July 25, 2018 / 12:06 PM / 3 months ago

UPDATE 3-General Dynamics profit beats estimates on IT services demand

(Adds management comments, analyst note)

By Mike Stone and Sanjana Shivdas

July 25 (Reuters) - General Dynamics topped Wall Street estimates for quarterly profit on Wednesday, as the maker of Gulfstream jets and U.S. Navy ships benefited from stronger demand at its combat systems and information technology businesses.

Shares rose as much as 2.6 percent to $201.90 in early trading after General Dynamics said sales at its IT services unit more than doubled.

The company closed its $9.7 billion purchase of IT services-heavy CSRA Inc early in the quarter. The U.S. government is in the midst of a broad modernization effort.

Sales of combat systems, including battle tanks, rose 8.5 percent during the quarter.

The results come as U.S. arms makers seek to take advantage of expanding defense budgets in NATO countries and in other regions.

Defense spending in the United States is increasing as well. On Monday, Senate and House of Representatives negotiators reached agreement on a $716 billion defense policy bill.

"The interest in all of our products remains quite good. The demand signals in North America are very good and growing in Europe as well," Chief Executive Phebe Novakovic said on a post-earnings call with Wall Street analysts.

Revenue jumped nearly 20 percent to $9.19 billion.

Novakovic raised the company's earnings-per-share outlook for the year to a range of $11 to $11.05 from $10.90 to $11 during the call with analysts.

Its aerospace division, which makes business jets, reported a nearly 9 percent drop in revenue as quarterly Gulfstream aircraft deliveries slipped to 26 from 30 a year earlier. Still, the Falls Church, Virginia-based company said margins in that business were nearly 21 percent and orders for the jets were up 21 percent versus the same quarter last year.

"The CSRA acquisition and related costs complicated the results, but the Gulfstream margin was particularly strong with profits in the remaining segments and other items providing a further boost," Robert Stallard, an analyst at Vertical Research, said in a note.

General Dynamics' net earnings climbed to $786 million, or $2.62 per share, in the second quarter ended July 1, from $749 million, or $2.45 per share, a year earlier.

Excluding onetime items, General Dynamics earned $2.82 per share, topping analysts' average estimate of $2.49 per share, according to Thomson Reuters I/B/E/S.

During the quarter, the total order backlog for General Dynamics grew 6.7 percent from $62.1 billion to $66.3 billion.

During the call with analysts, General Dynamics' chief financial officer said the company's tax rate in the second quarter was 19 percent. (Reporting by Mike Stone in Washington and Sanjana Shivdas in Bengaluru; Editing by Sai Sachin Ravikumar, Bernadette Baum and Jonathan Oatis)

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