General Dynamics (GD)

Q4 2010 Earnings Call

January 26, 2011 11:30 am ET

Executives

Amy Gilliland -

Jay Johnson - Chairman, Chief Executive Officer and President

L. Redd - Chief Financial Officer and Senior Vice President

Analysts

Carter Copeland - Lehman Brothers

Robert Stallard - RBC Capital Markets, LLC

Jason Gursky - Citigroup

Douglas Harned - Bernstein Research

Heidi Wood - Morgan Stanley

Robert Spingarn - Crédit Suisse AG

Samuel Pearlstein - Wells Fargo Securities, LLC

Myles Walton - Deutsche Bank AG

Peter Arment - Gleacher & Company, Inc.

David Strauss - UBS Investment Bank

Presentation

Question-and-Answer Session

Jay Johnson

Well, I don't consider 18.9 million shares to be trivial. But we're opportunistic not programmatic in our share repurchase segment activity. And when the market suggest that we're undervalued and ought to buy it back, if that's the best use of a cash, we'll do it. But as you know, and I think we've talked before, Heidi, in terms of capital deployment, we've held back just because of the environment in which we've been operating to make sure we have plenty of cash. We have plenty of cash. I think you could expect now that the environment is improving to see us execute our balanced preference in terms of how we deploy our capital to include more acquisitions and continue share repurchase as the market talks to us. So we'll deal with the dividend in March as we always do. We'll deal with share repurchases as it becomes opportunistic for us. And we're looking and working the M&A side very actively right now.

Heidi Wood - Morgan Stanley

You're right, 18.9 million is a lot, but from '09 to '10, the net decline was only 7 million. That's why I'm wondering whether you've got a determination to kind of keep chewing that down, that's what I was trying to say.

Jay Johnson

Yes, we'll keep chewing it down as long as it makes sense to do so. But we're also about growing earnings around here. And so the capital deployment is going to be helping us tie to that very nicely.

Heidi Wood - Morgan Stanley

And then lastly, can you talk about slot availability in 2011? And there's a considerable debate, as you're well aware, about whether the G550 gets cannibalized by the 650. Can you give us any color advancing that debate one way or the other as you look out with the demand over the second half of 2010 and early inquiries into 2011?

Jay Johnson

Yes. We have 18 to 24 months backlog in both the in-production, large-cabin aircraft. There is not cannibalization occurring. We're still taking orders for 650s. We're well out on 550s and 450s. We're very pleased with all of that. I do not see cannibalization as an issue. We're holding price very handsomely on the large cabins. So the 650 is not a replacement, as you know, Heidi, but for everyone, is not a replacement for any aircraft. It defines its own part at the top of the market. And that's exactly the way it's being presented and that's exactly the way it's being received. So it's not threatening at all to our 550 in terms of backlog or activity at all.

Heidi Wood - Morgan Stanley

And the just to reiterate, the 550 slots are full in '11?

Jay Johnson

That is correct.

Amy Gilliland

And Katie, I think we have time for just one more question this afternoon.

Operator

Your next question comes from the line of Robert Stallard from Royal Bank of Canada.

Robert Stallard - RBC Capital Markets, LLC

Jay, maybe looking at the OCO leaks to the FY '12 number suggest the administration is going to bring the OCO down quite considerably. I was wondering if you could clarify what your exposure still is there and whether you would see any negative impact from that?

Jay Johnson

I think the general answer there would be not much. I mean in years past, I think as you know, the OCO, the supplementals, et cetera, included procurement, included MRAP, included things that were very elemental to us. But in the past few years, what we're seeing is really the best way to say it, I think, is our core programs had moved into the base budget, by and large, okay? So it's not something that is going to change our life much if the OCO comes down. That's probably the best way to say it.

Robert Stallard - RBC Capital Markets, LLC

If you could give an estimate of the percentage of sales maybe in 2011?

Jay Johnson

No, very small. I don't have a number in my head, but it's not -- let's put it this way, it's not something I worry about.

Operator

At this time, I'd like to hand the call back over to Amy Gilliland for closing remarks.

Amy Gilliland

Thank you for joining our call today. And if you have additional questions, I can be reached at (703)876-3748. Have a great day.

Operator

Ladies and gentlemen, thank you very much for your participation in today's conference call. You may now disconnect. Have a wonderful day.

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2010 General Dynamics Earnings Conference Call. My name is Katie, and I'll be your coordinator for today. [Operator Instructions] I would like to now hand the call over to your host for today, Amy Gilliland, Staff Vice President of Investor Relations. Please proceed.

Amy Gilliland

Thank you, Katie, and good morning, everyone. Welcome to the General Dynamics Fourth Quarter Conference Call.

As always, any forward-looking statements made today represent our best estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K and 10-Q filings.

Read the rest of this transcript for free on seekingalpha.com