Q2 2025 General Dynamics Corp Earnings Call
Good morning and welcome to the General Dynamics. Second quarter 2025 earnings conference call. All participants will be in listen-only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again, please note this event is being recorded. I would now like to turn the conference over to Nicole Shelton, vice president of investor relations. Please go ahead.
Thank you, operator and good morning everyone. Welcome to the General Dynamics, second quarter 2025 conference call.
Speaker Change: Any forward-looking statements made today, represent our estimates regarding these Outlook. These estimates are subject to some risks and uncertainties additional information regarding these factors is contained in the company's 10K. 10q and 8K 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, investor relations gd.com on the call today, our feeding novakovic chairman and chief executive officer, Kim Korea, Chief Financial Officer, Danny deep Executive Vice President, Global operations Jason Aiken. Executive Vice, President combat, and mission systems. And Amy gilland, Executive Vice President. And
President GDIT, I will now turn the call over to Phoebe.
Phoebe: Thank you, Nicole. Good morning, everyone, and thanks for being with us earlier. Today, we reported earnings of $3.74 for diluted share on revenue of 13 billion, operating earnings of 1.3 billion and net income slightly over a billion dollars.
Phoebe: We enjoyed Revenue increases at 3 of our 4 business segments, compared to the year ago quarter, the cross, the company Revenue increased over a billion dollars in 8.9 increase.
Phoebe: Importantly, operating earnings of 1.3 billion are up almost 13%. Once again, demonstrating strong operating leverage. Similarly net earnings are up, 12% and earnings per share are up 14.7% over the year, go quarter.
Phoebe: You will note we beat street EPS consensus by 19 cents.
Phoebe: On a year to date basis. Revenue of 25.3 billion is up 11.3%.
Phoebe: Operating earnings of nearly 2.6 billion are up, 17.4% and earnings per share are up 1.26 cents or 20.5%.
Phoebe: In my view, this was a wonderful quarter that exceeded our expectations and led to a very good first half of the year.
Speaker Change: Let me ask our CFO. Kim Korea to provide detail on our strong order activity, growing backlog and superb cash generation as well as other relevant financial information.
Kim Korea: Thank you, Phoebe. And good morning. I'll start with orders. We had a huge quarter with over 28 billion dollars of orders yielding. An overall book to Bill ratio of 2.2 to 1 for the company.
Kim Korea: The largest driver was the marine system segments, which received several contracts for further construction of submarines the large Awards in Marine almost overshadow, the fact that Aerospace had a tremendous quarter with a book to Bill ratio of 1.3 times.
Kim Korea: This is the strongest first half for order since 2022, and reflected strong demand across the entire Gulf Stream product line.
we ended the quarter with a record level of backlog of 103.7 billion of 14% from a year ago,
Kim Korea: our total estimated contract value, which includes options, and idiq, contracts ended the quarter at over 160 billion dollars also, an all-time high
Kim Korea: Turning to our cache performance for the quarter, we generated 1.6 billion dollars of operating cash flow with all 4 segments, contributing to our efforts, to drive cache earlier in the year.
Kim Korea: After Capital expenditures are free. Cash flow was 1.4 billion dollars for the quarter yielding, a cash conversion rate of 138%.
Kim Korea: Through the first half of 2025, we have free cash flow of 1.1 billion dollars which is well ahead of what we had planned.
Kim Korea: However, there is still work to be done. As we have working capital to unwind from the balance sheet, we expect a strong second half with the majority of cash generated in the fourth quarter which should push us towards a cash conversion rate around 90% for the year and improvement from what we were originally forecasting.
Kim Korea: Our full year, cash estimate excludes the impact of the recent tax legislation. As you know, reversing the prior laws requirement to capitalize, R&D expenses, will provide us a cash benefit. We are still working to develop an estimate of the exact timing and amounts associated with how that will all unfold.
Kim Korea: Now, turning to Capital deployment, Capital expenditures, were 198 million, or 1.5% of sales in the quarter.
Kim Korea: Similar to last year. You should expect Capital expenditures to be somewhat higher in the second half of the year.
Kim Korea: Spending a little over 2% of sales for the year.
Kim Korea: We paid 402 million in dividends in the quarter but we made know share repurchases, largely due to our cash profile.
Also in the quarter we refinanced 750 million of notes that matured in may we have no further debt maturities until next year.
Kim Korea: We ended the quarter with a cash balance of approximately 1.5 billion dollars and a net debt position of 7.2 billion dollars down 1.2 billion dollars from last quarter.
Kim Korea: Our net interest expense in the quarter was 88 million compared to 84 Million last year. That brings the interest expense for the first half of the year to 177 million up from 166 million for the same period in 2024, due to our utilization of commercial paper
Kim Korea: at this point, our expectation for interest expense for the year is approximately 330 million
Kim Korea: Finally, the effective tax rate in the quarter was 17.7%, bringing the tax rate for the first half to 17.4%.
This rate is a little lower than our outlook for the full year, which remains around 17.5%.
Speaker Change: PB that concludes my remarks. I'll turn it back over to you.
Speaker Change: Thanks Kim. Now let me review the quarter in the context of the business segments and provide detailed color as appropriate.
Speaker Change: I have asked some of our group Executives to purchase and provide color from their perspective as well. First Aerospace.
Speaker Change: Aerospace performed. Well, on the quarter, it had a revenue of 3.06 billion a 4.1% increase.
Speaker Change: Operating earnings is a 403 million or 26.3% better than the year ago quarter.
Operating margin is 230 basis points better than the year ago quarter.
Speaker Change: To give you a little perspective here, Gulf Stream had 38, deliveries in the quarter, including 15 g700s, which is 4 more than the year ago quarter and 2 more sequentially.
Speaker Change: This is offset in part by fewer, G6 cities. As we made the final deliveries of this high margin product.
Speaker Change: As I indicated previously, the supply chain continues to improve and is performing better to both schedule and quality, we are finding fewer faults and those we are finding are becoming easier to fix.
Speaker Change: In short. I'm increasingly confident that we can meet this year's delivery plan and in fact, we are delivering g700s on a much more predictable. Cadence
Speaker Change: I am pleased that all of our g700 retrofit airplanes have been delivered.
Speaker Change: Also, all of the g700s that were completed before engines were installed have also been delivered. You may recall that both of these things have negatively impacted costs and delayed, deliveries
Speaker Change: We are in the process of completing the g700 flight test aircraft. And a number of them will be delivered in the second half.
Speaker Change: The initial deliveries of the g800 will be made in the third quarter. We expect to deliver about 13,800 for the year, which is about 3 less than the G650. So we delivered in the second half of last year.
Speaker Change: The initial g800 will not carry the operating margins of the G650, this will obviously put some pressure on operating margin in the second half but we still expect the margins. In the third quarter to be very similar to the second quarter coupled with a stronger fourth quarter.
Speaker Change: In summary, the Aerospace team had a solid quarter, the 800 deliveries are about to commence and g700 delivery, Cadence and operating margin are both improving.
Speaker Change: Anecdotally, as you may recall, the g800 was designed to replace a G650. Interestingly, the first 20 of the g800 will be the G650 owners. There is significant interest in this plane from Fortune, 500 companies. Before I discuss demand, I am frequently asked questions about Aerospace operating margins and when it will move into the high teens, that is above 15%.
Speaker Change: the simple answer is maybe 2026, but for sure in 2027, with degradation again, in 2028 with the delivery of a significant number of g400s
Speaker Change: The simple answer is made with some trepidation. Nothing is more complex to forecast than the operating margin for Aerospace.
Speaker Change: So first, let me focus on what you all think about operating margin on aircraft deliveries, this is almost always driven by mix.
Speaker Change: The g700 has the highest margins. The g800 should ultimately enjoy similar margins, but its early and its delivery cycle.
The g600 enjoys, the next highest margin followed by the G500 and g280. And let's not forget the very strong margin contribution earlier in the year from the sunset G650 program.
Speaker Change: But aircraft margins while important because of their size are only part of the story.
Speaker Change: Aerospace also has over 3.5 billion of sales and what we generally refer to as aircraft Services business,
Speaker Change: The Gulf Stream, we have a large maintenance business impacted by the amount of warranty work in a given period, over the counterpart sales, and special Mission aircraft each with different operating margins and varying from quarter to quarter and impacted by both volume and mix.
Speaker Change: At Jet Aviation, we have a large mro business impacted by mix, particularly the number of large maintenance checks in a given quarter.
Speaker Change: They also have an aircraft completions business that is influenced by the mix of aircraft in house.
Speaker Change: I narrow body wide body or completions for Gulf Stream.
Speaker Change: Jet also has a high margin FBO, business impacted by volume. In any particular, quarter FBO volume happened. If have been down in the second quarter,
finally jet has a significant aircraft management and services business that has over 300 aircraft under management.
Speaker Change: The mix of these things, impacts margin quarter over quarter of Jet Jet Jet also has about 1.6 billion of annual revenue, and that is sufficient to impact margins in the group.
Speaker Change: I hope this to some extent helps you understand the Mosaic that makes forecasts in this area so complex and the impact of both volume and mix on the results?
Speaker Change: However, do not let this discussion distract you from the main Aerospace scene of steady increasing sales and earnings.
Speaker Change: so turning to demand Aerospace enjoyed very strong market demand in the quarter,
Speaker Change: As Kim noted, we had a 1.3 book to bill in the quarter. Even as aircraft deliveries increased, the denominator, as I said last quarter, we fully expect the certification of the g800. It's better than planned performance characteristics and early deliveries to customers will stimulate demand.
Speaker Change: We continue to see very strong interests across all models in the US across Europe, the Middle East and other parts of the world.
Speaker Change: So let's move on to the defense businesses. First Marine
Speaker Change: The growth story of marine continues revenue of 4.22 billion is up 22.2% from the year ago, quarter and 17.6% sequentially.
Speaker Change: Similarly, operating earnings of 291 million are up 18.8% border over a quarter and 16.4% sequentially.
Speaker Change: Operating margin is 6.9%, at least plenty of room for improvement, but let's not lose sight of the fact that operating earnings continue to grow along with sales.
Speaker Change: Virginia class construction as well as the slight increase in ddg 51 construction on a sequential basis. The 10-point decline in operating margin was driven by an unfavorable EA adjustment at Nasco.
Speaker Change: Backlog increased in the quarter by 14.6 billion or 38% to almost 53 billion. Largely the result of a contract for 2 block 5, Virginia class ships, including a 1-off kind special Mission ship with considerable contact.
Speaker Change: The contract also included important investment funds to support Shipyard productivity, wage increases, and additional training programs.
Speaker Change: These funds complement the funding that the Navy and Congress have provided over the last several years to help stabilize and improve the submarine industrial base.
Speaker Change: Taken together. These will help further improve EB. Throughput and productivity.
Speaker Change: As I said, last quarter electric boat, we continue to experience delays and quality problems in the supply chain.
Speaker Change: material and parts are late and sometimes exhibited quality escapes,
Speaker Change: This obviously disrupts workflow, but we are developing good. Workarounds, we have more work to do here but we are making progress.
We are working closely with the Navy and the new Administration to continue to address the problems in the supply chain and to work diligently to improve throughput and performance of electric boat.
Speaker Change: Our job remains to continuously, improve to help the industrial base, get stronger and to improve the Cadence of ship delivery to the Navy.
Speaker Change: Next combat systems.
I'm going to summarize the group's results for the quarter and first half of the year and then ask Jason, their new Executive Vice President to give you some caller on the quarter from his perspective.
Revenue in the quarter of 2.28 billion is essentially flat versus a year ago. Quarter operating earnings of 324 million are Up 3 and a half percent on a 50 basis. Point increase in operating margin to 14.2%
Speaker Change: year to date. The comparison is not dissimilar with modest Revenue growth of 1.6% to 4.46 billion stronger earnings growth of 3.4% to 615 million and a 20 basis point expansion of operating margins to 13.8%,
Speaker Change: And sequentially even stronger, Revenue growth 4.9% to 2.28 billion and impressive increase of 11.3% in operating earnings to 324 million on an 80 basis, point Improvement. And operating margin
Speaker Change: Order activity was solid with a book, The Bill of 1 times through the quarter.
Speaker Change: So, solid performance all around for combat systems Jason.
Speaker Change: Thank you, Phoebe and good morning.
As you can see from the number CB details for you, the group continues to demonstrate strong operating leverage irrespective of the Topline trajectory flat versus the prior year quarter up modestly year to date and up more significantly on a sequential basis and that's a testament to the operating discipline of this group.
Growth in the quarter in Europe was offset by lower volume in our us. Combat vehicle business driven largely, by the cancellation of the booker program.
Speaker Change: While the booker cancellation represents a headwind. We've stayed very close to the Army and are supporting their efforts as they work through budget and program prioritisation activities.
Speaker Change: To that point, we've invested ahead of need to make sure we're well positioned to support priorities such as the rapid development and Fielding of the Next Generation main battle tank.
Speaker Change: The growth in Europe is particularly encouraging and is representative of significant potential in that business as defense spending in Europe is poised to accelerate.
Speaker Change: To that point, the book to bill in our European business was 1.5 times in the first half and they've got solid opportunities as we look ahead.
Speaker Change: Our Munitions business continues to focus on facility expansion and increasing production rates in all areas related to artillery including projectiles load assembly and pack and propellant.
Speaker Change: We're making progress and working closely with the Army in support of their artillery production goals.
Speaker Change: Thanks Jason and finally Technologies as with combat, I'm going to summarize the group's results for the quarter and first half of the year and then ask Amy and Jason to give you some color on the quarter from the perspective of GDIT and mission systems respectively.
Speaker Change: The group had another strong quarter with revenue and earnings up quarter over a quarter sequentially in year to date.
Speaker Change: At revenue of 3.5 billion was up 5 and a half percent from the year ago quarter while earnings of 332 million were up 3.8%.
Speaker Change: A year ago on a shift in mix, as GDIT grew faster than mission systems in the quarter.
Speaker Change: on a sequential basis revenue and earnings were off by 1.3% and 1.2% respectively, on a steady margin rate of 9.6%
Speaker Change: and for the first half revenue of 6.9 billion was up 6.1% and operating earnings of 660 million were up 7.3% on a 20 basis, point expansion in operating margins to 9.6%
Speaker Change: the group continues to have solid order activity with a book to Bill of, just under 1 time, through the quarter and just over 1 times for the first 6 months.
As a result, the group's backlog is up 7 and a half percent from this time, a year ago and their total estimated contract value is up more than 11% over the same period.
Speaker Change: With that, I'll turn it over to Amy first to talk about GD, its quarter, thank you and good morning everyone. As Stevie noted GDIT delivered, a solid quarter and first half with growth in all of our customer facing divisions this performance highlights, the discipline and Agility of a business focused on Mission execution and cost control in a particularly Dynamic environment.
Speaker Change: The pace of contract award activity, was slower than normal in the first half, albeit somewhat improved in the second quarter.
Speaker Change: Despite significantly lower first, half customer, adjudications GDIT enjoyed 6. Wins over a hundred million dollars, including 1 over 1 billion dollars and the business delivered, a first half book to Bill of essentially 1 times on a growing business.
First half booked to bill would have been even stronger, but for the protest by a competitor of a significant new second quarter win in the defense business.
Speaker Change: We are pleased with the results we are seeing from the Investments we've made in our portfolio of digital accelerators capabilities. That enable customers to quickly leverage AI, cyber and Mission software Technologies, and our deepening relationships with strategic and emerging technology partners.
We reliably deliver and integrate the vast technology has to offer day in and day out. And that has helped us navigate the changes Administration priorities throughout the first half.
Speaker Change: With that, I'll turn it over to Jason to talk about mission systems.
Jason Aiken: Thanks Amy.
Jason Aiken: Mission systems also had a great quarter with Revenue earnings and margins up on every comparator basis, quarter over quarter sequentially and year-over-year.
Jason Aiken: as we've been discussing, for some time, mission systems has been transitioning from Legacy lower margin programs to new franchises for several years now,
Jason Aiken: So the top line has been relatively flat even as the margin profile is improving steadily.
Jason Aiken: We've said, this is the final year of that transition and so we're starting to see an inflection to growth so that's very encouraging.
Jason Aiken: Like GDIT mission systems has been investing ahead of need in areas like unmanned platforms, smart Munitions, high speed, encryption strategic, deterrence and contested space. And as a result they're seeing opportunities across the portfolio.
Jason Aiken: to that point, their total backlog is up 15% from a year ago and total potential contract value is up, 23% over the same period all in all a very strong first half of the year
Phoebe: I'll now turn it back over to Phoebe.
Speaker Change: Before getting into guidance, I wanted you to hear from Danny D about his new responsibilities. And what we are up to here with the new executive VP for operations.
Danny D: Thank you, Phoebe and good morning.
As you are all aware General Dynamics takes great pride in being an outstanding operating company focused on cash generation earnings and dependable delivery of Highly differentiated and critical capabilities to our customers.
Danny D: As a portfolio has grown and in some cases quite rapidly we see opportunity across each of our business units. To further optimize our operating Leverage
Danny D: Along with the senior corporate leadership team and the operating unit presidents. We will focus on driving continuous Improvement across the entire value chain.
Danny D: From competing to winning while maintaining discipline in our contracts.
Danny D: To ensuring a robust, supply chain and efficient manufacturing footprint to execute on our commitments.
Danny D: We'll Place particular attention on programs, where we have challenges to ensure, we get them up the learning curve and Performing to the high standards, that have been the Hallmark of General Dynamics.
In summary, we see a wealth of value creation opportunities across the portfolio.
Phoebe: With that, I'll turn it back to Phoebe.
Speaker Change: Companywide rollup.
Speaker Change: For 2025. We now, expect Aerospace revenue of around, 1 2. 9 0,
Speaker Change: Gulfstream deliveries will be 150 to 155 up a little, over our previous estimate.
Speaker Change: We anticipate a 13.5% operating margin for the year 20 basis points lower than our earlier estimates.
Speaker Change: The third quarter, operating margin will be about the same as this quarter with a somewhat better fourth quarter.
Speaker Change: In short revenue is up on more deliveries margin is down a little due to mix and airplane deliveries. And at the service businesses
Speaker Change: in combat, we expect Revenue about 9.2 billion coupled with a 14.5% operating margin.
Speaker Change: This should lead to somewhat improved earnings. Over our last estimate.
Speaker Change: As noted earlier, the Marine Group has been on a remarkable but difficult growth Journey, it will continue during the rest of 2025 albeit at slightly lower growth rate.
Our outlook for this year now. Anticipates Revenue around 15.6 billion with operating margin of 7% which should provide better earnings than previously estimated
Speaker Change: And Technologies, we are making no change to the 2025 revenue and earnings estimate provided the beginning of the year.
Speaker Change: 2025 companywide, we expect to see revenue of approximately 51.2 billion in operating margin of 10.3%. The revenue estimate is increased by 900 million and the overall operating margin Health constant.
Kim Korea: You have already heard Kim's commentary about our estimate for increased cash for the year.
Kim Korea: All of this rolls up to an increase EPS forecast of $155 to $15.15.
Kim Korea: So 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 Year. Nicole back to you.
Thank you, Phoebe. As a reminder we asked participants to ask 1 question and 1 follow-up so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue?
Speaker Change: If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again,
Speaker Change: Your first question comes from the line of Guatemala with TD Cohen, you may go ahead.
Thanks. Good morning. A nice results. Good morning. Thank you.
Speaker Change: Um, Bebe. I was wondering if you could elaborate on the g800. Delivery Cadence, you mentioned 13 in the second half. Um, do you have a sense for
Uh, when the first 1 might deliver and, you know, flip the skew will be Q3 to Q4 and relatedly.
Speaker Change: You've given color on prior the lots and the g700 margins. If you will any any sort of guidance that can give us on how to think about g800 profitability by Lots over time. Thanks.
Good deliver very soon. Um and I actually am not. I don't really know the distribution of each by quarter um but we'll be pretty much on what we enter what I noted in my remarks. Um as you know as we talked about before the g700 um Lot 1 uh carried lower margins, for all the developmental costs reasons.
Uh, 2 is um better. Um, what 3 is going to be better yet? Or is better yet and I expect the same from Lot 4. The g800 comes out of the box at a higher um Lot 1 at a higher incremental margin than the 700 that didn't bear as much of the de developmental cost.
Thanks very much and uh good morning. Good morning.
Speaker Change: And while I realized that there's a lot of unpredictability around the different Dynamics there, in terms of the the contributors in the mix, what sort of a good algorithm for services, going forward, does it, you know, grow a kind of a a pace with with flight hours or, um, I guess or deliveries or, you know, kind of how to think about it. Uh, and, and how it fits into the margin mix going forward as well.
Speaker Change: Sure. So, the theory of the case behind our services was that if we build additional service centers and um, at or near, um, location of Gulf Street airplanes, then, in fact that would drive additional incremental revenue and in fact that's been the case.
Speaker Change: and as I tried to walk you through um uh on in my remarks,
Speaker Change: The margins are very by Pro principally by mix but also by volume and so on any given quarter, it depends heavily both at Jet Aviation and Gulf Stream on what the, um, on what the mix is of, um, both mro. And then in the case of jet, um, a lot of, um, there are other services lines of business but also upgraded them, um, margin story. So, I don't know that there's a given algorithm for thinking about, um, margin in the service, uh, world, but we expected to continue.
Speaker Change: continue to grow with the fleet and um, and we're very pleased with how we have done their
Speaker Change: Okay, great. And then, uh, just as a follow up, it seems like, um, based on the new Guidance with Technologies, um, on changed, uh, there's step down in terms of both margin and sales in the second half. And so, maybe if you could talk a little bit about what what's driving that and then, um, kind of where it goes from here.
Speaker Change: Yeah. So we were given the fluidity in that market. Um, so far this year uh we thought it prudent to keep our earnings and our um, Revenue estimates about where they are, but I'll ask both first, Amy and then Jason to give you a little bit of color.
Speaker Change: Good morning. So from a GD, it perspective. We did navigate the first half very well. That was not without some impact from contract scope changes from cancellations.
Speaker Change: Of uh, some of our contracts. And so as we look at the second half the thing that will most impacts uh our positioning is really the Cadence of award activity and is commented in my remarks. The adjudications were down significantly in the first half of 2025 compared to the first half of 2024 and so we're running out of days of the year to be able to
Speaker Change: To to win that work and deliver on it. And so really from a revenue expectation, it is the pace of adjudication that
Speaker Change: feel very good.
Speaker Change: That where we are, uh, from an earnings perspective. Jason, yeah. So from mission systems perspective, uh, a good bit of the strengths that we saw in the first half, uh, came from activity and their, their high speed encryption product business, which is a, it's really a transactional business. And so, while we still see incredible, Demand on that side of the business, the timing of that is somewhat less predictable, given the transactional nature. So I would tell you, there's opportunity, uh, for them in the second half depending on how uh, that demand goes. But uh if Phoebe said, just given the uncertainty overall in the market, um, for the group as a whole, uh, that's the reason we're holding uh, to the full year guidance.
Speaker Change: Your next question comes from the line of Doug. Harnet with Bernstein. He may go ahead.
Uh, good morning, thank you. Good morning. Um, the on on on Marine the big increase you saw in revenues in Q2 um that that's unusual to see that large of a jump there. Can you can you talk about
Speaker Change: What happens. Specifically related to Virginia class Columbia class. That really took it up so much.
Speaker Change: Columbia about 40% and it, it, it really just was the construction volume.
Speaker Change: largely both timing, but also continued
Speaker Change: Increasing performance at the shipyard.
Speaker Change: Well, and then you've you've gotten this early in the quarter, you got the award for the 2.
Speaker Change: Last 2 block 5 votes which was certainly very good news with support for labor. Um can you talk about the increased funding both that and what we may see in the 26 budget and how you can get that to translate into higher throughput? Which it looks like you're already getting some of and ultimately higher margin as well.
Speaker Change: Okay, let me answer that kind of in the inverse orders we've been telling you for some time.
Speaker Change: Um, the margin Improvement at the Marine Group in particularly within the submarine, industrial base improves that electric boat. When, um, we get additional stabilization in that industrial base and in our supply chain,
So that has been a a a key uh driver of really the productivity of the shipyard um and as you know part of our our our strategy is really dependent on controlling, what we can control and on the deck plates getting better and better and better maximizing or optimizing, the work we have in house. Um,
Speaker Change: With workarounds on, you know, late um, deliveries of major supply for major suppliers as well as any quality escapes.
Speaker Change: So, you know, that's sort of, if you think about the, our, our big strategy, it's that. And we are seeing productivity improvements at, um, in a number of key places in our in, on the deck plates in in that electric boat, frankly, um, in our other businesses as well, just crossed the board. Um, I would say that in, with respect to the supply chain, we've seen some stabilization and Improvement in some important areas and the Navy. And the Congress has been, uh, allocating funding for the industrial base to undergird their performance and some of that is beginning to improve. But we've got a ways to go there uh, with respect to the F uh the fiscal year 26 funding levels, we are still working out with our Navy customer. Um, what the exact funding levels are by program as a fair amount of complexity as we as we unpack the 26 budget and the
Speaker Change: And the reconciliation bill but um our our programs are fully supported and then with respect to the anomaly um we were we were glad to get that under contract. Um 1 of those both is a particularly complicated vote um and as we you know, gear up on that. Um,
Speaker Change: And I think that this is an important that that contract was important and that it provided the type of uh, funding for the shipyards. Um, that we've seen going into the supply chain. So, over the last few years,
So that kind of funding support on training and and wage increases as well as productivity may be funding productivity improvements um at each 1 of those at each of the Yards. Um that'll be very very helpful as we go forward.
Speaker Change: Your next question comes from the line of Scott ducha with Deutsche Bank. You may go ahead.
Scott Ducha: Hey, good morning. Phoebe does getting to High Teens margins at Aerospace. Require meaningfully higher Gulf Stream. Deliveries
Scott Ducha: Been to 150 to 1555, you're planning for 2025, or is that bridge to High Teens primarily driven by coming down to learning curve and optimizing the mix?
Scott Ducha: Yeah, I I tried to spend some considerable time in my remarks dragging. You all through the night, all that is uh, Aerospace margin. So I I think I'm not quite sure what other, you know, clarification I can give you, um, but it it's it'll a lot it'll be mixed and it'll be volume.
Um, you know, in simple terms.
Speaker Change: Okay, that's fair and sorry if I missed this, but was the order strength at Gulfstream? This quarter, uh, pretty well, spread across aircraft types, or was it concentrated in any particular pockets of the Gulf Stream portfolio, particularly in the context of the g800? It was across all of our airplanes. Uh, first was the 700 600 right behind it. Um, and we had nice geographic distribution as well. So it was, it was good, solid demand. And we continue to see that, uh, in the third quarter.
Speaker Change: With particular interest in the 800, I might add.
Robert Stallard: Comes from the line of Robert Stallard, with vertical research, you may go ahead.
Speaker Change: Thanks so much. Good morning.
Morning.
Um, Phoebe. I was wondering if you could comment on the management reorganization that you announced this quarter and how this could affect the way that the business is run going forward. Thank you.
Speaker Change: Well, it was 1 of the reasons I asked.
Speaker Change: 108 to give you.
Speaker Change: Uh, his role in particular playing out. Um, we'll continue the manage the business as we have been managing it and and, and really driving for Value creation, um, across each and every 1 of our portfolios. But as we grow, I, um, we have believed as a leadership team, and we've talked on this call and and I've talked with many of you and individually and in groups about our, our, our desired increase our operating leverage, and you'll note in almost every single 1 of our calls, we'll stress and our point out and then stress where we are in our operating leverage. So 1 of Danny's missions is to really focus on the operating performance of each and every 1 of our businesses.
Speaker Change: But we will manage the business in, in the in, in the same way.
Speaker Change: Okay, the quick follow-up. Are you also looking to combine uh combat Mission going forward or is they going to remain Standalone businesses?
Speaker Change: Thanks so much.
Your next question comes from the line of David Strauss with Barclays.
Speaker Change: You may go ahead.
Thanks, good morning.
Speaker Change: Good morning, David.
Speaker Change: Uh, CB following up on on Rob's question. So, um, you know, the portfolio as a whole, I think, you know, used to run 12, you know, in the range of 12 to 13% margins of more recently running in the low 10s. I know there are a lot of moving pieces but any any thoughts you might have and, and in terms of where, uh, the margin potential is for the portfolio as as we move forward.
Speaker Change: So look. Um, we as Danny noted, we pride ourselves on our operating performance and I think we can improve and particularly need to sort of the 1 that jumps out at you is in the Marine Group.
Speaker Change: So those margins over time, we need to improve, but I'll ask Danny if he has any, you know, particular insights that it's not that far into his his new position but he's been a senior operating executive with the company for some time.
Danny: Okay. Well thank you. Yeah. I mean I think Phoebe hit it. We're going to look across each of the operating units and program by program. And and uh where where we've had uh some challenges in getting up the learning curve. I think that's where our focus is going to be in
Danny: Not to point any 1 particular operating unit out. But if you look at where the largest operating pieces of the business are and where we've historically had our margins, uh, that's where we see our best opportunities but this company has been focused on on operations and and has been very disciplined from an operating perspective for a long time. And
Danny: Finer point on that.
Speaker Change: Your next question comes from the lines of Miles Walton with wolf research. You may go ahead.
Thanks, uh, good morning. Phoebe the strength of bookings at Aerospace in the first half. Are you feeling more confident in seeing a book to bill at or above 1 for 2025 at this point?
We're keeping it is about 1. Um that's sort of been our our our Cadence and our thought pattern and our observations frankly but the demand has been quite good and as I noted and my previous answers to a lot of the questions. Um,
We see that the man carrying through into the third quarter.
Speaker Change: Okay. And then I think in your prepared remarks you mentioned margin pressure in 2028 from the g280 because I had my notes the certification in 2020 400.
Sorry, sorry, the g400 um I had in my notes that that was certification was in 2026. Is that flipped to the right?
Speaker Change: Oh, thanks.
Um, I will tell you we've slowed down the 400 a bit because we've got our our hands full. That's not about the FAA, it's simply. It's got an awful lot as we continue to grow and, and really work on our operating leverage and, and Gulf Stream, but um, 400 is doing quite well. But I think we've
Speaker Change: I don't know that we've ever actually given you. I don't recall that we've given you a um a uh
Speaker Change: Some, some some you know, kind of color about, you know, year-over-year progression without getting into next year's guidance, which of course, you know, we won't do.
Speaker Change: Very good. Thank you.
Speaker Change: Your next question comes from the line of Sheila kyoga with Jeffrey, you may go ahead.
Speaker Change: Um, good morning everyone and thank you Phoebe. Really appreciate the color on Arrow and I might follow up a little bit on miles's, question just I think the point on staircase is it's a stable growing business, both on revenue and operating profits. So maybe if you could talk about just the capacity of volume go stream, could produce, is it growing off? This 150, bass annually, and tomorrow's this question. Why? The dip in 28?
Speaker Change: Um, if g400 comes in there, I I thought it would be maybe a year after the 800. So if you could just provide that dip timing,
Speaker Change: Um, as the 400 comes on, it'll, it'll be a lower margin airplane than the than the very large cabin. Um, and I think, um, remind me, what the first part of your question was just on the capacity, uh, production capacity. All right. Yeah, so, on the capacity question, we've got the plant, um, and Equipment Jigs and fixtures, as well as the workforce to support a capacity of 200 airplanes. Um,
Speaker Change: That will continue to work to increase our our Productions, according to the market.
Speaker Change: Maybe 1 more. If I could ask with Services down in the quarter,
Speaker Change: yes.
Speaker Change: Your next question comes from the line of Jason gursky with City. You may go ahead
Hey, good morning everybody.
Speaker Change: Um TV you mentioned the um you made some comments about Nasco, maybe a small, negative, EA C. There was only if you can just uh talk to a little bit.
Speaker Change: generally, uh, about what's going on at at Nasco and the priorities of the new
Speaker Change: Administration and the impact that that might have on that yard out there and then just provide both color on the EAC.
Yeah, so let me talk about um, sort of what we see as the market environment, and then I'll turn it over to Danny to talk a little bit about, um, this particular, um, EAC impact, which by the way, at NASA's extremely unusual. So, uh, let's let's just set the table here and remind ourselves, that, that Nasco produces primarily. Auxiliary ships, um, for the US Navy,
And and the demand has for those has been increasing over the last few years and we continue to see that. Need as the warships. All need support ships in order to function at sea.
Speaker Change: Um so we have uh we've seen nice uh increases in demand. And we expect that
Our programs, you know, in in place as well. But I'll, I'll turn over to Danny to talk about this orders AC
Danny: Okay. Yeah. So at Nasco, um, it really started with the flood and the impact, the flood had on our Prime line. It took us down from 2
Danny: 2 to lines to 1. And then we had a a subsequent issue and and after that issue, it created a fair bit of rework in the system and so that's what's reflected in the EAC as we speak and we think we'll largely be through that by the end of the year and have both of those Prime lines up and running.
Danny: And this issue will be behind us.
Lacey: Okay, Lacey. I think we have time for just 1. More question.
Speaker Change: Final question comes from the line of Scott micas with Melius research you may. Go ahead.
Speaker Change: Morning Phoebe. The secretary of the Navy commented that it might be preferable to have Huntington angles and Electric Boat, each build, Virginia class submarine separately, rather than in a teaming Arrangement. So if the Navy were to actually pursue that route, how much Capital would you need to invest to make that happen? And is there enough? Skilled labor for electric boat to handle, 1 Virginia, by itself. Also, continuing the work on Columbia
So skilled labor has not been in issue for electric boat uh for some time now. Um but I and we do not see a capacity.
Speaker Change: Apps on that strategy, uh, but not an enormous amount.
But I'll defer to the Navy on any future discussions about that.
Speaker Change: Okay. And then a quick question on Aerospace. The book, the bill on the quarter was very good despite the stock markets perturbations around Liberation day. Have you seen any uptick in the pipeline pipeline since the 1 big beautiful? Bill Act was signed in the law and reinstated bonus depreciation.
Speaker Change: I wouldn't I wouldn't cite 1, macroeconomic factor I think that there were a lot of them here. Um there wasn't 1 in particular from my perspective that that that drove the demand.
Speaker Change: Bonus appreciation. Helps quite a bit.
Speaker Change: Always has.
Speaker Change: Okay. Um, thank you everyone for joining our call today as a reminder, please refer to the General Dynamics website for the second quarter earnings release and highlights presentation.
Speaker Change: Finally, we want to let you know that we expect to hold our Q3 earnings call on Friday. October 24th at 9:00 a.m. that's a slight change from our normal practice of announcing earnings on Wednesday. So you want to advise you of that early for planning purposes. We will resume our normal schedule for the fourth quarter call. If you have additional questions, I can be reached at 703-876-3152.
Speaker Change: this concludes today's conference call, you may now disconnect