General Dynamics [GD] on Wednesday reported higher earnings in its second quarter despite flat sales on strong results in its operating segment to build business jets and provide aerospace services.

Net income rose 4 percent to $766 million, $2.75 earnings per share (EPS), from $737 million ($2.61 EPS) a year ago, topping consensus estimates by three pennies per share. Sales were $9.2 billion, level with a year ago.

The Aerospace segment benefited from a more than 35 percent increase in sales related to services for the company’s Gulfstream business jets and fixed-base operators, Jason Aiken, GD’s chief financial officer, said on the company’s earnings call. Operating margin at the segment also improved, contributing to higher income.

Sales were also higher at the Marine Systems segment due to work on the Columbia-class ballistic missile submarine and ship repair work. Income at the segment was essentially flat, despite the higher sales, due to lower margins stemming from schedule delays in the

Virginia-class nuclear attack submarine program resulting from continued supply chain constraints related to COVID-19, Aiken said.

Phebe Novakovic, GD’s chairman and CEO, did not participate in the earnings call as she is out with COVID but on the mend, Aiken said.

The supply chain troubles at Marine Systems are focused around labor availability, particularly related to the Virginia-class program, he said.

Supply chain woes also hit GD’s Technologies segment, which had 5 percent lower sales, with two-thirds of the decline related to an ongoing shortage of computer chips that limited product deliveries by the Mission Systems group, he said. Operating income in the segment was also lower but strong operating performance limited the decline.

Sales and operating income also fell at the Combat Systems segment related to the AJAX armored fighting vehicle program, work on bomb bodies within the Ordnance and Tactical Systems business, and program mix.

Aiken updated GD’s financial guidance for the year, saying sales and earnings are expected to be at the high end of the previous outlook, which was a revenue range between $39.2 billion and $39.5 billion and per share earnings between $12 and $12.15. The new outlook is largely driven by better than expected top and bottom-line improvements at Aerospace. Operating margin is still pegged at about 10.8 percent.

The pipeline, orders and backlog related to business jets remains strong, despite concerns about inflation and a recession, Aiken said.

“But to be completely frank with you, we have not yet seen any impact of that in terms of our order pipeline, and the resulting order activity that we’ve seen there continues to be very strong customer demand,” he said. “We’re continuing to see that as we embark here into the third quarter.”

Free cash flow in the quarter was $435 million and is still forecast to at least equal net income for the year. GD’s book-to-bill ratio in the quarter was 1.1 times sales and backlog at the end of June stood at $87.6 billion, down about 2 percent from $89.2 billion a year ago.