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F500-2022-094-General Dynamics

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F500-2021-84-General Dynamics

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G500-Featured Image-Logo-2020

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F500-2020-083-General-Dynamics

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Global business is back. After limping through a worldwide financial crisis and economic slowdown, the 500 largest companies ranked by revenues shattered all sorts of performance records in 2013: They racked up combined revenues of $31.1 trillion, up 2.5% from 2012, and profits soared 27% to nearly $2 trillion. China’s 95 companies (up from 89 last year) posted $5.8 trillion in revenues. The U.S. has four fewer companies on the list than last year but remains (for now) the country leader, with 128 corporations on the list—including No. 1 Wal-Mart Stores—reporting $8.6 trillion in revenues. 

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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, welcome to the General Dynamics second quarter 2026 earnings conference call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Nicole Shelton, vice president of investor relations. Go ahead.

Thank you operator, good morning everyone. Welcome to the General Dynamics second quarter 2026 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-K, 10-Q, and 8-K 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 Phebe Novakovic, Chairman and Chief Executive Officer, Danny Deep, President, and Kim Kuryea, Chief Financial Officer. I will now turn the call over to Phebe.

Thank you, Nicole. Good morning everyone, thanks for being with us. You may recall that at the outset of his remarks at the end of the first quarter, Danny Deep described it as a very powerful quarter. This quarter is even better in almost all respects. Earlier today, we reported earnings of $4.24 per diluted share on revenue of $14.1 billion, operating earnings of $1.460 billion, and net earnings of $1.160 billion. These results compare quite favorably to the year-ago quarter as well as sequentially. For example, against the year-ago quarter, revenue is up 8.1%, operating earnings are up almost 12%, and net earnings are up 14.4%. As a result, earnings per diluted share are up $0.50 or 13.4%.

The operating margin for the entire company is 10.4%, a 40 basis-point improvement over the year-ago quarter, which coupled with the revenue growth, led to very strong earnings growth. While Aerospace and Marine led the way on revenue increases, each of the other two segments had revenue increases as well. With respect to operating earnings, Aerospace led the way with a 26.6% improvement, followed by Marine Systems with a strong 17.5% increase. Sequentially, against a very good first quarter, revenue is up 4.5%, operating earnings are up 2.8%, and diluted earnings per share are up $0.14 or 3.4%. On a year-to-date basis, revenue of $27.6 billion is up 9.1%. Operating earnings of nearly $2.9 billion are up 11.9%, and earnings per share are up $0.95 or 12.8%.

We beat consensus by $0.28 in the quarter on more revenue, more operating earnings, and better operating margins than is expected by the sell side. In short, it was a superb quarter and first half. Let me ask our CFO, Kim Kuryea, to provide some detail on our strong order activity, rapidly growing backlog, and superb cash generation, as well as other relevant financial data.

Thank you, Phebe, and good morning. I'll start with our outstanding cash performance for the quarter. We generated $1.9 billion of operating cash flow, which when combined with the strong $2.2 billion from the first quarter, yields over $4 billion of operating cash flow in the first half of the year. Each of our segments contributed nicely, exceeding their planned cash flows and driving operating working capital down over $1 billion from the end of 2025. Capital expenditures totaled $234 million, or 1.7% of sales in the quarter. Compared to the first half of 2025, capital expenditures were up nearly 30% to $437 million. We continue to expect capital expenditures between 3.5% and 4% of sales for the full-year.

You should expect the profile of our investment to grow significantly in the back half of the year as we continue to invest, especially in our shipyards, to accelerate production and meet future demand. After capital expenditures, our free cash flow was $1.6 billion for the quarter, yielding a cash conversion rate of 142%, and $3.6 billion for the first half, a cash conversion rate in excess of 150%. Given our strong cash performance so far, we now expect a free cash flow conversion rate a little north of 100% of net income for the year. Let's say around 105%. That said, we will have a lighter second half than the first, which is due to higher planned capital expenditures, which I've already discussed, and three other factors I'll address now. First, pension. We have decided to contribute approximately $500 million to our pension plans.

Given favorable market returns over the last few years, the funded status of many of our plans are near full funding, and this contribution will allow us to de-risk those plans and eliminate significant volatility going forward. Second, our cash taxes are weighted toward the back half of the year, with over $500 million of payments expected. Third, we will be working down some advanced payments on new programs at European Land Systems during the second half. To round out the cash discussion. From a capital deployment perspective, in the quarter, we paid dividends of approximately $430 million and repurchased about $100 million of our common stock to cover dilution. Finally, we repaid $500 million of notes that matured in June

We have another $500 million of notes coming due in August that we anticipate repaying with cash on hand. At this time, we don't anticipate refinancing these maturities during the year, but we will continue to evaluate market conditions and potential borrowing needs as the year progresses. All in all, we ended the quarter with a cash balance of approximately $4.3 billion and a net debt position of $3.2 billion, down $1.2 billion from last quarter. Next, on to orders and backlog. We had another strong quarter with just shy of $20 billion of orders, yielding an overall book-to-bill ratio of 1.4x to 1x for the company. Book-to-bill in all four of our operating segments was greater than 1x to 1x. In aerospace, our dollar-based book-to-bill was 1.5x.

This is the strongest first half for orders for aerospace since 2022 and reflected very solid demand across the entire Gulfstream product line. In the defense segment, book-to-bill was 1.4x, led by the combat systems segment at 2.1x, which received several large contracts, including the production of new Armored Combat Support Vehicles, ACSVs, for the Canadian Armed Forces. We ended the quarter with a record level of backlog of $136.5 billion, up 32% from a year ago. Backlog was also a record high for each of our segments. Our total estimated contract value, which includes options and IDIQ contracts, ended the quarter at $186.9 billion. Turning to interest. Our net interest expense in the second quarter was $49 million compared to $88 million in the respective 2025 period, and $118 million for the first half of 2026, compared to $177 million in the first half of 2025.

The decrease in our interest expense is due almost entirely to the interest we paid for commercial paper borrowings in 2025. We have not been in the commercial paper market in 2026. Further, our interest income increased in 2026 as we held higher cash balances. At this point, our expectation for net interest expense for the year is approximately $270 million. Finally, the effective tax rate in the quarter was 17.6%, bringing the tax rate for the first half to 17.7%. This rate is a little higher than our outlook for the full-year, which remains around 17.5%. Phebe, that concludes my remarks. I'll turn it back over to you.

Thanks, Kim. Now I will briefly review the financial performance for each of the groups, and Danny will interject additional details. First, aerospace. Aerospace had a very good quarter with revenue of $3.5 billion and operating earnings of $510 million, with a 14.5% operating margin. Revenue is $463 million more than last year's second quarter, a 15.1% increase. To give you a little perspective here, the increase is attributable to three more deliveries and higher service revenue at both Gulfstream and Jet Aviation. The 41 deliveries in the quarter are somewhat more than planned. Operating earnings of $510 million are up $107 million, driven in part by the increased revenue, but most importantly by 130 basis points improvement in operating margin. There are no unusual items of significance. As a result, the improvement quarter-over-quarter comes from a lot of measurable improvements across the entire business.

From an operational perspective, we're off to a strong start to the year. Phebe mentioned 41 deliveries in the quarter. This is three more than the year-ago quarter and sequentially as well. We see durable productivity improvements on all new aircraft types with modestly improved margins both year-over-year and sequentially. We performed quite well across all service categories at both Gulfstream and Jet Aviation, with improved operating earnings at each, both quarter-over-quarter and sequentially. You might note that the second quarter overall operating margins are down sequentially, despite the fact that operating margins by line of business all improved. This is attributable to a slightly disadvantageous mix plus a modest increase in both G&A and R&D. Phebe.

Turning to market demand, aerospace had a 1.5x book-to-bill in the quarter with 16 more airplane orders than the year-ago quarter and 20 more than the first quarter of this year. The book-to-bill over the trailing 12 months is 1.3x. We see very active interest across all models in the U.S. and Asia, with some cautious concern from customers in the Mideast, but they're still active in the pipeline. In summary, the aerospace team had a special quarter, both operationally and in terms of order activity. Let's move on to the defense businesses. First, Combat Systems. Combat Systems had revenue of $2.3 billion, up marginally over the year-ago quarter. Earnings of $318 million are down $6 million. Margins at 13.9% are down 30 basis points against the year-ago quarter, due largely to mix.

There was increased revenue performance at Ordnance and Tactical Systems and European Land Systems, offset by a decline at Land Systems. Sequentially, revenue is up modestly, but earnings are up 2.6% on a 30 basis point improvement in operating margin. The real good news story here is the order performance at 2.1x to 1x book-to-bill continues to build strong, significant backlog. A large portion of the order activity in the quarter was at Land Systems. Demand for Combat Systems products is strong, primarily driven by US allies. In addition, OTS continues to have particularly strong growth in munitions.

I want to repeat what I said last quarter because performance this quarter further demonstrates the strength and breadth of the combat portfolio, particularly with international vehicles as well as our munitions group. It's encouraging during this period of transition and recapitalization to next generation platforms for our U.S. land force customers that the overall group continues to provide a healthy growth outlook with very nice margins. You have seen the 2.1 book-to-bill in the quarter. We're confident there is more to come. Phebe.

Turning to Marine Systems. Once again, our shipyards are each demonstrating strong revenue growth. This quarter's growth at 10.4% was driven by the Columbia-class and Virginia-class programs, followed by NASSCO and Bath expressed in dollar increases. However, in growth expressed as a percentage of revenue, both NASSCO and Bath outpaced Electric Boat for the first time in my memory. Earnings improved 17.5% on a 40-basis-point improvement in operating margin. We can point to clear and measurable productivity gains. As you know, to support this growth, we have made significant investments in each of our shipyards, particularly at Electric Boat. We will continue to invest as we go forward to support the additional demand we see in the national security interests of the United States. Turning to operating performance.

As Phebe mentioned, momentum continues to build at each of our shipyards, and we are making good progress with our efforts to accelerate build rates. A great example of this is at Bath Iron Works, where our most recent DDG 51 destroyer delivery was accelerated by almost three months versus plan due to the excellent performance of the ship in its sea trial. At Electric Boat on the Columbia program, we had a significant increase in the number of hours earned as compared to both the year ago quarter and sequentially. In the first half of this year, the hours earned are up 37% versus the same period last year. Material deliveries also continue to improve with a 65% increase in sequence-critical material this quarter over the second quarter last year. Let me state the obvious.

This is the segment, given its backlog and improving productivity, where we can accelerate value for our shareholders as we accelerate delivery of submarines, surface combatants, and auxiliary ships. Continuous operational improvement has our undivided attention and focus. Back to you, Phebe.

Finally, Technologies. This group is also experiencing growth in revenue and earnings, albeit not at the pace experienced by Aerospace and Marine Systems. Revenue of $3.6 billion is an increase of 4.1% over the second quarter of 2025. Both businesses contributed respectable growth, but Mission Systems led the way. Operating earnings of $339 million are up 2.1% over the year ago quarter. Operating margin decreased 20 basis points from 9.6% to 9.4%. The group's order activity was also encouraging with the book-to-bill of 1.1x for the quarter and 1.3 times for the trailing 12 months.

Growth in Mission Systems came from across the portfolio, but most notably in Land Systems and air systems and in their international portfolio. The international portfolio is up more than 35% since 2024, and we expect that to continue to be a key driver of growth for the year and beyond. In IT services, we've discussed elongated procurement cycles, and that continues. A real bright spot has been GDIT's success capturing programs under agile contracting mechanisms such as Other Transaction Authorities or OTAs. GDIT has submitted and won more OTAs in the first half of 2026 than for all of last year.

Let's turn to guidance for the rest of the year. At the outset, I want to review what we've told you to date. In January, we told you to assume an EPS range of $16.10-$16.20. In April, our updated guidance for 2026 was an EPS range of $16.45-$16.55. With that as a predicate, let me proceed to provide our operating forecast for the remainder of 2026 with some specifics around our outlook for each business group and then a company-wide roll-up. For 2026, we now expect aerospace revenue of around $13.8 billion. Gulfstream will still deliver about 160 airplanes. There is some potential upside delivering large cabin aircraft and some risk on the G280 deliveries for obvious reasons. We anticipate a 14.7% operating margin for the year. The third quarter operating margin will be about the same as this quarter with a better fourth quarter.

In Combat, we expect revenue of about $9.8 billion, coupled with a 13.8% operating margin. As noted earlier, the Marine Group has been on a remarkable growth journey. Our outlook for the year now anticipates revenue around $18 billion with an operating margin for the year of 7.4%. In Technologies, we expect revenue of $14.1 billion and an operating margin of 9.4%. For 2026 company-wide, we expect to see revenue of approximately $55.7 billion and operating margin of 10.5%. You've already heard Kim's commentary about our estimates for cash flow for the year, tax rate, and interest expense. All this rolls up to an increased EPS forecast of $16.80-$16.90 for the year. To wrap up, as we go into the second half, coming off a very strong first half, we feel very good about the potential for the second half and the full-year.

Thank you, Phebe. 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?

We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. If you would like to withdraw your question, press star one again. We ask you to pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from David Strauss from Wells Fargo. Your line is open. Please go ahead.

Hi, Phebe. Maybe if you, Phebe, with the backlog increase that we saw this quarter at Aerospace, could you talk maybe in terms of years of production, how far out that extends, and how much you could take production up from current levels to start to eat into that backlog?

You've followed us long enough to know that some time ago, we ceased giving you the details about model and years out. That became a very competitive issue. Look, the supply chain has stabilized. We're coming down our learning curves on all of our products. We're still working through some of the challenges on completion, it's just a question of pace. We'll take all of this into due consideration and give you some real clarity next year what to expect.

Okay. A quick follow-up on Marine. It's consistently exceeded expectations and the growth outlook that you've outlined, it looks like for the rest of the year, you're forecasting minimal growth in the second half of the year. Maybe if you could just talk about the longer term trajectory here. I know it's law of large numbers at this point, is there a reason to believe that Marine growth meaningfully decelerates from the levels that we've seen? Thanks.

Yeah, let me take that one. I think the second half, as compared to the first half, is really just a function of material receipts, stuff that we received in the first half that we're actually now installing. As you note, it's important to reflect that we've increased sales for 2026 over 2025 by almost $1.3 billion, which exceeded even what we thought. I think we'll see it continue to grow. Maybe not quite at that pace, certainly, we're getting up into, as you say, the law of large numbers. We don't have any expectation that it will slow down much because there's just volume out there that we have to execute on. It's natural tail off in the second half of the year compared to the first.

Your next question comes from Ron Epstein from Bank of America Merrill Lynch. Your line is open. Please go ahead.

On Marine. Just following up on Marine. On Marine, where are we on build rate on Virginia-class submarine now? Are we still at 1.3x a year, 1.4x? Can you maybe put something around that?

Yeah. We don't typically give the exact build rate. We leave that to the Navy. As you know, we're trying to get to two Virginia-class and one Columbia-class in the early 2030s timeframe. We're on that path, and we're actually where we expect to be at this point in the process.

Okay. You're making strides with the supply chains. My understanding was that was one of the hurdles.

Yeah. We have seen significant improvements in their pace and the cadence of delivery. There are still some challenging areas, as I think we mentioned in the last call, where we have single sources of supply. Generally, the supply chain is improving, and we're counting on it to continue to improve.

Great. Then, Phebe, one for you. How are you thinking about the budget process now as we go into fiscal 2027? You probably know the budget process better than anybody in Washington. How are you thinking about it? How should we think about it? It seems like there's so much volatility in terms of there's going to be reconciliation, there isn't, there's a baseline, there's not, there's midterm. Kind of broadly, how do you think about it?

I would say that there are a lot more factors today influencing the budget than there have been historically. From our perspective, a lot of our programs are funded in the base budget. The reconciliation's important because if you stop and think about it, weapons production has been on very low rate production or fairly minimally sustaining production for quite some time. In order to gear up production to meet the current threat environment, we need additional funds. The entire industry does. This is, I think, from a national security perspective, meritorious. There are a lot of moving parts on all of this, and we'll continue to support our customer and the Congress as best we can.

Your next question comes from Myles Walton at Wolfe Research. Your line is open. Please go ahead.

Thanks. Good morning. Phebe, I was wondering if you can maybe talk about the M&A backdrop, which you haven't been as active in the last several years. I'm curious if there's any interest in reengaging, given obvious balance sheet strength. The DoD's relatively negative view on share repurchase overall. What does your M&A pipeline look like? What kind of properties would even be attractive to you at this point?

Nice try. Hey, look, this is something we always look at and something we never talk about. I just think that's imprudent. It's always on our mind, so you can rest assured about that. You want to ask another question?

Would you say there's any shift in the way you look at it, even if you can't speak to it?

No. We've consistently looked at it this way. When we have met some of our other obligations with respect to cash, or if there's a particularly attractive bolt-on out there. We are doing what we always have done, is understand the marketplace and see what, if anything, makes sense. Golly geez, we just never talk about it.

Okay. Maybe one that maybe Danny, you can talk to, or Phebe. On the missile framework agreements, have you seen in combat with OTS, much of that coming your way on second source solid rocket motors, particularly with some of the interest of aggressive dual sourcing?

We are a subcontractor, both at OTS and Mission Systems to a number of the missile primes. We have some content on all of the missiles, for the most part, with things like actuators and motor cases at OTS, and guidance systems and other components at Mission Systems. The framework agreements that the primes have signed up to, we have mirrored agreements with them to ramp up. We're, again, a part of the supply chain, but certainly not a prime there.

Your next question comes from Robert Stallard of Vertical Research. Your line is open. Please go ahead.

This might be for you, Phebe, or for Danny. It sounds like the supply chain across the group is getting better. I was wondering if you could confirm that, and if there are any areas of concern that still exist as you look forward to the rest of the year.

Yeah. I would say broadly speaking, when we look across the areas that maybe we highlighted in the past that were causing some difficulties, there has been a noticeable improvement in the cadence. Areas of concern haven't really changed, where we have single sources of supply for large, complex components, and that can be somewhat of a pacing item. When we look across the entire enterprise in each of the operating units, there has been a noticeable improvement in the supply chain, and that's a really good thing.

Okay. Thanks for that. A quick follow-up. There was some news overnight about the Virginia-class submarine Block VI being approved by the Secretary of the Navy. I was wondering if you could give us some sort of preliminary thoughts on how the next block of submarines could differ from Block V in terms of contractual terms or accounting or something like that.

We saw that as well. We're told that these contracts will be coming soon. When we get those, let's give you the clarity that you're seeking here. I think that's best done after the awards are granted.

Your next question comes from Doug Harned from Bernstein. Your line is open. Please go ahead.

On combat, you've gotten some really good increases in backlog. As we had looked at this before, we saw a lot of the growth coming from European Land Systems, but now these awards are much outside of Europe. When you go forward, how do you see growth now across geographies? Do you have more optimism in a sense about growth coming from the U.S.?

I think, what we expect to see is double-digit growth continuing at European Land Systems, given the threat environment and the demand for combat support vehicles, as well as other systems. OTS, because of artillery, missile components, 155s. Within Land Systems, this is a transition period, as we talked about before, but the double-digit growth at OTS and ELS ought to drive high single-digit growth for the group going forward.

Switching over to Gulfstream. You're in a great demand situation, certainly working on the supply chain. As you go forward, you soon have the full portfolio G400 to G800 out there. How do you think of having that portfolio of aircraft with commonality? Which customers does that portfolio breadth particularly appeal to? Does it give you some margin opportunities ahead in pricing?

We built this family of aircraft to satisfy the missions that we knew that our customers flew, and they're varied. Some customers want a suite of airplanes, from the large ones to the medium-size ones, depending on where they fly, how they fly, and who they fly. There are others who are primarily driven by large cabin, given their missions. We see this is the intent of this whole family of aircraft. There are certainly some benefits as we continue to come down our learning curve. Of course, as you know, we never discuss pricing. From my point of view, given the broad spectrum of offerings that we have and will have once the 300 and 400 are out in the market, new product has driven demand. That's always been our view, and it continues to remain our view. This is a wholesome portfolio.

Your next question comes from Sheila Kahyaoglu with Jefferies. Your line is open. Please go ahead.

Thanks. Good morning, Phebe, Danny. I wanted to ask two questions on margins, one on aerospace. On aerospace, as we think about margins up 100 basis points from first half of 2025, how do we think about the margin baseline from here, whether it's model mix? Phebe, I think you mentioned Q3 will look similar to Q2, given timing of higher G&A and R&D. How do you think about opportunities for upside for aerospace margins from here?

Yeah, I think from a margin standpoint, as Phebe mentioned in her remarks, I think the third quarter will look a lot like the second quarter, with the fourth quarter being the strongest from a margin standpoint. That is, as Phebe mentioned, the fact that we're coming down the learning curve on all of the airplanes, but also due to favorable mix. I think the margins, you can expect them to continue to be in that neighborhood, with some slight variability all associated with mix.

Okay. Then on Marine, you raised the margins up 10 basis points. Seems small, but a big deal from where you guys have come from. I guess, can you provide an update on where the workforce supply chain is from here on Marine? Any risks? Is this a good baseline to work off of?

Yeah. From a workforce standpoint, we've been really pleased with our ability to attract and retain the necessary number of workers in our shipyards.

The Navy's been a great help with that in a lot of different ways. From a ramping standpoint, we are hitting exactly what we need to hit from a resource standpoint on that front. Very positive from that perspective. Then as you mentioned, from a margin standpoint, the improvement in margin is a function of throughput and improvements on the deck plates and with the supply chain improving. We can expect that that will continue slow, steady drumbeat as we continue to focus on executing.

Your next question comes from Seth Seifman with JPMorgan. Your line is open. Please go ahead.

Yeah, thanks very much, and good morning. Wanted to ask about, I feel like, of course, most of our conversations on tend to revolve around subs. You talked about the high percentage growth in surface ships, and it was pretty nice growth in the first quarter as well. When we think about the growth potential for that portion of the business over the next several years, given what's been in recent shipbuilding budgets and what may be ahead of us, is there any way to dimensionalize the growth opportunity outside of the submarine portion of the business?

At Bath, growth will continue as we improve our throughput and productivity, which they are doing and have done materially over the last few years. At NASSCO, again, it'll be driven by increased demand and coming down our learning curves on the oilers and other support and supply ships. NASSCO is very well-positioned and has been for some time. It's a high-performing shipyard, and it has the design and manufacturing capability to design and produce complex auxiliary ships, sub tenders, oilers. We like very much the positioning that NASSCO is in, and we see some growth there as well with additional product coming in because they have additional capacity, by the way.

Excellent. Very good. Thanks. Then one follow-up on technologies and GDIT. We've seen the administration be very vocal about a desire to shift to fixed-price contracting. When you think about the impact there for GDIT, how quickly do you see that change happening?

We've always encouraged fixed-price contracting when it's appropriate and the customer is interested. We see additional interest in fixed price, which we welcome. We're also very interested in agile acquisition programs and pipelines that allow us to bring product quickly to our customers. GDIT is very fast in what they execute. Their investments that they've made over the last few years have well-positioned them in the marketplace.

Your next question comes from Gautam Khanna with TD Cowen. Your line is open. Please go ahead.

Yes, good morning. I was wondering, Phebe, if you could opine on aerospace margin potential a couple of years out. I know about a year or two ago you did opine.

I'm going to interrupt you because we haven't given you, I think in the whole tenure of this leadership team, any kind of out-year. I think once or twice we've given you some out-year color. We're not going to go there on margin. Let's just say both Jet Aviation and Gulfstream are high-performing companies, and they'll continue to improve over time.

Relative to prior peak. Yeah. Just relative to prior peak, given the model introductions you're doing, et cetera, is that a reasonable baseline, the prior peak margins in the next 24 months?

Okay, look, Yeah, I'm again going to interrupt you because the prior peak was really all around one product, and this is now a portfolio of products from large cabin to mid-size cabin. They carry different margins with them. By definition, they do. It's a more complicated, more robust, and I think frankly, a richer product offering for the market to avail itself of, and we're seeing that. We're not going to get into the business of how good can it get at the moment. You will see continued performance within this construct of this new business model that we've got as a result of the investments we've made in these family of aircraft.

Great. Just on the shipbuilding contracts, the submarine contracts you're awaiting, what forces the urgency on the customer side to place the order? I just wonder what capabilities are lost if they delay, just because we've been waiting for quite some time. I'm sure you guys have been aware that the street has been expecting these for about a year now, and I just wondered what

consequence happens if we go another quarter.

Yeah. I think the customer and the submarine industrial base are aligned around the need for getting these contracts out, particularly to stabilize the industrial base and to ensure that we continue to have long-lead material for these contracted in advance of these long-term development programs. As I noted, we're told that the contracts will be coming soon, and so we're confident that when they come out, I think it'll be as we expected and very welcome by the supply chain in particular.

Your next question comes from Kristine Liwag with Morgan Stanley. Your line is open. Please go ahead.

You know what, Phebe, I want to dive in a little bit deeper into GDIT. In the past few quarters, you've talked about how AI was a big driver of growing demand, particularly in defense. When we think about these AI models maturing and pilot programs going through larger product deployments, how do you think about the role of AI and how is GD positioned in that ecosystem? Ultimately, is this more of an acceleration of earnings growth for now? Or do you think operational efficiencies in AI could potentially shrink the addressable market?

Are you asking across the company as a whole or GDIT?

General Dynamics (GD) Q2 2026 Earnings Call Transcript

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