General Dynamics [GD] on Wednesday posted higher top and bottom-line third quarter results driven by continued strong performance in its Aerospace segment, followed by a solid showing in its shipbuilding business.
Net income increased 5 percent to $902 million, $3.26 earnings per share (EPS), from $860 million ($3.07 EPS), topping consensus estimates by 11 cents per share. A modest bump in operating earnings and a lower tax rate aided the bottom-line increase.
Operating income was up 2 percent and segment operating margin slipped 30 basis points to 11 percent. The Aerospace segment paced the profit gains, up 19 percent, with Marine Systems up 4 percent, more than offsetting a double-digit decline in the Technologies segment and a 2 percent drop at Combat Systems.
Sales in the quarter increased 4 percent to $10 billion from $9.6 billion, led by a double-digit increase at Aerospace, a 5 percent increase at Marine, and a 3 percent gain at Combat Systems. The Technologies segment reported a 2 percent decline in revenue.
Labor availability issues that have impacted the Marine segment around manufacturing are “beginning to resolve” and are not expected to impact revenue generation, Phebe Novakovic, GD’s chairman and CEO, said on the company’s earnings call.
Sales at Combat Systems would have been $55 million higher, or up nearly 6 percent in the quarter, but were hindered by foreign exchange fluctuations due to the strong U.S. dollar versus the Euro British pound, Jason Aiken, GD’s chief financial officer, said during the call.
Novakovic said “we enjoyed a strong quarter, particularly so in light of supply chain, foreign exchange, and inflation headwinds.” Demand remains strong for the company’s business jets despite “macroeconomic headwinds,” she said, noting later that the Aerospace segment has so far successfully dealt with its supply chain challenges.
The decline in sales at the Technologies segment was evenly split between the Mission Systems and Information Technology businesses, with the former facing “nagging” supply chain disruptions, inflation, labor availability in certain intelligence programs, and contracting delays on the part of customers, Novakovic said. Mission Systems continues to suffer from shortages of computer chips, she said.
The contracting delays are associated with a shortage of government contracting officers and a focus shift by some customers on meeting the “more urgent demands of the Ukraine,” Novakovic said.
Mission Systems is combatting these challenges through productivity improvements and cost cutting efforts, she said.
“Nonetheless, we anticipate these fact of life realities to continue for a while,” she said.
The decline at the IT business was due to timing and program mix, Novakovic said.
Novakovic affirmed the company’s financial guidance for the year, with better-than-expected results at Aerospace expected to offset lower-than-expected outcomes at Technologies.
Free cash flow in the quarter was $1 billion and backlog stood at $88.8 billion, up nearly a percent from $88.1 billion a year ago. The book-to-bill ratio in the quarter was 1.1 times sales.