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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. 

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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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 4th Quarter and Full Year 2024 Earnings Conference Call. All participants will be in a listen only mode. After the speakers' remarks, we will conduct a question and answer session. As a reminder, this conference call is being recorded. I would now like to turn the call over to Nicole Shelton, Vice President of Investor Relations.

Thank you, operator, and good morning, everyone. Welcome to the General Dynamics 4th quarter and full year 2024 earnings 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 8 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 press release and 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, our Chairman and Chief Executive Officer and Kim Correa, Chief Financial Officer. I will now turn the call over to Phebe.

Thank you, Nicole. Good morning, everyone, and thanks for being with us. Earlier this morning, we reported 4th quarter earnings of $4.15 per diluted share on revenue of $13,338,000,000 operating earnings of 1,423,000,000 dollars and net earnings of $1,148,000,000 As you will see, this performance and the resultant performance for the year compare quite favorably to all relevant prior periods. To briefly summarize, on a quarter over year ago quarter basis, revenue is up 14.3%, operating earnings are up 10.5%, net earnings are up 14.2% and earnings per diluted share are up 14%. It is fair to say that the quarter over quarter results are quite strong.

Sequential results are similar. Here we beat the prior quarter's revenue by 14.3 percent, operating earnings by 20.5 percent, net earnings by 23.9 percent and fully diluted EPS by 23.4%. The full year is also up a common theme. Revenue is up 12.9%, operating earnings are up 13%, net earnings are up 14.1% and fully diluted EPS is up 13.4%. Both revenue and operating earnings were up for each of the segments led by Aerospace with revenue growth of 30.5% and with operating earnings growth of 23.9%.

While we beat consensus through the year by $0.05 we did not beat our own expectations and prior guidance for reasons largely beyond our control. This leads me to a discussion of the segments. First, Aerospace. The real story in Aerospace is found in the continuing growth of both revenue and earnings, the continuing strong demand for Gulfstream Aircraft, the overall strength of Gulfstream's service business and the continuing growth and performance improvement at Jet Aviation. In the quarter, Aerospace had revenue of $3,700,000,000 and earnings of $585,000,000 This represents a stunning 36.4 percent increase in revenue and a 30.3% increase in earnings on a quarter over quarter basis.

The sequential numbers are even stronger with a 51% increase in revenue, coupled with a staggering 92% increase in operating earnings. The important point here is the dramatic increase in deliveries of in service airplanes in the quarter, 47 versus 28 in the Q3 of 2024. For the year, Aerospace revenue of $11,250,000,000 is up 30.5 percent greater than 2023. Earnings of $1,500,000,000 are up 23.9 percent over 2023. Revenue growth was driven by the delivery of 25 more aircraft than in 2023.

Earnings suffered a seventy basis point margin compression from the prior year, largely driven by all the costs associated with getting the G700 certified in the early part of the year and the unexpected costs incurred getting this G700s out the door. Nevertheless, Aerospace revenue and earnings are less than we anticipated for both the quarter the year because we did not deliver as many 700s as planned. We did, however, deliver 15 in the quarter and 30 for the year. You will recall that I told you that we expected to deliver 50 to 52 G700s this year and that the deliveries would be more or less evenly divided over the last three quarters of the year, While we planned 15 for Q2 and delivered 11, we planned 15 to 16 for Q3 and delivered 4. In the Q4, we believe that we could deliver 27, but delivered 15.

So what happened that caused us to fall short of plan? Let me identify the most important and impactful reasons and then talk about the implications of all of this for 2025. First, aircraft engines arrived significantly late to schedule. We painted the aircraft before the engines arrived. This led to a significant amount of repaint that resulted in increased cost and time spent.

But more importantly, we elected to induct these aircraft into our completion centers before installing engines. This represented a significant deviation from our process and proved to be detrimental to both cost and schedule. Normally, before a green aircraft is inducted into a completion center, we run the engines and test all the plane systems under power, which typically leads to additional actions to correct any issues that might arise. Once the aircraft begins its completion phase, these tests and follow on corrections are substantially more cumbersome.

rational decision at the time turned out to be quite troublesome. The good news is that most of the time consuming aspects of this issue are behind us. We are now largely receiving engines to schedule and quality escapes are more predictable and appropriate fixes well known. 2nd, many of the aircraft planned for delivery in the quarter had highly customized interiors, first of tight intricacies. These intricacies are considered to be major changes for regulatory purposes.

This resulted in longer than anticipated efforts to finalize and achieve supplemental type certificates. This problem is largely behind us. 3rd and maybe most important, late in the Q3, a supplier quality escape on a specific component caused the replacement of several components on each planned aircraft delivery. The supplier was fully cooperative and is providing replacement components for all of our needs, but this rework has increased the number of test flights necessary to obtain a final certificate of airworthiness for each aircraft. So the removal and replacement of these components has impacted labor costs and schedule adversely.

While it had a significant impact in both the 3rd and 4th quarters, we have largely worked our way through this problem with the cooperation of the vendor. Finally, many of the early deliveries were to buyers located in foreign countries where we were making first time deliveries. While they recognize the FAA certification, they have a separate and sometimes extended inquiry before issuing registration. This is in many respects also behind us. The supply chain is now performing much better to schedule and even though we continue to be surprised by some quality escapes, the time it takes to identify and fix these faults has significantly improved.

Turning to market demand. We had a one to 1 book to bill in the quarter and for the year even as aircraft deliveries increased. Orders were largely consistent with our internal plan. The delivery of the G700 and its performance in customer hands is driving increased demand for it, which we experienced in the quarter. After some slowing in the U.

S. During the second and third quarters, we continue to see improved interest across all models in both the U. S. And Europe. Middle East activity is quite strong and current activity in Southeast Asia and China has also improved.

Interestingly, the overall number of prospects in all areas continues to increase. So let's move on to the defense businesses. Combat Systems had revenue of $2,400,000,000 for the quarter, moderately more than the year ago quarter. Earnings of $356,000,000 are also up modestly on a 10 basis point operating margin improvement. Operating margin of 14.9 percent is quite wholesome.

The sequential growth in revenue and earnings at 8.3% and 9.5% respectively is stronger, particularly with strength at OTS. For the full year, revenue of $9,000,000,000 is up 8.8% and earnings of $1,300,000,000 are up 11.2%, resulting in a 30 basis point increase in operating margins as compared to a year ago. All in all, very nice growth profile. Combat saw robust order intake over the course of the year, resulting in a book to bill of 1.3:one. Orders came from across the portfolio with notable awards in munitions and international vehicle programs.

New capacity to meet demand for artillery is coming online in our munitions business, which will drive additional munitions growth. Demand remains strong in the U. S. And from our allies, particularly in the combat vehicle tracked and wheeled business. This coupled with combat strong overall backlog of nearly $17,000,000,000 positions the group well for continued strong performance.

In short, this group had a very solid year with strong revenue growth, expanded margins, durable order activity and a strong order pipeline as we go forward. Turning to Marine Systems. Once again, our shipbuilding group had strong revenue growth. Marine revenue of $4,000,000,000 is up 16.2% against the year ago quarter. Columbia Class and Virginia Class Construction and TAO volume drove the growth.

DDG 51 revenue also increased measurably. In short, impressive growth by any standard. Operating earnings of $200,000,000 are down 7.8% in the quarter with a 130 basis point decrease in operating margin. Margins continue to be adversely impacted by additional delays and quality issues from the submarine supply chain. Sequentially, revenue increased 10%, while earnings were down 22.5% for the reasons I just mentioned.

For the full year, marine revenue of $14,300,000,000 is up 15.1% and earnings of $935,000,000 are up 7%, certainly a better result than the 4th quarter taken alone. The operating metrics tell us that we have in fact increased our productivity to somewhat offset increased costs, but not enough. So across the business, we have seen rapid growth of revenue and more modest growth in earnings. As I told you last quarter, although the submarine supply chain is improving in places, out of sequence work continues to increase our costs. In addition, we have seen increased quality problems from the supply chain that have further disrupted our build plan and driven increased costs for quality control and inspection at EB.

That said, we continue to drive productivity improvements and are redoubling our cost cutting by reducing overhead and increasing our planning efficiency. In addition, the Congress recently passed a continuing resolution that included nearly $9,000,000,000 for Columbia class construction and $5,700,000,000 for Virginia class programs. While the Columbia portion of the CR is primarily to maintain the funding plan impacted by the delay in the 2025 budget, the Virginia class funds provide the following. They allow the Navy to cover fact of life cost increases on the 2 FY 'twenty three boats and 1 F 'twenty five boat. They also provide funds for additional workforce development and allow us to target funding at specific productivity areas that we are working out with our customer.

We are working with our customer to get this under contract as soon as possible. In addition, the Navy is continuing to push funding into the industrial base to help improve their output, timing and quality. This effort over time will help. All of this tells us that we should see some improvement in the supply chain slowly but surely. Until then, we continue to control what we can control by increasing our own productivity and cutting costs.

And lastly, Technologies. It was another strong quarter with revenue of $3,240,000,000 up 2.8% over the prior year. Operating earnings in the quarter are $319,000,000 up 4.6% on a margin of 9.8%, a 10 basis point improvement over the Q4 a year ago. The full year comparisons are similar. Revenue at $13,100,000,000 is up 1.6 percent.

Earnings of $1,260,000,000 are up 4.8 percent on a 30 basis point improvement in operating margin. Both businesses finished a really good year with a strong 4th quarter. In particular, GDIT delivered their 4th consecutive year of revenue and earnings growth, resulting in their highest ever revenue and earnings and their strongest operating margin over this period. Mission Systems had a good year as well. Their focus has been on margin expansion as they transition from sunsetting legacy programs to new program wins.

So while their revenue was down about 2% year over year, earnings were up 5.5% on a 90 basis point improvement in margin. We expect 2025 to be the final year of the program transition admission systems with growth on both the top line and bottom line thereafter. Turning to orders. The group had very nice order activity for the year. Total orders for the group reached a record level of $14,700,000,000 resulting in a book to bill of $1,100,000,000 for the year.

Similarly, the total awards including options and IDIQ value were $21,800,000,000 That led to an 18% increase in total potential contract value to $48,100,000,000 which positions them nicely to continue on their growth trajectory. The group's win rates remain very strong in the low 80% range for the year and their capture rate remains in the mid-sixty percent range, both very strong for this industry. GDIT's digital accelerator investments are yielding very good results, driving almost $7,500,000,000 in award value in 2024 alone and a total of $10,000,000,000 in awards since they launched the program 2 years ago. Likewise, Mission Systems secured a number of marquee wins last year as a result of their investments in innovative technology, including Space Ground Systems, strategic recapitalization programs and Canadian Land C4 ISR systems. All in all, a strong year for the Technologies Group.

This concludes my comments about the Defense businesses. Let me ask Kim to provide detail on our cash performance for the quarter the year, overall order activity and backlog, share repurchase activity and other items. I will then come back to discuss our thoughts on 2025.

Thank you, Phebe, and good morning. Let me first start with orders and backlog. Our order activity and backlog continued to be a strong story for us in 2024. We achieved an overall book to bill ratio for the year of 1:one, while revenue grew 13%. Combat Systems and Technologies led the way with book to bills of 1.3 times and 1.1 times respectively.

Aerospace finished strong resulting in a dollar based book to bill for the year of 1 times, even as Gulfstream aircraft deliveries increased over 20% and their revenue grew about 31% from the prior year. We finished 2024 with total backlog of $90,600,000,000 the 7th consecutive quarter that backlog remained above $90,000,000,000 demonstrating its durability during a period of robust growth. Total estimated contract value, which includes options and IDIQ contracts, ended the year at another record level of $144,000,000,000 a 9% increase from last year. This increase was driven by our technology segment as it continued to capture major opportunities, including record awards at GDIT. Turning now to our cash performance.

As expected, the 4th quarter was a strong cash quarter with operating cash flow of $2,200,000,000 which brings us to $4,100,000,000 of operating cash flow for the year. In the quarter, Combat Systems had particularly strong cash generation, while Aerospace and Technologies had solid quarters as well. We have said repeatedly that we strive for cash conversion at or around 100%. For 2024, our free cash flow was $3,200,000,000 a cash conversion rate of 85%. Recall that 2023's free cash flow was 115% and that the 2022 through 2024 average was 100%.

We experienced working capital growth in inventories at Gulfstream due to delayed deliveries and as production continued to ramp up. Another reason for working capital growth is that 2 of our fastest growing defense businesses, EB and OTS had customer funded material purchases on undefinitized contracts. The cash associated with the unbilled profit is not collected until the contract is definitized. We expect working capital will continue to build in 2025 and unwind in 2026, although it could be earlier. Looking next to capital deployment.

Capital expenditures in the 4th quarter were $355,000,000 which adds up to $916,000,000 for the full year. At 1.9% of sales, full year capital expenditures were in line with our expectations. We paid $389,000,000 in dividends in the Q4, bringing the full year to $1,500,000,000 We also repurchased 4,800,000 shares of our stock in the quarter for $1,300,000,000 So we finished the year with 5,400,000 shares repurchased for $1,500,000,000 at an average price of $2.77 per share. In total for the year, it is important to note that approximately 95% of our free cash flow was returned to shareholders in the form of dividends and share repurchases. We repaid $500,000,000 of maturing notes in the Q4 and ended the year with a cash balance of $1,700,000,000 That brings us to a net debt position of $7,100,000,000 down approximately $300,000,000 from last year.

We also contributed $73,000,000 to our pension plans. Our net interest expense in the Q4 was $76,000,000 bringing interest expense for the full year to $324,000,000 that compares to $78,000,000 $343,000,000 in the respective 2023 periods. Turning to 2025. While 100 percent of on average cash conversion has been our goal, we may come in lighter between 80% 85% for several reasons. While we expect CapEx and interest expense to be relatively flat, we have a 27th pay period at a couple of our businesses, which requires an additional $175,000,000 this year.

And as I noted earlier, working capital will continue to build at least through part of the year. As far as capital deployment goes, we will continue to fund the dividend and buy shares when appropriate. We also have $1,500,000,000 of debt maturing in the 2nd quarter, the disposition of which we will address then. Finally, our cash taxes and pension contributions are expected to increase. Turning now to income taxes.

Our 2024 full year rate ended up at 16.7%. Looking ahead to 2025, we expect the full year effective tax rate to increase to around 17.5%. Phoebe, that concludes my remarks. I'll turn it back over to you.

Thank you, Kim. So let me provide our operating forecast for 2025 with some color around our outlook for each business group and then the company wide roll up. In 2025, we expect Aerospace revenue around $12,650,000,000 up around $1,400,000,000 over 20.24. Operating margin is expected to be up 70 basis points to 13.7%. This should result in an 18.5% increase in earnings, up between $270,000,000 to $275,000,000 Gulfstream deliveries will be $150,000,000 materially over the 136 delivered in 2024.

As I just noted, we anticipate a 13.7 percent operating margin for the year, quite a bit stronger in the Q1, but weaker in the second and third quarters followed by a strong 4th quarter. Given the delivery challenges we have had with the G700s in 2024, we have taken a less aggressive planning posture in 2025. In Compact Systems, we expect revenue to be up slightly to about $9,100,000,000 coupled with a 30 basis point improvement in operating margin of 14.5%. This should lead to improved earnings 3.5% to 4% better than in 2024. As I noted earlier, the Marine Group has been on a remarkable growth journey.

It will continue in 2025, albeit at a slightly lower rate. Our outlook for this year anticipates revenue of around $15,000,000,000 with operating margin improvement to 6.8%, which should result in a 10% or better improvement in earnings in 2025. In Technologies, 2025 revenue is expected to be $13,500,000,000 Within the group, GDIT will be up low single digits and Mission Systems will be slightly down less than 0.5%. Operating margins are expected to decrease about 40 basis points, about 9.2%. We continue to see long term single digit growth from the group and continued industry leading margins.

So for 2025 company wide, we expect to see revenue of approximately $50,300,000,000 an increase of around 5.5%. We anticipate margin of 10.3%, up 20 basis points from 2024. All of this rolls up to an EPS forecast around $14.80 with a reasonable range of $14.75 to $14.85 None of this contemplates or includes the use of capital for share repurchases. On a quarter basis, if one were to assume an average of $3.70 per quarter, the Q1 would be off $0.20 the 2nd quarter off $0.40 the 3rd quarter right on the number and the 4th up $0.60 To wrap up, as we go into 2025, we feel very good about our business and the prospects for the year. We also have some very good opportunities across the business to improve operating margins and experience some additional growth.

Simply, we need to execute and we will be laser focused on operations. Nicole, back to you.

Thanks, Phoebe. 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?

Certainly. Thank you. Our first question comes from Ronald Epstein from Bank of America. Please go ahead. Your line is open.

Yes, perfect. Yes, good morning. So just maybe following up on the G700 stuff, I would imagine I get a bunch of questions on this. Is there any impact on the cert and delivery of G800? And do you get any compensation from the suppliers on the delay?

Because I would imagine it frustrated some customers.

So taking in the inverse order, some of we have worked out with our suppliers some consideration and but not anything that I think is too material. But let's talk about the 800. So we expect the 800 certification sometime in the first half. And we think we have worked our way through the most significant problems on the 7 that we experienced on the 700. Remember the commonality of parts is almost identical between the 800 and the 700.

So we think the learning that we achieved on the 700 will be very advantageous on the 800. And our objective here is to deliver fewer have expectations to deliver fewer 800. So think of than we did 700. So think about it this way. For 2025, we're thinking about a combination of G650s and 800s.

It's about equal to, give or take a few airplanes, the number of G650s we delivered. So we think a lot of the challenges are behind us.

I can just one quick follow on. Yesterday there was a lot of turbulence in terms of I guess army contracts, I mean, I guess contracts were turned off, they were turned back on at the end of the day. How do you think about running your business in an environment where it's kind of this volatile?

Well, I think it's a good lesson not to react to rumors and to react to implemented reality when it happens. So there's a lot swirling and we have to see how all of that plays out and manifests itself in defense actions and defense program. So I think that was a good teaching example for those outside the typical kind of Washington swirl.

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

On Combat, it's been the demand has been very strong and particularly on the munitions side. Can you comment a little bit about how you're seeing the trajectory ahead on vehicles, both U. S. And international?

So our vehicle demand continues pretty strongly both internationally and within the U. S. We're executing on new programs, We're continuing to execute on our existing programs. That's true for both wheeled and tracked vehicles internationally and again in the U. S.

And FMS continues to be a fairly significant driver of demand, again, both on the wheeled and combat and the tracked combat vehicle side. So I will note that the Stryker program in 2025 was underfunded and we're working with we'll work with the customer and the Hill to get a more rational funding profile. But all in all pretty strong demand. Go ahead.

Yes. And then on Marine, you talked about some additional funding certainly for Columbia class, there's been money coming in for infrastructure. But when trying to resolve the issues there that you face around supply chain, inflation costs, When the Navy provides more money, does the responsibility then go to you to resolve a very complex infrastructure problem? Or are there things that the Navy should be doing more to address both the I would say both the inflation issues and the whole broad supply chain?

So let's first get a predicate correct that our infrastructure is not the issue. We have a very robust, mature and advanced infrastructure. The issue has been within the industrial supply chain. And as you quite rightly note, inflation has been a major determinant of some of these fact of life changes that impacted the entirety of the industrial base and driven price increases. We also had demographic changes.

We had generation of workers retired greater numbers and sooner than we had anticipated being replaced by a demographic age cohort that is a little less and significantly less in terms of numbers. That said, we've worked through that. About a decade ago, we started training programs within the Marine group and that's 12 years ago. And those programs are increasingly mature and we've been able to get the workers that we've needed. So the Navy has been and the Congress have been quite proactive in getting funding out to the industrial base to help stabilize.

And in fact, we've seen some improvement in some areas. In missile tubes and castings, you've seen a nice improvement in their ability to deliver on time and quality products that still needs to permeate the entirety of the industrial base, where we have continued to see delays and quality escapes, all of which cost and drive cost at GD. So, I think the Navy has done quite a bit in addressing the industrial based challenges. The CR funding helps address the cost challenges on the FY 2024 boats and it funds the FY 2025 boat as well as some selected productivity improvements. So that's a help.

There still remains a hole in the budget, driven by the fact of life changes that was not addressed and needs to be addressed going forward. So I hope that helps you.

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

I was wondering if you could talk about the mechanics of how the SaaS funding actually gets to General Dynamics? Does it I'm just like, is it applied to the both that are under negotiation now or

Well, let's back up a minute. Hold on a sec. I don't mean to interrupt you, but there are no specific contracting actions in effect. And what you referred to was one of those under consideration by the previous administration. It is not in effect.

What you see now are 2 things. 1, the CR funding that as I noted in my remarks, addresses the Virginia class and Columbia. And then you have industrial based funding that's been going on for some time that goes right into the industrial base. So those are 2 different elements. Does that help?

It does. And on the latter, I'm curious how does that actually flow to General Dynamics? What is the mechanism for that money going into?

Industrial based funding goes into the industrial base, not into GD other than we may execute contracts with respect to that for the Navy. So there's a distinction between the shipyard and the industrial base, if that helps.

Our next question comes from Scott Duschl from Deutsche Bank. Please go ahead. Your line is open.

Phebe, I assume the margins on Lot 12 for G700 were quite a bit lower than what you had originally expected, given everything you

Right. And so in that context, I was wondering if you could perhaps update us on the margin step ups for lots 34 and whether it's still the 600 basis points that you talked about a few quarters ago. Thank you.

Yes, it is. And there's room for improvement beyond Lot 3.

Okay. Thank you. And then can you go into a bit more detail on what drove the margin strength at Aerospace this quarter, particularly given the challenges you outlined in your prepared remarks?

Well, the Aerospace group is quite a large group. And they're always in any given quarter a lot of moving parts. The extent to which service, the mix of service and timing on service, special missions, how much gasoline we pump. And these are this is a very large group. So there's lots of margins, margin issue or margin factors and drivers in any given quarter.

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

Good morning, Phoebe. Thank you for the time. Maybe a big picture question just given the new administration, and we touched upon it a little bit, but all your segments hit on it with marine and Doge within technology and even tariffs within aerospace. I was wondering if you could just maybe touch upon each of it and how you think about the trajectory and any changes in profitability in your franchises?

So I think, with any change in administration there is always new direction and we will address the changes here at this time in the same way that we have, in other instances and that's to maintain our agility. And what does agility really mean? It means accurate and quick decision making in the moment. With respect to the Doge, I think any actions that improve the efficiency and cost structure of organizations is a good thing and we would embrace that. And I think as we think through the threat, as you all know, I've argued for a long time that defense spending is threat driven and the threat has, if anything increased.

And so we will work with our customer on a going forward basis and ensure that we're meeting their demand for goods and material and services in those areas where they think it's a greatest threat. I think that most of our programs are very well positioned for the modern fight. So we look forward to going forward and think we're in pretty good position.

Maybe if I could just follow-up on marine profitability, any sort of quantification you could provide on just the floor, just given the supply chain has consistently lagged, even though you've been up to par?

I think that we've seen, as I said, some stabilization, we need a ways to go. The money that the Navy has been pumping into the industrial base will help over time. I think the CR will certainly help in the moment, but we need additional funding to in order to execute the program of record. That's been pretty well documented by the Navy and the Congress, frankly. So we'll continue to manage our margin performance as best we can.

We have a number of, as you well know, we've talked about before, a number of issues that drive the drive our costs and drive them up. And to the extent that we have reduced costs and improved productivity, we'll continue to do so. We've done a pretty good job there, but not enough to offset the cost impacts. We're going to continue to manage those costs and drive them down and improve our productivity as well. So all of that again will go help offset and cover some of the cost increases that may yet occur.

We've factored into our thinking known risks, but it's the unknown unknowns that are always out there. And as I say, over time, we should see some real stabilization within the supply chain, but it's going to take a bit of time.

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

Thanks for the color on the deliveries on the 700. I'm curious though, it seems like those causes are the same as what we talked about in the Q3. So just from a trajectory perspective, what was evolving in the Q4 that you're now feeling much more comfortable about just progressing?

one of the things that we did in the that we didn't identify in the Q3 was the induction of the airplanes into delivery or into completions without the engines. That was a significant factor. And the implications of that didn't become clear until a bit later. But some of this is learning, in retrospect, it might have done something a little different. But on a going forward basis, we've got a lot of that behind us.

And we'll from a production point of view, we're in regular order. On the completion side, we're getting there, but that we're just not there yet. But we're getting there. And by the way, we factored all that thinking into our 2025 guidance.

General Dynamics (GD) Q4 2024 Earnings Call Transcript

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