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Will Aerospace Segment Aid General Dynamics (GD) Q3 Earnings?

General Dynamics' (GD) Q3 results are expected to benefit from improved trends in commercial aerospace along with a stable defense business.

This story originally appeared on Zacks

General Dynamics Corporation GD is slated to release third-quarter 2021 results on Oct 27, before the opening bell.

- Zacks

Improved performance in the company’s business segments, including a rebound in Aerospace unit, is likely to positively impact the upcoming results.

Let’s take a detailed look at the factors likely to have influenced General Dynamics’ third-quarter performance.

Combat & Marine Segments to Aid Revenues

The company’s Combat Systems and Marine Systems segments have been witnessing growth over the past few quarters amid challenges posed by the pandemic. This is because the defense business of the nation remained cushioned to a large extent, backed by government support.

Keeping up with its usual trend, the Combat Systems unit is expected to have seen a top-line improvement in the third quarter, primarily driven by solid demand for combat vehicles, in particular the Abrams battle tank and the Stryker vehicle. The Zacks Consensus Estimate for General Dynamics’ Combat Systems third-quarter revenues is pegged at $1,810 million, implying a 0.5% year-over-year rise.

Its Marine Systems unit is also expected to have witnessed revenue growth, driven by expanding demand for submarines, surface combat and support ships, and other overhaul work. In particular, stable increases in construction volumes for Virginia Block V and Columbia Class submarines is expected to have favorably contributed to this unit’s revenue performance. The consensus mark for revenues from the Marine Systems segment is pegged at $2,555 million, implying a 6.2% year-over-year improvement.

Rebound in Aerospace Unit

General Dynamic’s Aerospace business unit suffered a setback in the second quarter of 2021, as increased supply-chain issues affected deliveries. Nevertheless, we expect delivery figures to have improved in the third quarter, driven by gradual recovery observed in the commercial aerospace over the past few months. This in turn must have boosted the Aerospace segment’s revenues in the to-be-reported quarter.

The Zacks Consensus Estimate for General Dynamics’ largest segment’s revenues in the third quarter is pegged at $2,121 million, indicating a 7.4% improvement from revenues reported in the year-ago quarter.

Earnings and Revenue Estimates

Projected revenue growth in each of the company’s business segments is likely to have had a  favorable impact on its overall top line in the to-be-reported quarter. The Zacks Consensus Estimate for the company’s third-quarter 2021 revenues stands at $9.82 billion, reflecting an improvement of 4.2% from the year-ago quarter’s reported figure.

Improved trends in commercial aerospace during the third quarter and favorable sales performance are expected to have boosted operating profit, thereby favorably contributing to the company’s overall bottom-line growth. The Zacks Consensus Estimate for the defense giant’s third-quarter earnings is pegged at $2.97 per share, indicating an improvement of 2.4% from the prior-year quarter's reported number.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for General Dynamics this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here.

General Dynamics has an Earnings ESP of 0.00% and a Zacks Rank #2. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are a couple of defense companies you may want to consider as these have the right combination of elements to post an earnings beat this season:

Transdigm Group TDG has an Earnings ESP of +0.36% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

CAE Inc CAE has an Earnings ESP of +9.46% and a Zacks Rank #3.

Huntington Ingalls HII has an Earnings ESP of +3.59% and a Zacks Rank #2.

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