General Dynamics Land Systems, a business unit of General Dynamics Corporation (GD), has received two contracts with a combined value of $42.4 million from the U.S. Army TACOM Lifecycle Management Command. The U.S. Army awarded the contract on behalf of the Royal Saudi Land Forces for the Kingdom of Saudi Arabia's tank program.
The contract is part of a plan by the Kingdom of Saudi Arabia to upgrade its entire fleet of 314 Abrams tanks. The two contracts worth $12.6 million and $29.8 million separately will provide materials and labor for the conversion of 102 M1A2 tanks to an M1A2S configuration. The M1A2S conversion will increase the efficiency and capability of the tank.
The company expects to complete 60 tanks by August 30, 2012, and the remaining 42 tanks by September 30, 2012, with the help of employees at the Joint Systems Manufacturing Center in Lima, Ohio.
The $42.4 million contract is the continuation of the work started in 2008 to design, develop, convert, implement and test a hybrid configuration of M1A1, M1A2 and M1A2 System Enhancement Package tank variants for the Kingdom of Saudi Arabia.
General Dynamics was the fourth largest U.S. defense contractor in terms of revenue in fiscal 2010 after The Boeing Company (BA), Lockheed Martin Corporation (LMT) and Northrop Grumman Corporation (NOC).Looking forward, key drivers include the reviving fortunes for the business jet market, its stable business of U.S. military vehicles, an ongoing share repurchase program and strong cash flow generation.
However, the company is largely tied to the U.S. defense budget, where the threat of budget cuts is looming high. Also, we have turned slightly cautious about the company’s steadily dropping order backlog, as well as the recent G650 crash and risks related to the execution of key projects. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
Recently, General Dynamics reported second quarter results with earnings from continuing operations of $1.79 per share, surpassing the Zacks Consensus Estimate of $1.73. Results also comfortably beat earnings of $1.68 per share in the year-ago quarter. General Dynamics generated total revenue of $7.88 billion in the quarter under review, down 2.8% year over year. Results also lagged the Zacks Consensus Estimate of $8.26 billion.
Headquartered 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. The company operates through four segments: Information Systems & Technology, Combat Systems, Marine Systems, and Aerospace.
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