General Dynamics [GD] on Wednesday reported strong second quarter earnings driven by gains across its operating segments, particularly its businesses that make business jets and provide information technology solutions and military vehicles to the federal government, Defense Department and international customers.
Sales in the quarter were down less than a percent, $9.2 billion versus $9.3 billion a year ago, as declines in the Aerospace segment were largely offset by increases in defense work and federal solutions.
GD’s defense sales increased $308 million or just over 4 percent from a year ago, Phebe Novakovic, the company’s chairman and CEO, said during an earnings call.
Sales drivers included combat vehicles in the U.S. and in Europe, Novakovic said, highlighting that demand is strong for GD’s M1 Abrams tank and Stryker wheeled combat vehicles. Growth in the shipbuilding business was led by DDG-51 destroyers and T-AO fleet oilers for the Navy. Sales at the Technologies segment was driven by the IT business on a ramp up in new programs, more than offsetting a “modest decline” at the Mission Systems business due to a divestiture a year ago and supply chain challenges due to microchip shortages, she said.
Net income increased 18 percent to $737 million, $2.61 earnings per share (EPS), from $625 million ($2.18 EPS) a year ago, topping analysts’ estimates by 7 cents per share. Operating margin increased 140 basis points to 10.4 percent.
The results are basically the opposite of the first quarter report when GD posted strong sales and flat income. At the halfway point of the year, GD’s sales of $18.6 billion are up more than 3 percent from $18 billion a year ago and net income of $1.4 billion ($5.10 EPS) is nearly 9 percent higher versus $1.3 billion ($4.61 EPS) in the first half of 2020.
At the operating level, the Technologies segment, which includes the Information Technology and Mission Systems businesses, and the Aerospace segment, boasted increases in income of 25 and 23 percent, respectively. Combat Systems was also up double-digits and Marine Systems was up 3 percent. Overall, defense operating earnings increased more than 14 percent, Novakovic said.
Given strong year to date results, GD increased its sales and income guidance for 2021 with sales of around $39.2 billion, up $200 million from the prior forecast, and earnings about $11.50 EPS, 45 to 50 cents better that earlier guidance. Operating margin is expected to be 10.6 percent.
The improved sales outlook is led by Marine, followed by Aerospace and Combat Systems, with gains at these segments more than offsetting lower than expected growth in Technologies, Novakovic said. If GD is able to deliver a few more business jets than planned during the second half, the outlook at Aerospace will improve further, she said.
Free cash flow in the quarter was $943 million and backlog stood at $89.2 billion, up 8 percent from $82.7 billion a year ago. Orders in the quarter equaled sales.