General Dynamics Reports Strong Q4, but Faces Demand Challenges Despite Backlog Growth

Financial Highlights:

* Revenue: $13.34 billion, exceeding estimates by 3.4% (14.3% YoY growth)
* GAAP EPS: $4.15, beating consensus by 2.4%
* Operating Margin: 10.7%, unchanged YoY
* Free Cash Flow Margin: 13.5%, up from 7.6% YoY
* Backlog: $90.6 billion, surpassing estimates by 10.8%

Company Overview:

* Developer of aerospace, marine, combat, and technology products
* Defense contractor with government clearance and long-term contracts

Sales Growth and Revenue Outlook:

* Five-year CAGR of 3.9%, below industry standard
* Two-year annualized revenue growth of 10%, indicating accelerated demand
* Q4 YoY revenue growth of 14.3%
* Estimated 12-month revenue growth of 5.4%, indicating potential demand challenges

Profitability:

* Consistent operating margin of 10.5% over the past five years
* Stable operating margin of 10.7% in Q4 YoY
* EPS grew at a modest 2.6% CAGR over five years
* Two-year annualized EPS growth of 5.8%, showing improvement
* Q4 EPS of $4.15, exceeding estimates

Key Takeaways:

* Revenue and backlog beat expectations
* Solid quarter overall, but share price declined post-earnings
* Concerns about government and defense spending under the new administration
* Long-term business quality and valuation should be considered before investing

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