Q3 2019 Earnings Call
Enjoy topline growth every quarter for the past 12 consecutive quarters on a year over year basis.
Earnings from continuing operations of $913 million were up 49 million or 5.7% on a 7.1% improvement in operating earnings partially offset by a higher effective tax rate and lower pension income.
Operating margins return to the 12.5% level.
Sequentially revenue was up 206 million or 2.2% in operating earnings were up 126 million or 11.6% on higher operating margins.
In short we had significant sequential margin improvement.
With respect to consensus or margin rate was 40 basis points higher than forecasted by the south side. This was offset in part by below the line items, leading our MPS seven cents better than consensus. The difference was provided by stronger operating earnings.
With respect to cash we had net cash provided by operating activities of 1.091 billion and free cash flow of 847 million.
As you can see from the charts attached to the press release, we enjoyed a good quarter with a one to one book to Bill total backlog of 67.4 billion decreased $258 million or about a third of 1%.
More to say about ordering take as I discuss the separate operating segments and Jason I'll give you some color about cash in backlog in his remarks.
Let me turn very briefly the year to date 2019 compared to the first nine months at 2018.
Revenue was up 2.8 billion or 10.7% against the first three quarters of 2018, driven by strong organic growth plus the acquisition of CSR at the beginning of the second quarter last year.
The said another way for clarity CSRI attributed revenue was in every two 2018 quarter, but the first.
Operating earnings were up 89 million or 2.8% EPS was 31 cents better in short we delivered good sequential improvement and a good first nine months.
Such essentially we are on track to our internal plan and external expectations.
So let me give you some perspective on the segment reporting for the quarter end the year to date.
First aerospace.
Aerospace had a very good quarter and most importantly, specs revenue of 2.5 billion was 23% higher than the year ago quarter operating earnings of $393 million were 17 million or 4.5% higher on lower margins related to mix as fully expected.
Let me give you a little color here with the quarter over quarter comparisons concerning concerning earnings and operating margin you may recall that the aerospace segment had a strong third quarter last year with 18.5% operating margin against 15.8%. This quarter. This delta is driven only in part by mix.
The third quarter of 2018 contained a positive nonrecurring settlement with the supplier.
On a sequential basis. The story is even better revenue was up 359 million or 16.8% and earnings were up 62 million or 18.7% on a 30 basis point improvement in operating margins, excluding pre owned sales from both periods results in the.
70 basis points sequential improvements in aerospace margin.
The past quarter saw the first.
Good.
Hundred deliveries in the quarter over 30% of our large cabin deliveries were comprised of new product, which is notably higher than the second quarter 2019.
So despite the challenges of mix, we're making good progress we are focused on aligning our cost with our operating cadence.
The 600, both its type in production certification on June 20, 829 team, we have commenced deliveries and expect approach double digit total this year.
This will help both revenue and earnings in the balance of the year and improve working capital turns.
He asked the validation for the Gfive hundred was received on October 11, and the 600 validation is targeted for December 12.
With respect to orders, we had a book to Bill of 0.7 to one in the quarter activity and interest ranged between very attractive to robust, but the process and time to closure of transactions with slower. We expect as you would gas a very strong order activity in the fourth quarter.
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You are undoubtedly aware of the announcement of the all new energy 700.
Materials related to this program and its specifications are publicly available. It is an expansion of our product line that brings advances in avionics and aerodynamics to create an industry leader.
G 700 incorporate the new engines, Newlink, Winglets and brand new avionics from the Gfive hundred and 600 series.
The development of this plane is quite mature and we expect first flight in December .
The announcement of the G 700 has cleared up some of the mystery at half in some respects stimulated GE 650 discussion.
All in all we are doing quite well at aerospace.
Turning to combat systems, we had a good quarters umbrella that comparisons clearly indicate.
Revenue, a 1.74 billion was up 217 million over the third quarter of last year or 14.2% similar to operating earnings of $264 million were up 23 million or 9.5% over the third quarter 2018.
On a sequential basis the story is similar.
Revenue was up 81 million or 5% and operating earnings were up 22 million a 9.1% increase.
Combat systems margins return to the 15 plus neighborhoods.
On a year to date basis revenue was up 538 million or 12% against the same period of 2018.
However, operating earnings are only 11 million or 1.6% higher mix and a one time settlement of lease litigation in the first quarter explain why profits. These expanded more slowly than revenue, we expect a very good operating leverage in the final period of the year.
I think it's worth noting the combat systems has enjoyed a year over year growth in 11 of the past 12 quarters.
Our existing us based programs continue to perform well with Abrams volumes up strong Stryker business, a nice growth in the ordinance and munitions portfolio.
In the aggregate our U.S. government volume accounted for 57% of revenue year to date compared with 49% in the first three quarters of 2018 underscoring the shift in mix.
Army demand to upgrade our platforms in the coming year is manifesting itself, an explicit program direction for the tank and Stryker, which puts us in good stead for continued growth. Furthermore, we recognize the army set a high bar for the MFC program and we are focused on delivering a superior.
Solution to replace the Bradley fighting vehicle.
Our international programs continue to progress nicely work on the UK Ajax program is transitioning from engineering to test and then to full production live fire testing has been successful and we entered into reliability testing.
Third quarter this year.
We expect enters steady state production this year and continue through 2024.
Combat systems enhance their backlog this quarter with a book to Bill of 1.3 to one the government of Canada ordered 360 armored combat support vehicles for 1.3 billion work has begun on the program and we expect to become deliveries in Q1 at 2021.
Yes, this negotiating the contract with the Spanish government to deliver the first tranche of 348 Parana five vehicles as a consequence, we have very good line of sight for production planning and for driving continuous improvement in all businesses in this segment.
We are trending in the right direction at combat systems every one of our businesses in this segment is on the move.
With respect to the Marine group revenue of 2.24 brand was 232 million or 11.6% higher than Q3, a year ago operating earnings were up 40 million or 23.7% against the year ago quarter due in part to the progress toward closing out Virginia.
Class block, three and better year over year earnings at NASSCO.
On a sequential basis revenue was down 90 million due to timing.
Operating earnings were up $12 million.
For the first three quarters of the year revenue of 6.6 billion was up 413 million or 6.7% against the same three quarters of 2018.
Operating earnings were 38 million better on a 10 voice basis point improvement in margin rate.
Similar to combat systems. The Marine group has enjoyed year over year growth in nine of the past 10 quarters.
Work on our submarine programs to Virginia class construction and engineering on Colombia ballistic missile submarine continues to make good progress.
We have completed the design of Columbia, and our 54% complete on the production drawings, which reflects good progress.
Virginia class block for work remains steady volume maybe is at the B has been driven by early work on Virginia block five and Colombia.
We expect the block five contract to be awarded this year, resulting in a considerable addition to backhaul.
With respect to backfill the challenges on the first DDG 1000 ship and the DDG 51 restart ships are behind us with nice performance on the 1001 and two and the follow on DDG 51 ships. We have 11, DDG 51 ships and backlog with a very good on.
Opportunity to prefer.
Improved performance steadily across this large backlog.
Finally revenue at NASSCO for the quarter was up due to higher repair volumes.
Similarly year to date volumes were up due to higher repair and work on the T. Rowe class oil program.
We also expect the first two madsen ships in the SP five to deliver in the fourth quarter and all Marine systems has been a compelling growth story for us and we'll continue to be so for a long time to come our focus going forward is operating efficiency and margin improvement over this very large backlog.
Permission systems mission systems had revenue of 1.2 billion in the quarter flat with the year ago results earnings of 187 million were up $6 million against the third quarter last year.
Margins were an impressive 60 basis points higher sequentially margins of 15.2% were up.
On the even more impressive 250 basis points.
On a year to date basis mission systems revenue was up 180 million or 5.2%.
Earnings to nine months were up $17 million versus the first nine months of launch of last year.
Mission systems has been a high performance business for Us and we'll continue continued to be so.
It has enjoyed a book to bill of at least one to one in 2016 2017 in 2018 and stands above one to one at the three quarter Mark in 2019, it's wins have been broad base reflect its capabilities in space communication and sophisticated command and control.
Solutions.
Information technology reported revenue of 2.1 billion in the third quarter down 236 million against the year ago quarter. This is largely the result of the divestitures made in this segment.
Operating earnings were up 146 million down $11 million, despite a modest improvement marginally.
The results were somewhat lower than expected as the company entered into a termination settlement related to its exit of noncore line of business absent that charge earnings and margin would have been more appropriately reflected would have more appropriately reflected the progress we have made in combining CSRA with gd.
Our integration of CSR ended GDXJ. She has gone very well and is ahead of our internal schedule.
Our management team pulled from both businesses shelves very nicely, we're meeting cost synergies and are working to exceed this year's goals.
To that and we have continued to generate good bookings in the quarter. We generated 2.38 billion for a book to Bill a 1.2 to one for the nine for the nine month, our book to Bill was 1.2 to one.
Our nine month booking for 2019 are nearly 8% higher than those captured during the first three quarters of 2018.
Our total backlog of $9.16 billion is up 15% from the start of the year.
The strong order activity comes in the face of a protracted procurement cycle.
Gd IP has close to a billion dollars in awarded contracts that had been delayed by protests and over half of the 65 billion in outstanding Awards that the customer had expected have slipped to the right.
The underlying metrics of this business remains solid cash flow continues to be strong GDT generated robust free cash flow to imputed net income up over 190% this quarter, despite controlled investments and customer infrastructure and restructuring expenses.
So to offer a summer on the performance of all of the defense businesses operating earnings have grown over 8% in the quarter on a nearly 3% advance in revenue excluding the divesture of the call centers business the organic growth rate for revenue and operating profit are about one to two points higher.
Book to Bill for the Defense operations was 1.1 to one in the quarter orders are just shy of 8 billion on a revenue of 7.27 billion for the quarter.
For the nine month defense bookings of essentially kept pace with approximately 8% in revenue growth.
So I don't think I am any changes to make with respect to our prior guidance, we seem to be right on track with the comprehensive outlook I gave you last quarter and finally in closing and as tempting as it may be at this time of year for you to ask about next year. Let me just remind you that we have our planning process later this year.
Fall when the businesses get better insight into the upcoming year.
The guidance that we gave you in January as with last January is grounded in that process and as a result will be full and thorough.
So I don't want to prematurely piecemeal next year at this juncture, you'll hear from the end to tail in January and our custom for many many years.
So let me turn over the call to our CFO Jason Aiken.
Thank you and good morning.
Our net interest expense in the third quarter was $114 million in both 2019 and 2018.
That brings net interest expense to $350 million for the first nine months of the year compared to $244 million for the same period in 2018.
The increase in 2019 is due primarily to the debt we issued at the into the first quarter of 2018 to finance the acquisition of CSRA.
We've also been carrying a higher than anticipated commercial paper balance through the first nine months as we continue to work to resolve and outstanding receivable balance on one of our large international vehicle programs, that's been outstanding since the fourth quarter last year.
As Phebe mentioned, our cash from operations in the quarter was $1.1 billion and our free cash flow was $847 million, a 93% conversion rate.
The cash performance in the quarter reflected some progress on the international receivables I just mentioned.
That said, we still have work to do to resolve the balance of the arrears. We're continuing to work this issue with the customer and expect to have the matter resolved by the end of the year.
Assuming these outstanding payments come in this year, we still expect full year free cash flow conversion to be well in excess of 100% of net income.
Notwithstanding the progress made in the quarter cash flow continued to be impacted by WSE growth at Gulfstream for reasons, you now know and electric boat.
He be has been operating under an Undefinitized contract action, we're yuka on the fifth Virginia class block as we continue to work with the maybe to get that effort under contract.
Until we get that contract executed our progress billings are temporarily limited.
We expect that situation to unwind with the receipt of the block five contract in the fourth quarter.
On the capital deployment front capital expenditures were $244 million in the quarter or 2.5% of revenues, reflecting the investment in our shipyards to support the significant growth it's on the horizon.
We also paid $295 million in dividends in the quarter.
We ended the quarter with the cash balance of $974 million on the balance sheet and a net debt position of $12.7 billion.
We expect to use our free cash flow to repay our outstanding commercial paper balanced by the end of this year.
In addition, we have a tranche of fixed and floating rate notes maturing in the second quarter of next year. So our focus in the moment beyond internal investment in the dividend will be repaying this debt.
Our effective tax rate in the quarter was 16.2%.
Reflecting greater foreign tax benefits than previously expected driven by the strength of our international operations.
With the rate of 17.5% for the first nine months, we're lowering our anticipated full year tax rate by 50 basis points to the mid 17% range.
As a result of current market conditions, we've adjusted our assumptions for pension costs and recognized in the third quarter, an increase in the expense associated with our nonqualified plans.
The impact of the increased pension expense and the lower tax rate I, just discussed offset each other relative to our full year outlook.
And one last point of color on the backlog at the end of the quarter specifically to combat systems. We continue to experience a drag on that groups backlog balance due to the FX impact of strength of the U.S. dollar specifically combat systems and experienced a reduction in backlog of more than $400 million in the first nine months of the year.
Despite this headwind the group's backlog remains very strong at more than two times annual sales.
Howard that concludes my remarks, I'll turn it back over to you for the QNX.
Thanks, Jason as a reminder, we ask participants to ask one question and one follow up question. So that everyone has a chance to participate.
Rocco could you please remind participants how to enter the Q absolutely serve to ask a question for stores and one on the telephone keypad.
We are using speakerphone, please pick up your handset before pressing the Hughes.
Let me turn your question has been the trust.
Your question please first organs.
First question comes from David Strauss of Barclays. Please go ahead.
Good morning.
David.
Feed me one to one did touch on the G 700, and how that potentially impacts.
The prior guidance you gave him with regard to Gulfstream were.
Hey, I believe you talked about EBIT growing a little bit in 20, but then growing significantly in 21 and margins approaching.
The high double digit range again, how is the G 700, all factored into that.
So.
And now because we expect the entry into service several years out but.
But I think it might be opportune just to remind you guys Howard really thinking about.
The portfolio of our airplanes.
In our and our operating strategy. So as you now we've had a plan for the past several years to bring down the 650 production and increase 500, 600, and we're doing that completely independently of the 700.
We've been pretty valuable.
About the fact that GE sixtyv production in deliveries will be reduced next year and again the following year, so that will get production and delivering consistent with current demand and on that score. We've had a very consistent order book for the 650 over the past three to four years and as you now we've had the benefit of a low.
Large backlog, we've been able to work down over time.
So, let's just to be clear this has nothing to do with the 700 launch announcements as planned long ago. Our job is to balance the loss revenue and earnings from the planned reduction of de 650 deliveries with an increase flow from 500 600 to keep earnings stable it by the state without Rick.
Hi comes with ample opportunity and as I said this is Ben that consistent plan and it remains our plan and then.
As.
The G 700 enters into service.
That will then become another factor and our long range in our earnings and revenue growth.
Okay, I I guess, just asking a different different way the that prior guidance given for for Gulf stream for 20, and 21 does that still hold.
Well I don't think we've given guidance per se, but we've indicated that we'll continue to grow our topline in our bottom line as Weve made that this making this transition I think the bottom line will be a little.
A little bit.
Slower growth simply because we are managing that transition from the fixed 15 to that 500 600, but you know what our idea is to stabilize earnings.
With this.
With this transition and we've done that and we'll continue to do that so I think when you think about the business going forward. This is the strategy that has driven our behavior today and driving it and will drive it on a going forward basis, so that ought to inform how you're thinking about.
You know our performance going forward.
Our next question today comes from Peter or move Bird. Please go ahead.
Yes. Thanks, good morning, Phebe, just being all up.
Just a question on the G 700, you've always talked about the kind of dedicated production for the Ci 500, 600, you started dedicated production facility with the G 650, how should we think about that with the G. 700 is that going to be feathered in thanks.
Well it won't necessarily be feathered in but to your question about do we have a dedicated production facility and line we do.
See you expect that type of learning a that we've seen on our other platforms I'm on the 700 as they come down our learning curve increased production and come down our learning curve at that Paul costs, driven by the result of both our operating efficiency as well as our.
Our dedicated line.
And just as a follow up related to that on on the order front. I know you mentioned you expect healthy orders in the fourth quarter year, and you've had a book to bill over one for nine months year to date.
How are you approaching the book to Bill the bookings for the G 700 out as it following a similar path to Gbpfive hundred 600. Thanks.
Yeah as I. Thank you know from.
Announcement, we've got a nice robust backlog.
For the 700.
And as I said, our our fourth quarter, we expect to have even better.
You mean improved.
Order activity increased order activity.
Across our portfolio by the way we had more orders this year as again, there this quarter as against the quarter third quarter of 2018, but you know that's that's compared against a 23% increase in revenue. So this is a good quarter for us.
And on those questions today, social times on route of Cowen and company. Please go ahead.
Thank you very much in CB congratulations on the G 700, it looks terrific.
Okay.
[noise], you've indicated I guess first delivery and 2022, given that you're fairly close to first flight.
Any will your comment is the hope to be in the earlier part of the year or the latter part of the year.
So look wave I am I think we're comfortable and the and the estimate of certification that we've given Neil and leave we've looked to the prism as we've lived we thought about.
Going forward, we look through the prism of the current regulatory environment would you well know even better than we do and so we have factored that into our thinking hey, if it happens earlier that's great.
Got it and then I guess.
Some industry sources suggest you had been showing this plan for some time under and the days were there any.
From orders included in your bookings in the third quarter.
For the G 700.
It had some booking on this airplane that's about all I'm gonna say on that score.
This airplane is going to be very popular with that particular market segment.
Our next question today comes from genres.
Please go ahead.
Hey, Thanks, very much bigger picture question bigger picture question for you guys actually just touch on capital allocation decisions across the businesses certainly appreciate jewson, though the focus through first half of 20 is a is on repayment of debt for sort of thinking about how should we think about things going forward.
Those allocation decisions across the businesses.
No John I don't think.
We would really articulate any fundamental change to our long standing approach to capital deployment as it as those priorities stand internal investment first where we have profitable opportunities for returns.
Followed by the steady and predictable dividend and then it really is about M&A, where attractive accretive and in our core opportunities exist and share repurchase but it in between that as you articulated for the moment the prioritization really is all about.
Getting that debt pay down at least through the first half of next year once we get to that point.
Well, we'll have roughly pay down half of the the incremental debt from the CSRA acquisition will have the commercial paper balance behind us and we'll have a chance to look for but I don't think in terms of prioritizing those various avenues for capital deployment anything on that scores change for us.
Thank you and then just a follow up on Judy I'd see perhaps keep you had mentioned that some of the dynamics or are stretching out then there's obviously a pretty heavy protest environment out there.
It's or any thoughts about the acceleration.
As we pointed to heading into a heading into next year in the context appears generally doing mid single digits should we expect to do a two to take market share in that environment. Thank you.
So TV I T S and taking market share I mean, if if you think about their performance. So the performance to set underlying are under lives.
The air a outcome since the acquisition they've got a 75% 70, 75% when like for the trailing 12 month, I mean that is consistent month over month quarter over quarter.
No you all know the book to bills and one point to a one point wanted.
Deals just for the year to date, so where we are winning and more than our fair share, but we have seen a protraction.
And did some significant amount of money or contracts to be tied up in.
In protest at around $1 billion now protest as you all know historically.
Resolved to the benefit of the winner so we're quite comfortable that that historical precedence will remain but we've also seen a slowing and the execution of.
Oh I'm the contract awards, and we suspect that will be resolved through the course of next year.
And our our rate of growth.
We'll be in part and no small measured driven by the increase rate and award volume so.
Nothing is systemic here, it's really a question a timing.
Sure.
And our next question today comes from Myles Walton Yes. Please go ahead.
Thanks, Good morning.
I was wondering Jason maybe you can give us a little bit more color on the cash flow and in particular, if the Canadian advance was in the numbers.
This quarter and also just give us a boundary condition. If you don't make further progress on the the Saudi Love.
How does that play into the three and half billion employed.
Free cash flow for fourth quarter.
Yes, sure so yes in fact.
The advance we received in the quarter is in the numbers that you've seen.
So thats in the 93% conversion rate for the for the quarter as it relates to the balance of the year I think the way to think about it is we came into the year with just over $1 billion of arrears from the fourth quarter last year.
Grown somewhat call it another half half a billion dollars through the balance of this year and so that's what we're after right now that's what's currently outstanding I think you can see in our disclosures, there's an unbilled total unbilled investment somewhere in excess of 2 billion, two and a half billion dollars, but thats not necessarily what's factored in here, it's really between one and a half billion.
Dollars that we're still working to to resolve before the end of the year.
Okay.
Phebe that marine margin I think it's the best in a number of years just curious if there anything one time and I know you didn't update the full year projection, but maybe just to give us a little color to sort of the or thank you. So thats. The segment that had the most upside opportunity and is this is is it coming through.
So what you saw here was the strong and successful finish of block three I mean block three is is largely done and that performance and and that's strong closing loves that contract are really drove our margins, but if he will.
I'll now margins and in this business in particular, unless you spoke a followed the same path for 18 years, we start a new block.
And because of the contract structure with our customer they receive some of the benefits of our prior improvements on the previous block and then we reset the bar and come back down our line, Chris and that's where we really are on on block for but block three is is largely behind us and.
And they and we closed out very well.
Okay. Thanks.
[noise] unless worsens thing social no panos of Goldman Sachs. Please go ahead.
Hi, good morning, everyone I.
I know on winning.
I'm, just coming back to the Gulf stream margins.
I want to try to ask your question about the progression there because I know, there's a lot of investor focus on it.
First first please just further remain the last quarter of a year.
I'd take the guidance that you had previously provided literally or would it imply it's down sequentially in the fourth quarter. So are you expecting that and then I had interpreted prior comments to suggest.
The expansion, but modest expansion 2020, because you're you're you're feathering 650, lower and are still early in the 500 600 ramp, but then a larger degree of expansion in 21.
As you are further along in both of those processes.
Do I have that correct.
So look as you would imagine for right for a business that has demonstrated the power of operating leverage year in in your out on older model. The newer model Gulfstream will continue at March on margin improvement I'm on a go on for.
All the basis, you know don't forget that pre on [noise].
Carries no margin so to the extent that you've got a.
Yeah.
And implied lower margin in the fourth quarter.
That's almost entirely reflected bye bye.
By the pre owned.
Okay, well now just has no margin.
And is included in revenues so they have it and I'm a directionally correct on the beyond 2019 comments.
Well I think they've been pretty consistent all along that this business is going to get better and better off for time.
That's about all are going to say at this juncture.
And I will then.
Well the G 700 be the highest margin airplane in the portfolio. Once it's a full rate production Oh, we are so not going there.
So oh.
Look you can imagine that we yeah, we do well on our on our on our airplanes because they don't compete on price and we have a a on erring our commitment to cost reduction.
And cost optimization every quarter every month every quarter, we get better.
Your next question comes from George Shapiro with Shapiro Research. Please go ahead.
Good morning, I George.
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Your comment about the Q4 margins being lower from higher pre on I mean this quarter. It looks like there was for pre owned for about $90 million. So you would have earned 16.3% margin on the zero for the pre owned are you, suggesting a fourth quarter is going to have.
Higher pre owned and I would've thought were trying to smooth gbpfive hundred block so that the fourth quarter margin would still be above the third quarter.
So George taking your premises in reverse order, you're you're right about the progression on the underlying manufacturing improvements and I think thats, what phebe was alluding to earlier, we'll continue to see that progress quarter on quarter for Gulf stream, but but yes. It's your first premise.
Based on the inputs were seeing right now and the and the contracts that will deliver in the fourth quarter, we would expect to see at this point.
More pre owned aircraft sales in the fourth quarter.
And Jason that will more than offset the fact that the five hundreds through its initial blocks. So the margins should step up some into fourth quarter.
I mean, I don't know that I want to piecemeal it down to that level. Those are two of the many inputs that go into the to the margins at Gulfstream in any quarter unit you know we've talked about this many times in the past there's.
Varying R&D levels, there's different mix of aircraft deliveries and all the different inputs to the jet aviation service margins.
So on so I think we've articulated a couple of those discrete ones that are that are clear at this point, but.
The implied fourth quarter. There's a couple of people are picking up on his as usual a blend of a whole myriad of factors. So I think the most important point here.
For the long term investor is the steady regular improvement in the operating cadence margin of the production of the airplanes at Gulfstream.
Okay, and just a clarification for you Jason.
The advance you got to this quarter for from Canada was that just for the new Canadian contract or was there also some from the Saudi a receivable.
That is strictly related to our relationship with that with the Canadians on this new for a longer new program.
Okay. Okay. So when you commented in the third quarter you expected to get some cash in August and then a balanced by the end of the by the ended the year you were really just referring to this new contract, which obviously had been announced at that point well, let's parse that we had anticipated that we would get this call.
Contract award and that there would be in attendance at that along with that we that is one separate and distinct issue as you all know our international [noise] the payments on our international program out of Canada have remained calm small let me just remind everybody.
There's no dispute on quantum they know dispute.
On on the fact that it is some old it's simply a question of timing and we're still I'm hopeful that we resolve that by the ended the year or.
But two distinct elements okay.
Our next question today comes from one or two.
Research. Please go ahead.
Hi, good morning, everybody. Thank you you've been sort of touched this little bit CV, but can you elaborate on a comment you made when you said the G. 700 has stimulated GE 650 discussions will you mean by that and then the second part of them down here is any thoughts on the tariff situation in Europe have you heard and you can serve your custom looks like Biz jets are going to be exempt, but any any.
Rumblings about that over there. Thank you so an inverse order none on the Tara.
And in fact, our Oh X U.S. business continues to be I'm very fulsome.
But let's talk a bit about the 700 and frankly the introduction of the 700 clarifies the 650 and let me give you a little bit of an explanation on why and talk to you about what the 700 is and what it is not.
The G 700 isn't a slightly different markets space.
But in the same market segment as the 650.
It is not a competitor it isn't alternative it is not a replacement for the 650 customers very clearly understand that and they're buying decisions are motivated by a host of factors in idiosyncratic an individual factors, including the missions they fly ramped side.
Hi, I'm. The makeup of the rest of their fleet.
So I think it has clearly an arm and in our experience.
700 has clarified the 650 and been helpful.
Yeah.
[laughter]. Our next question today comes from Robert Spingarn of Credit Suisse. Please go ahead Rocco This Christmas through Bell this will be our last question.
Two sir.
So phebe I wanted to go to Gd tea and just talk about the margin progression you talked about some of the expenses in the quarter or pressure on the margins in the quarter, but otherwise would be higher if we go back to your prior guide I think that indicates a pretty robust fourth quarter. So could we talk about that and what.
Normalized margins look like and then just for a follow up Jason I hear you on the cash deployment and retiring that debt given interest rates might not make sense to look at a share buyback here just just doing the math. Thank you.
[noise], that's we're comfortable with our leverage and we're going to pay down that that and we historically have never.
Taken out debt.
The buy stock.
All sorts of reasons.
But we have discussed over the years fellow Tds TV margins were consistent with what we anticipated minus this onetime charges as we exited a line of business that we inherited with CSRA you know I don't think I need to remind you because I know you understand this that.
You know their EBITDA margins are interest industry, leading.
So their margin performance will continue to improve.
[noise] Rocco, yes, Sir.
This through bell. Thank you very much for though.
For the call today, and thank you everybody else for joining us as a reminder.
You should refer to the general dynamics web site.
Third quarter earnings release, and the highlights presentation. If you have additional questions I can be reached at 7.38763117. Thank you.
Thank you Sir todays conference has now concluded.
Just two months rooms, other wonderful day.