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F500-2022-094-General Dynamics

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F500-2021-84-General Dynamics

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F500-2020-083-General-Dynamics

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General Dynamics Corporation, founded in 1899, is a global aerospace and defense company operating through four segments: aerospace, marine systems, combat systems, and technologies. The aerospace segment focuses on business jet production, maintenance, and related services. The marine systems segment designs and constructs nuclear-powered submarines and surface combatants. This segment also builds commercial ships and provides maintenance. The combat systems segment manufactures a wide array of military vehicles, weapons systems, and armaments. This segment also offers modernization programs and support services for its products. The technologies segment provides information technology solutions, mission support services, and advanced systems for military, intelligence, and federal civilian customers. Its offerings include mobile communication systems, intelligence and surveillance solutions, cloud computing, artificial intelligence, and unmanned undersea vehicle manufacturing.

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General Dynamics (GD): Company Profile, Stock Price, News, Rankings

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General Dynamics

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Good morning, and welcome to the General Dynamics First Quarter twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Please note this event is being recorded. At this time, I would like to turn the conference over to Nicole Shelton, Vice President of Investor Relations.

Thank you, operator, and good morning, everyone. Welcome to the General Dynamics first quarter twenty twenty five conference call. Any forward looking statements made today represent our 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 ks, 10 Q and eight ks filings.

We will also refer to certain non GAAP financial measures. For additional disclosures about these non GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. On the call today are Phoebe Novakovic, Chairman and Chief Executive Officer Kim Korea, Chief Financial Officer and Jason Aiken, Executive Vice President, Technologies. I will now turn the call over to Phoebe.

Thank you, Nicole. Good morning, everyone, and thanks for being with us. As you can discern from our press release, we reported earnings of $3.66 per diluted share on revenue of 12,200,000,000.0, operating earnings of 1,268,000,000, and net earnings of 994,000,000. These results compare quite favorably to the year ago quarter. Revenue was up 13.9%, operating earnings are up 22.4%, and net earnings are up 24.4.

As a result, earnings per diluted share are up 78¢ or 27.1% more than the year ago quarter. The operating margin for the entire company was 10.4%, a 70 basis point improvement over the year ago quarter. While aerospace led the way with a 45.2% revenue increase, Each of the defense segments also enjoyed revenue increases. A similar pattern is true with respect to operating earnings. Aerospace led the way with a stunning 69.4% increase, and each of the defense segments contributed nice improvements to operating earnings as well.

We have obviously opened the year with a very strong quarter. It is important to note that the comparative quarter in 2024 also showed very good growth in all respects over first quarter twenty three. We also beat consensus by 16¢ in the quarter. At this point, let me ask Kim Korea, our CFO, to provide detail on our order activity, solid backlog, and cash activity before I come back with segment observation.

Thank you, Phoebe, and good morning. I'll start with orders and backlog. We had a solid quarter with over $10,000,000,000 of orders. Order activity was particularly strong in the technologies group with a book to bill ratio of 1.1 to one. Our overall book to bill ratio for the company was less than one times due in part to the 14% increase in revenue from last year.

This resulted in total backlog being slightly down from year end to $89,000,000,000 at quarter end. Our total estimated contract value, which includes options and IDIQ contracts, ended the quarter at a little over $141,000,000,000 Turning to our cash performance for the quarter, we expected a slow start to the year. In terms of timing, this year will look a lot like last year with cash building throughout. The buildup of inventory as we approach certification and entry into service of the g 800 impacted aerospace. And although technologies had a solid quarter, the defense businesses as a whole were impacted by a working capital buildup due to growth and timing.

As a result, our free cash flow for the quarter was a negative $290,000,000. This was better than expected as our business units work to drive cash to the left. For the rest of the year, we expect modestly positive cash flow in the second quarter followed by substantially improving free cash flow in each of the third and fourth quarters. Now to discuss capital deployment activities. Capital expenditures were $142,000,000 or 1.2% of sales in the quarter.

Similar to last year, you should expect capital expenditures to increase in subsequent quarters throughout the year as we anticipate spending around 2% of revenue on CapEx investments in our businesses this year. Also in the quarter, we returned in excess of $980,000,000 to shareholders in the form of dividends and share repurchases. This included $383,000,000 paid in dividends and repurchases of approximately 2,400,000.0 shares of stock for $600,000,000 at an average price of just over $252 per share. In addition, in late March, we repaid $750,000,000 of notes that matured on April 1. As a reminder, we have an additional $750,000,000 of notes maturing in May.

Although we ultimately intend to refinance those notes, the timing of when we do that may be influenced by market conditions. When you add it all up, we ended the quarter with cash balance of around $1,200,000,000 and a net debt position of 8,400,000,000. Our net interest expense in the quarter was $89,000,000 compared to 82,000,000 last year. The increase was due to utilization of commercial paper during the quarter. Finally, turning to income taxes, we had a 17.2% effective tax rate in the quarter, generally consistent with our full year guidance.

Phoebe, that concludes my remarks. I'll turn it back over to you.

Now let me review the quarter in the context of the business segments and provide detailed color as appropriate. First, aerospace. Aerospace did particularly well in the quarter. It had revenue of 3,030,000,000.00 and operating earnings of 432,000,000 with a 14.3% operating margin. Revenue is 942,000,000 more than last year's first quarter, a 45.2% increase.

To give you a little color here, the increase was driven by a 50% increase in aircraft deliveries, including 13 new g seven hundreds and higher services revenue at both Gulfstream and Jet Aviation. The 36 deliveries in the quarter are about as planned. Recall, however, that there were no g 700 deliveries in the first quarter of twenty twenty four. So this quarter really shows the robust revenue increase driven by the introduction of the g 700. In addition, we saw improved margins on our g 700 deliveries.

In short, we expect revenue growth throughout the year, but at a slowing rate of growth because g 700 deliveries began in the second quarter of last year. As I indicated last quarter, the supply chain continues to improve and is performing better to both schedule and quality. We are finding fewer faults, and those we are finding are becoming easier to fix. In short, I am increasingly confident that we can meet this year's delivery plan. We are also pleased that the g 800 was certified by both the FAA and EASA on April 16.

This is expected to be a smooth entry into service, and we have some reason to believe that we can exceed our planned deliveries of g eight hundreds. I would be remiss if I failed to mention that Jet Aviation made a significant contribution to the quarter's results. Its revenue was up 8% and earnings up 22 over the year ago quarter on a 60 basis point improvement in operating margin. This business has become a real jewel. In summary, the aerospace team has had a good quarter.

G 800 FAA and EASA certification is behind us, and we are improving our g 700 delivery cadence and operating margin. Turning to market demand, we had a point eight book to bill in the quarter even as aircraft deliveries increased by 50%. Orders are consistent with our internal plan at about the same number of units as the first quarter in twenty three and twenty four. We expect that the certification of the g 800, it's better than planned performance characteristics, and the early deliveries to customers will stimulate demand. We continue to see improved interest across all models in The US, albeit with cautious concern by customers about the macroeconomic environment and the impact of tariffs on their businesses.

Middle East activity remains strong. So let's move on to the defense businesses. Combat had revenue of 2,180,000,000.00, up 3.5% over the year ago quarter. Earnings of 291,000,000 are up 3.2%. Margins at 13.4% are consistent with the year ago quarter.

It's interesting to observe that this year's revenue growth is on top of our first quarter twenty twenty four growth of almost 20%, so nice compound growth. The increased revenue performance occurred at Ordnance and Tactical Systems and European Land Systems. Land Systems held steady. We also experienced good order performance. Orders in the quarter drove backlog to 16,900,000,000.0, up 1,300,000,000.0 from this time a year ago.

Demand for combat system products continues to be robust with particular strength in Europe. Orders for wheeled and tracked vehicles are up, reflecting the heightened threat environment. In addition to several new combat vehicle starts, we are working closely with the US Army to accelerate Abrams modernization. In The US, we are rapidly increasing munitions capacity and production with the opening of our projectile facility in Texas and our load and assembly and pack facility in Arkansas. All in all, combat had a solid quarter and is off to a good start for the year.

Turning to marine systems. Once again, our shipbuilding units are demonstrating impressive revenue growth. Let me repeat the recent history that I gave you this time last year with respect to growth in this decade. The first quarter of twenty twenty was up 9.1% against q one nineteen. Q '1 '20 '1 was up 10.6% over q one twenty.

Q '1 '20 '2 was up 6.8% over q one twenty one. Q '1 '20 '3 was up 12.9% over q one twenty two. And q one twenty twenty four was up 11.3% over q one twenty three. And finally, this quarter is up 7.7% over q one twenty four. This has been a really nice rate of growth for the shipyards and the repair yards.

This growth has come at significant cost for facilities and significant increase in hiring. The good news is we've been able to hire and train the people we require to support our growth. This particular quarter's growth was driven by Columbia class and Virginia class construction as well as an increase in DDG fifty one construction. Operating earnings are 250,000,000 in the quarter, up 7.8 from the year ago quarter. Operating margin is identical to last year's quarter.

We have struggled to achieve operating leverage to go with our rapid revenue growth, but operating earnings have grown on a consistent basis as well. We continue to be impacted by delays and quality problems in the supply chain. Material and parts are late and sometimes exhibit quality escapes, and new shipbuilders continue to come down learning curves. We have more work to do, but we have made progress. In addition, one of the unions, the draftsman, a largely white collar union that converts engineering specs to drawing, has voted to authorize the strike.

We are working closely with the navy and the new administration to continue to address the problems in the supply chain and look for opportunities to improve throughput and performance of the shipyard. The growth profile continues to look strong and demand has not abated. Our job is to continue to improve ourselves and to help the industrial base get stronger with the help of the government. The technologies group had a strong start to the year with revenue of $3,430,000,000. This was an increase of 6.8% over the first quarter of twenty twenty four.

Both businesses contributed to the growth in the quarter with GDFIT up 9% and Mission Systems up almost 2%. Operating earnings of 328,000,000 were up 11.2% over the year ago quarter on a 40 basis point improvement in operating margins from 9.2% to 9.6%. The operating margin improvement is encouraging given the top line shift toward IT services, which carry a lower margin than the defense electronics side of the portfolio. This reflects strong performance admission systems as the transition from legacy programs to new franchises continues. The group's order activity was also encouraging with a book to bill of 1.1 times for the quarter and trailing twelve months even against the strong revenue growth.

As a result, the group's backlog is up almost 7% from a year ago, and their total estimated contract value is up more than 10% over the same period. Their focus on advanced technology enabling autonomous platforms, smart munitions, subsea warfare, and strategic deterrence as well as advanced AI, cloud, cyber, five g, and quantum solutions is driving demand for the group. Their pipeline of qualified opportunities remains strong at a hundred and 20,000,000,000, and their win and capture rates in the 80% range reflect the compelling value they're providing their customers. While this year is off to a strong start, a significant amount of uncertainty hangs over the market, particularly on the IT services side of the business as the administration establishes its own spending priorities. That said, our team has a great understanding of the government's emerging technology needs and is committed to innovating to solve the toughest technical challenges across the government at the best return for their customers.

As you know, we never update guidance at this time of year. Apart from what I've already said about aerospace, I will continue with that practice. There is, however, no hiding from this quarter's performance and its implication for the year. Let me speak to tariffs for a moment. We cannot yet discern to what extent the defense businesses will be impacted over time.

The more potentially impactful problem is in aerospace where we are a significant net provider of export revenue to The US. We do not know the scope and breadth of the tariffs issue at the moment and that will not for a while. Accordingly, anything I might say on that subject would be sheer speculation. So I do not intend to answer questions on the subject of tariffs because anything I say on that subject, given our lack of firm knowledge, will almost certainly be wrong. That's to share that we are working the related issues diligently.

This concludes my remarks about a good quarter, and let me turn the call back to Nicole to take questions.

As a reminder, we ask participants to ask one question and one follow-up so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue?

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue.

We will take our first question from Peter Arment at Baird.

Yeah, thanks. Good morning, Kim, Jason, Nicole. Nice results. Phoebe, maybe just given in the spirit of everything that's going on, GDI Technology segment had a really good bookings quarter kind of bucking the trend of the industry. Maybe could you talk a little bit about, I guess, any visibility or any discussions that GD is supporting kind of the GSA and their efforts?

And just how are things looking from a bookings in a cost savings environment when with with with the current administration?

Yeah. Peter, that's a good question. I asked Jason to join us on the call to provide us more color for those of you who wanted some. So I'll turn that over to Jason.

Thanks, Phoebe, and good morning, Peter. I think as you'd expect, along with a number of GDIT's peers that I'm sure you've heard from, you know, we've been in active conversation and actively working with the customer to identify, opportunities for for savings, for increased value, and so on from the services and the solutions that we that we provide. I think it's it's important to to as a reminder, that we are not strictly in the consulting business per se. We deliver mission driven solutions. We deliver solutions to the customer's most challenging technology issues.

And but the fact is we are in the conversation. And as part of that conversation, we are going to partner with our customer, and we are going to find the savings that they're looking for. At this point, the only thing I could comment in terms of what we're seeing in our results is you saw you heard about the strong results in the quarter. First quarter was very strong, not only from a a revenue and earnings standpoint, but also the order, book, was healthy. So on the one hand, we're seeing a little bit of sluggishness in the in the solicitation and the and the, proposal and and award process.

No different than the rest of our peers. But we'll have to see how that plays out, how long that sustains, and how much of that is just an impact of a new administration setting their priorities and no different than any transition we see with a new administration. So a lot still to be determined. Nothing to change yet. The outlook for the year remains the same, And I think we'll know a lot more by the midpoint of the year.

First question, Phoebe, maybe just get some comments from you and your take on the administration's desire to stand up, I don't know, office of shipbuilding inside the White House and all the efforts that we're seeing from them on supporting the industrial base here in The United States. We just love to get your your take on what you're hearing.

have the focus on on, shipbuilding, across the across the enterprise. So I consider that all all goodness, and, and we've had productive conversations, with multiple elements of the administration. And, we're working with them to see, in some cases, how we can accelerate throughput productivity, ensure up how we can shore up the industrial base, particularly on the on the defense side, and opportunities for for more commercial shipbuilding, where they may arrive. So I I I think attention on a on a subject of national import is is always beneficial.

Okay. Great. And then quick follow-up question would just be on the executive orders that hit last week about the potential for seems like a rewrite of federal acquisition regulation. I'm just would love to get your take on this administration's approach to procurement reforms. Seems like every administration comes in and wants to reform how acquisition is done.

Just curious if you think this one's gonna be any different, kind of, you know, potential opportunities and risks as we go through this process for the industrial base writ large. Thanks.

So I think that, acquisition reform is always laudatory. And I think the extent to which it succeeds is understanding what works in the acquisition process and what and what doesn't. So I think that part of the dialogue we're all having is here here's the good things, because there are an awful lot of good things, within the process. They hear all the impediments, the cost drivers, the elements that tend to slow down or build bureaucracy. So I think that's a, I think those are good conversations, and and we've always been supportive of acquisition reform.

We'll move next to David Strauss at Barclays.

has there been a change in kind of the order activity or customer interest? Any any noticeable change that you've seen at, at Gulfstream, you know, post, all the tariff announcements in early April? Any any any slowing or anything?

The pipeline remains good. I'd say everyone's a little bit cautious, figuring out to the extent to which the tariffs will impact any one of their businesses. But the pipeline remains strong across the portfolio of products. So, so far so good.

Okay. And a follow-up on the Marine side. Could you give an update on getting the money, the significant funding that was in the CR under contract and maybe progression on the larger Block six Virginia class contract?

So we're working with the administration on, getting the, supplemental funding, in the CR under under contract. And so we've had, very productive conversations, and and we'll continue those. So I don't think it's appropriate to talk anymore about that. But to the extent to which that we get those funds into the shipyards into wages and additional throughput capacity, that's all beneficial in in the big conversations that have to happen around block six and, the second build of Columbia. So, the Navy intends for those to happen this year, but I think we need a lot of, building blocks before we get there, including getting the supplemental under contract and and starting to execute there.

Next, we'll move to Robert Stallard at Vertical Research.

Steve, you said some positive things about the aerospace supply chain that you've experienced in the last couple of months. But was wondering if in recent weeks, this whole tariff thing has shifted the landscape here, particularly with regard to engines.

So, let's just be clear about the supply chain. They've made very good progress, and but the problems are not all behind us. And so we continue to work out of station work and continue to find some issues. I think it's a little thin to tell, within the supply chain, the extent to which we've got, real concerns, and their suppliers have real concerns. I would say that a lot of what we consume, internal consumption material, has a a significant amount of US content.

So how all of this plays out is is remains to be seen here.

We'll go next to Christine Liwag at Morgan Stanley.

Jason, I want to focus on technologies a little bit. You mentioned that you're working on savings that you can provide the customer. It seems like GSA the GSA was disappointed with the initial proposals from the industry about cost savings.

So can you talk about what's the potential size of savings you could provide with the new approach? And if we could size the potential effect on your revenue stream as this materializes, that'd be great. Thanks.

Yeah. I'm afraid I'm gonna give you an answer you're not gonna be happy with, Christine. The point is, you know, as I said, we are in a in a a good healthy active discussion with that customer. We are identifying savings. Some of that, as you might imagine, is from a conversation that's been discussed quite a bit around shifting to fixed price and outcome based type contracts, which we very much welcome.

We have a good healthy portion of that in our backlog and portfolio already. But the fact is it's an ongoing dialogue with with the customer. And so, I I think it'd be inappropriate to to get out ahead of that, in a public conversation and get ahead of them on that.

Great. Thank you. And then, Phoebe, if I could, have a follow on on Gulfstream. I mean, you now have the g 800 certified, and you had previously had the g 700 as well. At this point, with the new products for Gulfstream coming out, it looks like there's a little uptick on the older G600s coming to market.

I know you mentioned that there hasn't been significant change in demand, but I was wondering if you could provide color regarding customer behavior and how the deliveries of these newer jets are affecting, the older pieces and how you expect that to play out regarding pricing.

You know, it's interesting. Old is relative. He's a brand new airplane. So I gotta take your point and but with with, you know, a little bit of humor here. The the interest in the 506 continued to to be very strong.

Each one has its market segment, fulfills different missions. Just so you know, an older airplane, again, though, from relative point of view, is the six fifty. I think we deliver the last six six fifties, this quarter, so that's kind of a seminal end to a really an extraordinary airplane, and I would say a real market changer, for the last twelve, fifteen years. So, but demand remains good. The deliveries are are on cadence, largely on cadence.

But, again, we still have some, perturbations from the supply chain. And, but we'll hopefully get some of those behind us as supply chain more fully recovers. I hope that answers your question.

Next, we'll move to Ken Herbert at RBC Capital Markets.

Nice Gulfstream deliveries in the first quarter, Phoebe. Sounds like supply chain is getting better. It sounds like maybe there's some incremental upside to full year expectations. But can you provide any commentary on cadence of deliveries as we think about second quarter and second half of the year from Gulfstream?

I'm pretty consistent. We'll have some mix changes quarter over quarter like we typically do, but pretty consistent. And we're sticking with our with the estimate that we gave you, on the last call. We as you all know, we never, I think, once in the last twelve, thirteen years, have we once or twice have we ever updated in the second quarter. Or in the first quarter.

We always wait till the second quarter. So we'll give you more clarity to the extent that there are any changes in the in that second quarter update.

Great. And and just as a follow-up, you called out Middle East good order activity there. Are you, seeing anything else geographically, maybe any areas of softness or anything else that sticks out, in terms of of customer activity on Gulfstream?

Pretty much consistent with what we've seen recently. The US is strong, and, Middle East is strong. So so far, I I haven't seen any systemic changes here.

Phoebe, quick question on marine. General Cotton of US Strategic Command recently stated that the Columbia program of record may need to be increased given today's elevated threat environment. Considering the Navy's fleet of 14 Ohio class submarines carry two eighty SLBMs, but each Columbia is only designed to carry 16 SLBMs. Is there interest from the DOD that you've heard about increasing the Columbia program to maintain a one to one replacement of SLBM launch capability?

You know, that's an interesting question. That has been a national security question on and off, I'd say, for the last fifteen years or so. So I haven't heard anything new particularly on that subject, but it's it's it's frequently a, a question that comes up, or a subject that comes up in in extended conversations. So I'm sure it is on people's minds.

Okay. And then turning to Gulfstream, deliveries were very good this quarter. Were there any customers that tried to accelerate the deliveries to get ahead of the tariffs?

Phoebe, you mentioned the improvement in the G700 margin. Was one q better than your plan, and do you still expect a step down in the February and three q margin?

General Dynamics (GD) Q1 2025 Earnings Call Transcript

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