General Dynamics [GD] on Wednesday reported an increase in net earnings in the first quarter driven by lower taxes and net interest expense although sales were flat.

Net income rose 3 percent to $730 million, $2.61 earnings per share (EPS), from $708 million ($2.48 EPS) a year ago. Sales remained level at $9.4 billion.

Lower taxes and interest expenses more than offset a 3 percent decline in operating earnings, which were down due to one-time corporate costs related to how the company recognizes the vesting of equity compensation as an expense. Excluding the corporate impacts, higher earnings at the Aerospace and Marine Systems segments outpaced declines at the Combat Systems and Technologies segments.

The increase in corporate expense “distorts the truly strong performance of the operating units,” Phebe Novakovic, GD’s chairman and CEO, said during the company’s earnings call.

Operating margin fell 30 basis points to 9.7 percent. Excluding the corporate operating impacts, margin would have increased 10 basis points to 10.4 percent.

On the top line, growth at Marine Systems and Aerospace was offset by lower sales at Combat Systems and Technologies. Higher sales at Marine Systems were paced mainly by work on the Navy’s Columbia-class ballistic nuclear missile submarine, as well work on a fleet oiler, the DDG-51 destroyer, and ship repair work for the service.

Growth at the Aerospace segment, which includes business jets and aircraft services, was driven by record services work.

Amid Russia’s unprovoked invasion of Ukraine, Novakovic said that interest from U.S. allies in the company’s M1 Abrams main battle tank is increasing. She also said that orders from Europe were higher due to earlier business opportunities but that the pipeline “has increased as nations are contemplating higher defense spending to respond to the threat.”

It’s still too early to say what future defense budgets may hold for increased spending around Russia’s actions, Novakovic said. If budgets do increase, she expects that demand would increase for combat vehicles, ordnance and armaments.

“It takes time to get from the threat to full funding to allocation of awards,” she said.

Despite inflationary pressures, Novakovic said that GD has been able to manage these and prevent negative impacts on its margins. The measures include taking advantage of “contract architecture,” price increases if possible, cutting costs, and substituting for different parts and commodities, she said.

Free cash flow in the quarter was very strong at $1.8 billion, more than twice net income, and the company still expects cash flow to at least equal net income for the year.

Orders equaled sales and backlog at the end of the quarter stood at $87.2 billion, down 3 percent from $89.6 million a year ago.