GENERAL DYNAMICS CORP Q4 FY2024 earnings call

• Aerospace: Continuing growth in revenue and earnings due to strong demand for Gulfstream aircraft, service business, and Jet Aviation. Deliveries of in-service airplanes increased, but G700 deliveries fell short of plan due to engine delays, customized interiors, supplier quality issues, etc. Market demand showed 1:1 book-to-bill, with increased interest in all models. - Combat Systems: Strong revenue and earnings growth, with robust order intake, including notable awards in munitions and international vehicle programs. - Marine Systems: Strong revenue growth, but operating margins impacted by submarine supply chain delays and quality issues. Congress provided funding for Columbia class and Virginia class, and efforts to improve supply chain and productivity. - Technologies: Strong quarter with revenue growth, GDIT had consecutive years of revenue and earnings growth, Mission Systems focused on margin expansion during program transition.

Aerospace: In the quarter, Aerospace had revenue of $3.7 billion and earnings of $585 million, a 36.4% increase in revenue and 30.3% increase in earnings quarter-over-quarter. For the year, Aerospace revenue was $11.25 billion, up 30.5% from 2023, and earnings were $1.5 billion, up 23.9%. Combat Systems: Quarter revenue was $2.4 billion, moderately more than the year-ago quarter, with earnings of $356 million, up modestly. Full-year revenue was $9 billion, up 8.8%, and earnings were $1.3 billion, up 11.2%. Marine Systems: Quarter revenue was $4 billion, up 16.2% against the year-ago quarter, but operating earnings of $200 million were down 7.8%. Full-year marine revenue was $14.3 billion, up 15.1%, and earnings were $935 million, up 7%. Technologies: Quarter revenue was $3.24 billion, up 2.8% over the prior year, and operating earnings were $319 million, up 4.6%. Full-year revenue was $13.1 billion, up 1.6%, and earnings were $1.26 billion, up 4.8%.

• Aerospace: Expected 2025 revenue around $12.650 billion, up ~$1.4 billion from 2024, operating margin expected to be up 70 basis points to 13.7%, earnings up 18.5%. - Combat Systems: Expected revenue up slightly to ~$9.1 billion, operating margin improvement to 14.5%, earnings 3.5% - 4% better than 2024. - Marine Systems: Expected revenue ~$15 billion, operating margin improvement to 6.8%, earnings up 10% or better. - Technologies: Expected 2025 revenue $13.5 billion, GDIT low single digits growth, Mission Systems slightly down <0.5%, operating margins expected to decrease ~40 basis points to ~9.2%. - Company-wide: Expected 2025 revenue ~$50.3 billion, up ~5.5%, margin 10.3%, up 20 basis points from 2024, EPS forecast ~$14.80.

• Supply chain issues: Marine Systems faced delays and quality problems from the submarine supply chain, impacting margins. - Quality escapes: Aerospace had quality escapes that affected delivery schedules and costs. - Inflation and policy changes: Impact on contract costs and potential tariff impacts on aerospace manufacturing.

Q: Could you talk about the impact on CERT and delivery of G800 and any compensation from suppliers for G700 delays?

A: We've worked out some consideration with suppliers but not material. Expect G800 certification in first half, learning from G700 will help G800, and we expect fewer G800 deliveries than G700 in 2025.

Q: How does the business handle volatile defense contract environments?

A: React to implemented reality, not rumors, and maintain agility in decision-making.

Q: On Marine's supply chain issues, who is responsible for resolving infrastructure problems?

A: Infrastructure is not the issue, it's within the industrial supply chain. Navy and Congress have been proactive in funding, but still need additional funding for program of record.

Q: How does industrial-based funding flow to General Dynamics?

A: Industrial-based funding goes into the industrial base, not directly into GD except for contracts with the Navy for related work.

Q: Update on margins for G700 lots 3 and 4?

A: Margin step-ups for lots 3 and 4 are still 600 basis points, with room for improvement beyond lot 3.

Q: Big picture on new administration impact on segments?

A: Maintain agility, embrace efficiency and cost structure improvements, and work with customers on threat-driven defense needs.

Q: Quantification on marine profitability and supply chain lag?

A: Some stabilization seen, but need more funding and continued efforts to manage costs and improve productivity.

Q: Aerospace plant in Mexicali and tariffs?

A: Will deal with policy impacts as they occur, with long-term plans in place for manufacturing facilities.

Q: Aerospace delivery outlook and margin path?

A: 2025 delivery forecast is 150, influenced by supply chain and G800 certification, margins will build nicely with continued efforts in manufacturing improvements.

Q: Technologies margin pressure?

A: Mission Systems flat during program transition, GDIT's businesses with lower margins and mix shift contribute to margin pressure.

Q: Book-to-bill assumption and G650 vs G800 deliveries?

A: Book-to-bill assumption is 1:1. Combination of G650 and G800 deliveries will equal about G650 deliveries in 2025, give or take a few airplanes.

Q: 400 CERT timeline and deliveries in 150 forecast?

A: 400 will come after G800, no 400 deliveries included in 150 forecast for 2025.

Q: Combat systems and export flexibility with new admin?

A: Expect new admin to be flexible in exports, and we're ready to support and have in the past.