* Earnings fell 4.8 percent
* Order backlog drops about 10 percent
* Delays in contract awards cited (Adds details from analyst call, quotes)
By Andrea Shalal-Esa
WASHINGTON, July 25 (Reuters) - Weapons and airplane maker General Dynamics Corp posted lower second-quarter earnings and lowered its outlook for full-year earnings, dragging down its shares nearly 2.5 percent amid growing concerns about the U.S. budget outlook.
Chief Executive Jay Johnson, who will retire at the end of the year, s aid the order backlog was down to $52.4 billion in the second quarter from $57.1 billion in the year earlier period.
He said he expected better order volume in the second half of the year, particularly in the company’s aerospace division, which expects to complete flight testing its new Gulfstream G650 in the third quarter.
Johnson said forecasts for the defense sector were difficult given uncertainty about further defense budget cuts, the growing likelihood that Congress would not complete a 2013 defense budget in time for the start of the fiscal year on Oct. 1, and the presidential election.
“The uncertainty and anxiety spawned by these second-half events continues to impede Department of Defense and federal government acquisition program execution,” he said.
General Dynamics, which builds warships, ground combat vehicles and business jets, said earnings from continuing operations fell 4.8 percent to $634 million, or $1.77 per share on a fully diluted basis, compared with $666 million, or $1.79 per share, in the year-earlier period.
Revenues edged up 0.5 percent to $7.9 billion in the second quarter from $7.89 billion.
Analysts polled by Thomson Reuters I/B/E/S expected earnings per share of $1.73 on revenues of $7.93 billion.
Joe Nadol, defense analyst with JP Morgan, said the company’s results were in line with expectations, but its lowered guidance for the year could depress its share price.
General Dynamics shares were trading $1.05 or 1.6 percent lower at $62.34 in late-morning trading on the New York Stock Exchange.
The company, based in Falls Church, Virginia, described the business climate as challenging, but continued cost-cutting allowed operating margins to rise slightly to 12.2 percent.
Given uncertainty about the defense outlook, Johnson said the company was focused heavily on executing its contracts, cutting costs and consolidating facilities, primarily in Europe, and safeguarding its capital.
“We are focused on what we can control,” Johnson told analysts.
Revenues were dragged lower by a 10 percent drop in the information systems and technology sector, where expected orders for already awarded tactical communication equipment contracts failed to materialize, General Dynamics said.
Earnings in that sector dropped 24.4 percent.
But operating margins remained high across the company’s sectors, increasing in combat systems, shipbuilding and aerospace, and dropping in the information systems sector.
Johnson said the Gulfstream brand had a sizable, multiyear, large-cabin backlog and a robust order pipeline, and saw its lowest order default rates since the begin of the global financial downturn in 2008.
”Heading into the second half of 2012, I remain very confident in our continued ability to execute,“ he said, adding....I believe it is prudent to revise the full-year earnings guidance range downward to $7.00 to $7.10 per share, fully diluted.” (Reporting By Andrea Shalal-Esa; editing by Jeffrey Benkoe and Leslie Gevirtz)