- Earnings Per Share (EPS): $3.26 per diluted share.
- Revenue: $11.98 billion, up 18% year-over-year.
- Operating Earnings: $1.16 billion, up 20.2% year-over-year.
- Net Income: $905 million, up 21.6% year-over-year.
- Year-to-Date Revenue: $22.7 billion, up 13.3% year-over-year.
- Year-to-Date Operating Earnings: Nearly $2.2 billion, up 15.4% year-over-year.
- Year-to-Date Net Earnings: $1.7 billion, up 15.6% year-over-year.
- Aerospace Revenue: $2.94 billion, up 51% year-over-year.
- Aerospace Operating Earnings: $319 million, up 35% year-over-year.
- Combat Systems Revenue: Almost $2.3 billion, up 19% year-over-year.
- Combat Systems Earnings: $313 million, up almost 25% year-over-year.
- Marine Systems Revenue: $3.45 billion, up almost 13% year-over-year.
- Marine Systems Operating Earnings: $245 million, up $10 million year-over-year.
- Technologies Revenue: Nearly $3.3 billion, up 2.5% year-over-year.
- Technologies Operating Earnings: $320 million, up 13.1% year-over-year.
- Free Cash Flow: $613 million for the quarter.
- Book-to-Bill Ratio: 0.8 to 1 overall, 0.9 to 1 in Aerospace, 1.5 to 1 in Combat Systems, and 1 to 1 in Technologies.
- Backlog: $91.3 billion.
- Capital Expenditures: $201 million for the quarter.
- Dividends Paid: $389 million for the quarter.
- Shares Repurchased: Approximately 119,000 shares for $34 million.
- Net Debt Position: $7.9 billion.
- Effective Tax Rate: 17% for the quarter.
Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- General Dynamics Corp (GD, Financial) reported earnings of $3.26 per diluted share on revenue of $11.98 billion, reflecting strong financial performance.
- Revenue increased by 18% across all four business segments, with a notable 51% increase in the Aerospace segment.
- Operating earnings rose by 20.2%, demonstrating solid operating leverage, and net earnings increased by 21.6%.
- The company has a robust order backlog of $91.3 billion, indicating strong future revenue potential.
- Combat Systems and Marine Systems segments showed significant growth, with Combat Systems revenue up 19% and Marine Systems revenue up 13% year-over-year.
Negative Points
- General Dynamics Corp (GD) missed EPS consensus by $0.02 due to delays in G700 aircraft deliveries.
- The Aerospace segment faced higher-than-expected costs due to retrofit work, battle station work, and extended certification periods for the G700.
- Marine Systems margins were impacted by continued delays from the submarine industrial base, affecting cost and schedule.
- The company experienced a higher provision for income taxes, which impacted net earnings growth.
- Supply chain issues continue to affect the Aerospace segment, particularly in terms of cost and delivery schedules.
Q & A Highlights
Q: On the G700, there are some issues that you have to fix with these pre-built airplanes. Can you talk about what exactly the issue is, how far along you are in fixing it, and whether this is still an issue for airplanes on the line?
A: (Phebe Novakovic, CEO) Very late in the certification process, we had a requirement to bind together some wires in the tail of the airplane. This was a relatively simple fix. For those airplanes already built, we took the tails off; for those being built, we just didn't put them on. This issue is largely behind us and contributed a bit to the cost impact on Lot 1.
Q: Can you touch upon expectations around bookings, considering geopolitical volatility and the US presidential election?
A: (Phebe Novakovic, CEO) We typically see a slowdown around US presidential elections, and this year won't be different. However, we expect a more robust fourth quarter due to the expiration of depreciation and a strong pipeline. There's significant interest in our airplanes, particularly in the US, EU, Middle East, and recently, China.
Q: With the recent supplemental funding for the submarine industrial base, has that money resolved the supply chain issues, or have you had to qualify alternate sources?
A: (Phebe Novakovic, CEO) The Navy has allocated significant funding for the industrial base, which has begun to flow and is targeted for increased throughput, facilitation, and training. Some suppliers are improving, but challenges remain. We continue to see cost impacts from late deliveries, but we are hopeful that additional funding will help stabilize the supply chain over time.
Q: Does the required rework for the tail issue at Gulfstream extend beyond the first 20 units in the first block? Should we expect a sequential build in unit deliveries and margin improvement?
A: (Phebe Novakovic, CEO) The tail issue is largely behind us. We expect margin improvement in the third quarter and even better margins in the fourth quarter, reaching mid to high upper-teens. The Lot 1 cost burden will be behind us imminently.
Q: Can you discuss the trends in the aerospace services business, fleet utilization, and the competitive environment?
A: (Phebe Novakovic, CEO) Services will grow with the expansion of the fleet. Our objective is to capture as much Gulfstream work as possible, and we already have the vast majority. Services and special missions are driving revenue increases this year, and we expect steady growth over time. The competitive environment remains stable.
Q: How should we think about the impact of recent combat systems bookings on backlog and segment margins?
A: (Phebe Novakovic, CEO) Bookings reflect the threat environment, driven by international vehicle orders and US ammunition and army programs. Combat systems typically have mid-14% margins, with variability up to 15%. Increased sustainment work, which carries higher margins, and the transition from lower-margin facilitization to higher-margin throughput on ammunition will drive margin expansion.
Q: Can you provide an update on the ramp-up of the new munitions facility in Texas?
A: (Phebe Novakovic, CEO) The first line is running and producing as anticipated. We are standing up lines three and four, significantly increasing throughput. The modern facility and strong workforce give us confidence in quickly coming down the learning curves and producing at or above plan.
Q: How do you see the demand for munitions extending over the next five to seven years, considering the current geopolitical environment?
A: (Phebe Novakovic, CEO) It's difficult to predict the threat environment beyond a couple of years. We anticipate increased munitions orders for the next three to four years, driven by the current threat environment. Lessons learned about the criticality of munitions will likely be incorporated into long-term planning.
Q: How are you thinking about matching supply to demand at Gulfstream as you ramp up deliveries? Do you have visibility that orders will keep pace with the revenue run rate?
A: (Phebe Novakovic, CEO) We have a balanced plan through this year, supported by a strong pipeline and significant interest in our new airplanes. The pipeline remains strong, indicating near-term future growth.
Q: Can you comment on the outlook for NAASCO, considering recent repair work and sub tender wins?
A: (Phebe Novakovic, CEO) NAASCO's learning and performance on the TAA and oiler programs are going well. We are delivering the seventh of the eight-class ESB, and repair demand from the US Navy is increasing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
