Why General Dynamics Stock Is Falling Today

General Dynamics (NYSE: GD) topped quarterly expectations, but some of the company's key business units underwhelmed. Investors were disappointed, sending General Dynamics shares down 6% at the open Wednesday and down 4% as of 1:30 p.m. ET.

A subdued beat

General Dynamics earned $4.15 per share on sales of $13.3 billion in the quarter, topping Wall Street's $4.05 per share-on-$12.8 billion consensus estimate. But that consensus had reset lower during the quarter, and some of the underlying numbers were less rosy.

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The company's Gulfstream arm reported sales of $3.74 billion, up 36% year over year but below the Street's $4.1 billion expectation, and the unit's 15.6% margin was down 80 basis points from a year ago. Free cash flow of $1.81 billion was also below the $2.02 billion consensus estimate.

On the post-earnings call, General Dynamics said that plane deliveries "fell short of plan" in the quarter due to late-arriving engines. Gulfstream expects to deliver about 150 aircraft in 2025, which would be an improvement from the 136 deliveries in 2024.

Is General Dynamics a buy?

The other area of concern was in the company's marine unit, maker of nuclear-powered submarines and other U.S. Navy vessels, where sales were strong, but margin was light. Some of that could have been supply chain related, but investors will want to see operations improve in the defense side of the business in the quarters to come.

The company ended the year with a backlog of $90.6 billion in future business, and General Dynamics has ample cash to continue to fund its dividend, currently yielding more than 2%, as well as to continue to buy back shares.

But between the operational weakness and ongoing questions about what the new administration will mean for defense stocks, there aren't a lot of impetuses to buy right now. Investors should expect continued volatility from the sector, and from General Dynamics in particular, in the weeks to come.

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Lou Whiteman has positions in General Dynamics. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.