June 25, 2008 - General Dynamics (GD-NYSE) brings it on by land, air, and sea. It operates in four areas: Information Systems & Technology (command and control systems), Marine Systems (warships and nuclear submarines), Combat Systems (tanks, amphibious assault vehicles, and munitions), and Aerospace (business jets). General Dynamics' Electric Boat subsidiary builds nuclear submarines (Seawolf, Ohio, Los Angeles classes); Bath Iron Works builds DDG 51 destroyers and LPD 17 landing craft; Land Systems builds the Abrams M1A1 and M1A2 main battle tanks and Fox reconnaissance vehicles; and Gulfstream Aerospace makes business jets. The US government accounts for more than two-thirds of sales.

Earnings did even better in the first quarter, with an improvement of 32.7%, well ahead of 21.7% expected by analysts. For 2005, earnings per share (eps) were $3.63, followed by $4.20, then $5.10. This year, analysts think $5.90 will hit the bottom line and next year, $6.52.

The standout division for the quarter was Aerospace. Sales rocketed and operating margins flew upward. The margins went from 15.8% in the first quarter of last year to 18.5% this year. There were several factors for the good news: increased orders for its Gulfstream business jet, a stronger product mix, higher prices and better efficiencies.

There's a new private jet under development that has buyers already lined up. It's the Gulftsream G650, scheduled for delivery in 2012, capable of flying at 700 miles per hour at 51,000 feet and covering 8000 miles. If you want one, they cost $58 million (gas not included). Letters of intent to buy the new craft are 6 or 7 times the number of jets scheduled for production in the first 2.5 years. Over half of the orders are from international buyers, most likely taking advantage of the weak dollar.

Another positive: the Navy needs new ships. GD is 1 of 2 domestic warship builders. The naval fleet is old and has to be replaced. Congress knows this and will most likely approve any request by the Navy for replacement ships.

More numbers: Sales should rise by 14.5% a year, on average for the next 5 years while earnings increase by 12.5% annually on average. The yield is 1.7%. The dividend takes about 23% of profits to pay. Net profit margin was 7.6% last year and analysts predict 8% this year. Current assets are about 1.25 times current liabilities with more than $2.6 billion in cash. Debt is 15% of capital.

There's a lot of good news for GD, and investors have already heard it. The stock has done nothing but go higher for the last 5 years in a steady, comforting fashion. Whether it keeps going will depend on continued new contracts, new products and better efficiencies. Management has delivered those in the past so the odds seem good they'll do it again.

- Company Web site: www.generaldynamics.com

- Ted Allrich