General Dynamics [GD] on Wednesday reported top and bottom-line declines in its third quarter, largely on continued weakness in its business aviation business stemming from the ongoing pandemic, which also hampered results elsewhere in the company.
Overall, the company’s results were a mixed bag. In addition to the Aerospace segment, operating income and sales at GD’s Mission Systems segment declined and the Information Technology (IT) segment held profit steady despite a slight drop in sales. The company’s Marine and Combat Systems segments both delivered higher operating income and sales.
Growth at the Marine segment is mainly due to submarine programs at GD’s Electric Boat shipyard in Connecticut, Phebe Novakovic, the company’s chairman and CEO, said on Wednesday’s earnings call. More than half of the growth in the business this year is due to the Navy’s Columbia-class nuclear ballistic missile submarine program, “with considerably more coming,” she said.
The size of Electric Boat will “double in the next five to six years,” she said. “It’s already quite a large business and it will continue to grow.”
Net income fell 9 percent to $834 million, $2.90 earnings per share (EPS), from $913 million ($3.14 EPS) a year ago, topping consensus estimates by 4 cents per share. Segment operating margin dipped a percent to 11.5 percent, mainly on declines at Aerospace and Mission Systems.
Sales were down 3 percent to $9.4 billion in the quarter from $9.8 billion a year ago.
GD said that impacts from COVID-19 chopped $541 million and $120 million, respectively, from sales and operating income at Aerospace. At GDIT, impacts from the pandemic lopped $237 million from sales and $32 million from income, although the company was able to partially offset $149 million of the top-line reduction due to a government stimulus package.
GD also said that worker absenteeism, facility closures and a lack of access to some customers’ facilities knocked another $142 million from sales and $52 million from operating income overall.
Excluding the hits from COVID, GD said operating margin would have been 12.6 percent and earnings $3.48 EPS.
Some bright spots in the results include free cash flow of $903 million, 108 percent of net income, and an increase in orders at the Gulfstream business jet segment versus a year ago and the second quarter of 2020. The company also highlighted overall improvements from the second quarter, including 2 percent growth in sales, 33 percent higher earnings driven by significant improvements in operating margin.
Novakovic touted the “resilience and strength” of the company’s backlog, which stood at $81.5 billion at the end of the quarter, up 21 percent from a year ago. Funded backlog at the end of the quarter stood at $60.2 billion, up 12 percent from a year ago. Compared with the end of the second quarter of this year, the backlog figures are down slightly.
The company’s backlog this year benefited from a $10 billion Navy contract in June for continued design work on the
Columbia-class submarine program, including funding for the first two vessels.
Novakovic said the backlog numbers “represent a solid and enduring backlog.”
She maintained GD’s financial outlook for the year, with sales around $38.4 billion and operating income around $4.2 billion and earnings per share between $11 and $11.10.