General Dynamics [GD] on Wednesday posted a solid end to its fiscal year driven by strong growth and earnings at its operating segment that makes armored vehicles and munitions and the company is forecasting a better 2023 than previously forecast for this business due to demand stemming from Russia’s war against Ukraine.

Sales and operating margin in the Combat Systems segment will mirror 2022 levels, which is better than the slight decline expected a year ago, and the increased demand related to tensions in Europe have just begun to show up in backlog, Phebe Novakovic, GD’s chairman and CEO, said on the company’s earnings call. She also credited the improved outlook this year to Poland’s order for the M1 Abrams tank that “came in sooner than expected.”

“To the extent those demand signals start to convert into order activity, we could see some opportunity for additional revenue in the latter part of the year, particularly in armaments and munition business,” she said.

The Combat Systems segment tallied $7.3 billion in sales in 2022, less than a percent decline from 2021, better than forecast, and operating margin was 14.7 percent, 20 basis points above the prior year.

GD’s net income in the fourth quarter increased 4 percent to $992 million, $3.58 earnings per share (EPS), from $952 million ($3.39 EPS) a year ago, beating consensus estimates by four cents a share. Sales increased 5 percent to $10.9 billion from $10.3 billion.

For 2022, net income increased 4 percent to $3.4 billion ($12.19 EPS) from $3.3 billion ($11.55 EPS) in 2021. Sales for the year increased 2 percent to $39.4 billion from $38.5 billion.

In addition to Combat Systems, GD’s Technologies and Marine Systems segments in the quarter also registered improved top and bottom lines. Technologies benefited from higher product deliveries at the Mission Systems division despite continued supply chain disruptions around computer chips and microelectronics, while the shipbuilding business grew on the strength of production work on the Navy’s Columbia-class ballistic missile submarine.

Operating income and sales at Marine Systems were an annual record in 2022, although the projection for sales and operating margins are flat in 2023 due to supply chain constraints impacting the Navy’s

Virginia-class nuclear attack submarine, Novakovic said.

The supply chain issues at Technologies that have hampered product deliveries “have not completely resolved” but the fourth quarter result “gives us good reason for optimism that they’re starting to see their way through this,” Jason Aiken, GD’s chief financial officer and new chief of Technologies, said on the call.

GD’s powerful Aerospace segment, which includes the Gulfstream business jet division, reported mid-single digit declines in quarterly sales and profits due to a delay in delivering three aircraft that slipped into the first quarter of 2023, Novakovic said. Still, the segment generated strong earnings and solid sales for the year.

In 2023, GD is projecting top-line growth of about 5 percent to between $41.2 billion and $41.3 billion with per share earnings between $12.60 and $12.65 on operating margins of 10.9 percent, a 20 basis point improvement over 2022. The key driver in the sales and income growth will be the Aerospace segment with a slight improvement from Technologies on the top-line on the strength of the Information Technology division.

The forecast includes headwinds of 63 cents EPS versus 2022 related to lower pension and non-operating, non-cash income, and higher taxes related to foreign earnings, Aiken said.

“Our forecast comes from our operating plan,” Novakovic said. “It is conservative as it must be in this environment of unpredictable financing of the government. However, the threat environment suggests increases in defense spending. In short, I see more opportunity than risk in our forecast.”

Free cash flow in 2022 was a robust $3.5 billion and will exceed net income again in 2023, Aiken said.

Backlog at the end of 2002 was a record $91.1 billion, up 4 percent a year ago from $87.6 billion, despite a $600 million headwind related to foreign currency exchange impacts, he said.