General Dynamics CEO sets sights on further growth, acquisitions

WASHINGTON ― The defense budget is shrinking, but General Dynamics Corp. still sees growing demand for its combat vehicles and warships, coupled with unprecedented opportunities to sell its popular Gulfstream business jets in China and other emerging markets.

Chief Executive Jay Johnson, a former F-14 fighter pilot and chief of naval operations, shies away from phrases like “off the charts,” but his steep hand gesture depicts a bright future for the commercial aerospace sector, and he’s not too worried about the defense outlook, at least for now.

In fact, tighter U.S. defense budgets will generate good acquisition opportunities for General Dynamics in coming years, Johnson told Reuters in a rare interview at the company’s headquarters in Falls Church, Va.

“We don’t have time to wring our hands. For us it’s all about performing for the customer and delivering to the shareholder,” says Johnson, who said the company remained committed to paying strong dividends, but would also keep enough cash on hand to take advantage of possible acquisitions.

The company’s strategy seems to be paying off, with Warren Buffett’s Berkshire Hathaway recently making a significant investment in GD after selling its stake 10 years ago.

“It’s the Warren Buffett seal of approval, which I think counts for a lot,” he said. Buffett has not disclosed the size of his holding, he said.

U.S. defense companies are scrambling to cut costs and find alternate revenue sources as they brace for a big decline in spending after a decade of double digit growth.

Many analysts consider GD the best-positioned company in the sector, given the mix of its weapons expertise and red-hot prospects for its Gulfstream business, which already has 200 orders for the new GS650 jet entering service next year.

Analysts expect General Dynamics, one of the five largest U.S. arms makers, to boost revenues by about $1 billion to over $33 billion in 2011, with sales growing modestly over the next two years. Revenues will be buoyed by an order backlog of over $58 billion and rising international sales.”We still will generate considerable earnings and cash in the defense space,” said Johnson, noting GD would benefit from continued demand for upgrades to tanks and other ground combat vehicles, even as U.S. forces withdrew from Iraq.

Demand from military commanders would ensure continued shipbuilding sales “as far as the eye can see,” said Johnson, who met with top Navy officials in Hawaii last month on the sideline of the Asia-Pacific Economic Cooperation meeting.

GD is one of two builders of Virginia-class nuclear-powered submarines, and recently won praise from Defense Secretary Leon Panetta for building the latest submarine, the USS Mississippi for $50 million below target and a year ahead of schedule.

The company is also “very excited” about the prospects for its commercial aerospace division, Johnson said, adding that demand from emerging markets was fueling growth “in a way that I don’t think we’ve ever seen before.”

In time, the division could generate about 30 percent of revenues, up from 20 percent now, Johnson said.

Analysts say GD’s earnings potential is excellent, given growing demand from China and other emerging markets for its Gulfstream jets, which Morgan Stanley analyst Heidi Wood calls “one of the world’s sexiest and most respected brands.”

GD has forecast that operating earnings from commercial aerospace could grow to over 35 to 40 percent of company-wide operating earnings in the next five years, from 20 percent now. Wood says they could reach as high as 50 percent.

General Dynamics to buy Force Protection for $360 million

FALLS CHURCH, Va. ― Defense contractor General Dynamics said it would buy smaller rival Force Protection Inc for $360 million to expand its armored vehicle business.

Shares of Force Protection, which also swung to a quarterly profit, rose to $5.60 in pre-market trading, surpassing the offer price of $5.52 a share. General Dynamics’ offer is 31 percent more than Force Protection shares’ Friday closing price.

The deal for Force Protection comes as concerns linger over massive defense budget cuts and an expected withdrawal of U.S. forces from Afghanistan and Iraq.

Force Protection, known for its Buffalo, Cougar and Ocelot brands of armored vehicles, on Monday posted a quarterly profit above analysts’ expectations.

The company ended the quarter with a funded backlog of $652 million and said it has “full visibility” for the delivery of about 100 Buffalos per year for both 2012 and 2013, with more shipments expected through April 2014.

General Dynamics, which makes armored vehicles, ships and business jets, expects the deal to add to earnings in 2012.

Force Protection, which has delivered more than 3,000 vehicles under the U.S. military’s Mine Resistant Ambush Protected vehicle program, will become a part of General Dynamics Land Systems, which makes Abrams main battle tanks and Stryker infantry combat vehicles.

General Dynamics buys cloud computing service firm

ATLANTA ― General Dynamics Corp. said Monday it acquired Network Connectivity Solutions Corp, a supplier of cloud computing and other information technology services to U.S. Department of Defense agencies.

The maker of ships and tanks said the acquisition would help it expand services that can help the Pentagon cut costs. General Dynamics did not disclose the deal’s value in its statement but said the purchase is expected to add to earnings in 2012.

Network Connectivity Solutions is based in Maryland and has about 160 workers.

General Dynamics shares were down 1.6 percent to $69.26 in morning trading.