UPDATE: General Dynamics 2Q Net Off 3.6%, Boosts '09 EPS View

General Dynamics Corp.'s (GD) second-quarter profit slipped 3.6% on a year-earlier gain as the aerospace and defense contractor saw revenue growth across the company.

Earnings were better than analysts expected, and the Falls Church, Va., company raised its full-year earnings outlook by a nickel to a range of $6.05 to $6.15 per share.

Earlier this year, the company sharply cut production in its Gulfstream business jet unit, as corporate customers canceled or deferred deliveries. The business jet market overall isn't expected to rebound for another year.

During a conference call Wednesday, Jay Johnson, who this month became the company's chief executive, said the Gulfstream business appears to be stabilizing.

"New order interest has improved, and customer defaults are down almost 50% from last quarter," he said.

Johnson said the market for large-cabin corporate jets is improving, while the midsize business jet market remains weak. Gulfstream's quick reaction to the market downturn led the unit to stronger profitability in the second quarter, compared with earlier in the year.

On the defense side, Johnson said General Dynamics sees growing opportunities in the intelligence area. The recent acquisition of Axsys Technologies Inc. (AXYS), to beef up that business, will close later this year, and will be accretive to earnings in 2010.

The U.S. Department of Defense's move to end the huge Future Combat Systems program for the army has resulted in a loss of future ground vehicle contracts for General Dynamics, but, Johnson said, "frankly, we see the cancellation of FCS as an opportunity" as the army has said it will upgrade existing vehicles with new technology.

For the second quarter, General Dynamics posted income of $618 million, or $1.60 a share, down from $641 million, or $1.60 a share, a year earlier. There were 3.7% fewer shares outstanding in the most recent period. The latest results included a 1-cent loss from discontinued operations, while the prior year's included a 9-cent gain from a tax benefit.

Quarterly revenue rose 11% to $8.1 billion.

Analysts surveyed by Thomson Reuters expected earnings of $1.57 on revenue of $8.13 billion.

Operating margin rose to 11.7% from 11%, improving in all business segments.

The company's funded backlog grew 5.3% to $47.7 billion.

Shares traded recently at $54.51, up 77 cents, or 1.4%.

-By Ann Keeton, Dow Jones Newswires; 312-750-4120; [e-mail]

(Kerry Grace Benn contributed to this report.)