Second quarter success for Gulfstream and Jet Aviation may be short lived


General Dynamics reported a "superb" second quarter for Gulfstream and a return to profitability for Jet Aviation, but warns that third quarter will not be as bright.

Gulfstream Luton

Impressive earnings from Gulfstream and Jet Aviation saw Aerospace emerge as General Dynamics’ best-performing division in the second quarter of 2013, with revenues up $616 million or 19.2%.

Operating earnings throughout the division grew by 32.4% – precisely $171 million – as Jet Aviation returned to profitability and Gulfstream continued its improvement, described as “superb,” triggered largely by G650 sales.

Although both companies have plenty to be encouraged by, Phebe Novakovic, chairman and CEO of General Dynamics, gave three reasons in the company’s earnings call why she did not expect earnings to be as high in the third quarter.

“First, we will experience cost increases on several G450 and G550 supply contracts, which will compress margin,” she said.

“Second, due largely to the vagaries of production planning, we plan to produce two fewer large-cabin aircraft in the third quarter.”

“Third, we are delivering more green mid-cabin in the quarter, resulting in a mix shift in delivering the lower-margin airplane.”

Novakovic said she expects the fourth quarter to return to second quarter production levels, with the improved learning on the G650 line helping to offset the cost increases in the 450 and 550 supply chain.