue-recognition point for Gulfstream aircraft – when the customer accepts delivery of the outfitted aircraft at entry into service,” she said.
Kuryea stressed that the change affects only the timing of when Gulfstream recognizes revenue and earnings and does not alter cash flow or profitability.
While 2016 numbers are reported using the old system, the company also provided analysts and stockholders with restated results using the new method for comparisons going forward.