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Continuing its strong momentum from the first quarter, General Dynamics [GD] on Wednesday reported handsome second quarter results driven by the company’s shipbuilding and Aerospace segments.
Net income increased 12 percent to $1 billion, $3.74 earnings per share (EPS), from $905 million ($3.26 EPS) a year ago, beating consensus estimates by 19 cents per share. Sales rose 9 percent to $13 billion from $12 billion.
Marine Systems posted impressive sales and operating earnings, up 22 percent to $4.2 billion and 19 percent to $291 million, respectively, driven by construction of the Virginia-class attack and Columbia-class nuclear missile submarine programs, Phebe Novakovic, GD’s chairwoman and CEO, said during an earnings call.
A $12.4 billion contract from the Navy in April helped drive backlog at the segment up by $14.6 billion, or 38 percent, to nearly $53 billion (Defense Daily, May 1). The award covered two Virginia-class Block V submarines, “including a one of a kind special mission ship with considerable content,” she said.
The submarines are built at the company’s Electric Boat division, which still suffers from supply chain issues, Novakovic said.
“Material and parts are late and sometimes exhibit equality escapes,” she said. “This obviously disrupts workflow, but we are developing good work arounds. We have more work to do here, but we are making progress.”
The contract for the two Virginia-class vessels includes funding to invest to produce shipyard productivity, wage increase, and additional training programs,” complementing other investments the Navy has made to strengthen the submarine industrial base, she said.
GD’s NASSCO shipbuilding division, which builds auxiliary ships for the Navy, did take a charge in the quarter related to flood in January 2024 in San Diego that shut down one of two “prime lines,” Danny Deep, GD’s new executive vice president of global operations, said during the call. Then a “subsequent issue” caused the need for rework, which should be mostly finished by year-end with both lines operating, he said.
Operating margin in Marine Systems was 6.9 percent, down 20 basis points from a year ago, and “leaves plenty of room for improvement,” Novakovic said. The appointment of Deep to his new role in the company is meant to get after that improvement at Marine Systems and across the company.
Deep said there will be “particular attention” on challenging programs to meet GD’s high standards. The goal is to “optimize our operating leverage” across the company, he said.
Sales in the Aerospace segments, which includes business jets and a variety of aviation services, were up 4 percent while operating earnings climbed 26 percent, the company said.
The Technologies segment, which includes GDIT and Mission Systems, enjoyed a solid quarter with sales and earnings up 6 and 4 percent, respectively.
Amy Gilliland, who runs GDIT, cautioned that customers have been slow to complete competitions, although her division won six contracts worth over $100 million apiece, including one valued at more than $1 billion. Another “significant” win for the defense business is being protested, she said.
Combat Systems was GD’s lone operating segment with lower sales in the quarter, down two-tenths of a percent, while earnings rose 4 percent. Jason Aiken, head of Combat Systems, said sales gains in Europe were offset by lower sales of U.S. combat vehicles. Orders in Europe were 1.5 times sales, he said, adding that the growth in the quarter is “representative of significant potential in that business” as countries there move to increase defense spending.
The Army’s cancellation of the M10 Booker program is a “headwind,” although the company is staying close to its customer and has invested “ahead of need” for things like the next-generation main battle tank to be ready to quickly support the service’s priorities, Aiken said.
Novakovic provided updated financial guidance, with sales now forecast to be about $51.2 billion, 2 percent higher than the outlook provided in January. Operating margin is unchanged at 10.3 percent while per share results are expected to be between $15.05 and $15.15 versus prior guidance of about $14.80 EPS.
Free cash flow in the quarter was $1.4 billion, bringing the total for the first half of 2025 to $1.1 billion, which is ahead of plan, Kim Kuryea, GD’s chief financial officer, said on the call. The company expects to beat its cash forecast for the year, she said, noting that the outlook excludes recent tax legislation that will “provide us a cash benefit.”
