General Dynamics Corporation (NYSE:GD) Q2 2025 Earnings Call Transcript

General Dynamics Corporation (NYSE:GD) Q2 2025 Earnings Call Transcript July 23, 2025

General Dynamics Corporation beats earnings expectations. Reported EPS is $3.74, expectations were $3.55.

Operator: Good morning, and welcome to the General Dynamics Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nicole Shelton, Vice President of Investor Relations. Please go ahead.

Nicole M. Shelton: Thank you, operator, and good morning, everyone. Welcome to the General Dynamics Second Quarter 2025 Conference Call. Any forward-looking statements made today represent our estimates regarding the company’s outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company’s 10-K, 10-Q and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. On the call today are Phebe Novakovic, Chairman and Chief Executive Officer; Kim Kuryea, Chief Financial Officer; Danny Deep, Executive Vice President, Global Operations; Jason Aiken, Executive Vice President, Combat and Mission Systems; and Amy Gilliland, Executive Vice President, and President, GDIT.

I will now turn the call over to Phebe.

Phebe N. Novakovic: Thank you, Nicole. Good morning, everyone, and thanks for being with us. Earlier today, we reported earnings of $3.74 per diluted share on revenue of $13 billion, operating earnings of $1.3 billion, and net income slightly over $1 billion. We enjoyed revenue increases at 3 of our 4 business segments compared to the year ago quarter. Across the company, revenue increased over $1 billion, an 8.9% increase. Importantly, operating earnings of $1.3 billion are up almost 13%, once again, demonstrating strong operating leverage. Similarly, net earnings are up 12% and earnings per share up 14.7% over the year ago quarter. You will note we beat Street EPS consensus by $0.19. On a year-to-date basis, revenue of $25.3 billion is up 11.3%, operating earnings of nearly $2.6 billion are up 17.4%, and earnings per share are up $1.26 or 20.5%.

In my view, this was a wonderful quarter that exceeded our expectations and led to a very good first half of the year. Let me ask our CFO, Kim Kuryea, to provide detail on our strong order activity, growing backlog and superb cash generation as well as other relevant financial information.

Kimberly A. Kuryea: Thank you, Phebe, and good morning. I’ll start with orders. We had a huge quarter with over $28 billion of orders, yielding an overall book-to-bill ratio of 2.2:1 for the company. The largest driver was the Marine Systems segment, which received several contracts for further construction of submarines. The large awards in marine almost overshadow the fact that aerospace had a tremendous quarter with a book-to-bill ratio of 1.3x. This is the strongest first half for orders since 2022 and reflected strong demand across the entire Gulfstream product line. Combat Systems and technologies also had solid quarters with book-to-bill ratios of 1x and 0.9x, respectively. We ended the quarter with a record level of backlog of $103.7 million, up 14% from a year ago.

Our total estimated contract value, which includes options and IDIQ contracts, ended the quarter at over $160 billion, also an all-time high. Turning to our cash performance for the quarter. We generated $1.6 billion of operating cash flow with all 4 segments contributing to our efforts to drive cash earlier in the year. After capital expenditures, our free cash flow was $1.4 billion for the quarter, yielding a cash conversion rate of 138%. Through the first half of 2025, we have free cash flow of $1.1 billion, which is well ahead of what we had planned. However, there is still work to be done as we have working capital to unwind from the balance sheet. We expect a strong second half with the majority of cash generated in the fourth quarter, which should push us towards a cash conversion rate around 90% for the year, an improvement from what we were originally forecasting.

Our full year cash estimate excludes the impact of the recent tax legislation. As you know, reversing the prior law’s requirement to capitalize R&D expenses will provide us a cash benefit. We are still working to develop an estimate of the exact timing and amounts associated with how that will all unfold. Now turning to capital deployment. Capital expenditures were $198 million or 1.5% of sales in the quarter. Similar to last year, you should expect capital expenditures to be somewhat higher in the second half of the year, spending a little over 2% of sales for the year. We paid $402 million in dividends in the quarter, but we made no share repurchases largely due to our cash profile. Also in the quarter, we refinanced $750 million of notes that matured in May.

We have no further debt maturities until next year. We ended the quarter with a cash balance of approximately $1.5 billion and a net debt position of $7.2 billion, down $1.2 billion from last quarter. Our net interest expense in the quarter was $88 million, compared to $84 million last year. That brings the interest expense for the first half of the year to $177 million, up from $166 million for the same period in 2024 due to our utilization of commercial paper. At this point, our expectation for interest expense for the year is approximately $330 million. Finally, the effective tax rate in the quarter was 17.7%, bringing the tax rate for the first half to 17.4%. This rate is a little lower than our outlook for the full year, which remains around 17.5%.

Phebe, that concludes my remarks. I’ll turn it back over to you.

Phebe N. Novakovic: Thanks, Kim. Now let me review the quarter in the context of the business segments and provide detailed color as appropriate. I have asked some of our group executives to participate and provide color from their perspective as well. First, Aerospace. Aerospace performed well in the quarter. It had a revenue of $3.06 billion, a 4.1% increase. Operating earnings of $403 million or 26.3% better than the year ago quarter. Operating margin is 230 basis points better than the year ago quarter. To give you a little perspective here, Gulfstream had 38 deliveries in the quarter, including 15 G700s, which is 4 more than the year ago quarter and 2 more sequentially. This was offset in part by fewer G650s as we made the final deliveries of this high-margin product.

As I indicated previously, the supply chain continues to improve and is performing better to both schedule and quality. We are finding fewer faults and those we are finding are becoming easier to fix. In short, I’m increasingly confident that we can meet this year’s delivery plan. And in fact, we are delivering G700s on a much more predictable cadence. I am pleased that all of our G700 retrofit airplanes have been delivered. Also, all of the G700s that were completed before engines were installed have also been delivered. You may recall that both of these things have negatively impacted costs and delayed deliveries. We are in the process of completing the G700 flight test aircraft and a number of them will be delivered in the second half. These are lower-margin aircraft and will be dilutive to margins, but will reduce inventory and increase operating cash by a like amount.

The initial deliveries of the G800 will be made in the third quarter. We expect to deliver about 13 G800s for the year, which is about 3 less than the G650s we delivered in the second half of last year. The initial G800s will not carry the operating margins of the G650. This will obviously put some pressure on operating margin in the second half, but we still expect the margins in the third quarter to be very similar to the second quarter, coupled with a stronger fourth quarter. In summary, the Aerospace team had a solid quarter. The G800 deliveries are about to commence and G700 delivery cadence and operating margin are both improving. Anecdotally, as you may recall, the G800 was designed to replace the G650. Interestingly, the first 20 of the G800s will be the G650 owners.

There is significant interest in this plane from Fortune 500 companies. Before I discuss demand, I am frequently asked questions about Aerospace operating margin. And when it will move into the high teens, that is above 15%. The simple answer is maybe 2026, but for sure, in 2027, with degradation again in 2028, with the delivery of a significant number of G400s. The simple answer is made with some trepidation, nothing is more complex to forecast than the operating margin for Aerospace. So first, let me focus on what you all think about operating margin on aircraft deliveries. This is almost always driven by mix. The G700 has the highest margins, the G800 should ultimately enjoy similar margins, but it’s early in its delivery cycle. The G600 enjoys the next highest margin, followed by the G500 and G280.

And let’s not forget the very strong margin contribution earlier in the year from the sunset G650 program. But aircraft margins, while important, because of their size are only part of the story. Aerospace also has over $3.5 billion of sales and what we generally refer to as aircraft services business. At Gulfstream, we have a large maintenance business impacted by the amount of warranty work in a given period. Over the counterpart sales and special mission aircraft, each with different operating margin and varying from quarter-to-quarter and impacted by both volume and mix. At Jet Aviation, we have a large MRO business impacted by mix, particularly the number of large maintenance checks in a given quarter. They also have an aircraft completions business that is influenced by the mix of aircraft in-house, i.e., narrow-body, wide- body or completions for Gulfstream.

Jet also have a high-margin FBO business impacted by volume in any particular quarter. FBO volume happened to have been down in the second quarter. Finally, Jet has a significant aircraft management and services business that has over 300 aircraft under management. The mix of these things impacts margin quarter-over-quarter at Jet. Jet also has about $1.6 billion of annual revenue, and that is sufficient to impact margins in the group. I hope this, to some extent, helps you understand the mosaic that makes forecast in this area so complex and the impact of both volume and mix on the results. However, do not let this discussion distract you from the main aerospace steady increasing sales and earnings. So turning to demand. Aerospace enjoyed very strong market demand in the quarter.

As Kim noted, we had a 1.3x book-to-bill in the quarter even as aircraft deliveries increased the denominator. As I said last quarter, we fully expect the certification of the G800, its better-than-planned performance characteristics and early deliveries to customers will stimulate demand. We continue to see very strong interest across all models in the U.S., across Europe, the Middle East and other parts of the world. So let’s move on to the defense businesses. First, Marine. The growth story at Marine continues. Revenue of $4.22 billion is up 22.2% from the year ago quarter and 17.6% sequentially. Similarly, operating earnings of $291 million are up 18.8% quarter-over-quarter and 16.4% sequentially. Operating margin of 6.9% leaves plenty of room for improvement, but let’s not lose sight of the fact that operating earnings continue to grow along with sales.

This particular quarter’s growth was driven by Columbia-class and Virginia- class construction as well as a slight increase in DDG-51 construction. On a sequential basis, the 10-point decline in operating margin was driven by an unfavorable EAC adjustment at NASSCO. Backlog increased in the quarter by $14.6 billion or 38% to almost $53 billion, largely the result of a contract for 2 Block V Virginia-class ships, including a one-of-a-kind special mission ship with considerable contract. The contract also included important investment funds to support shipyard productivity, wage increases and additional training programs. These funds complement the funding that the Navy and Congress have provided over the last several years to help stabilize and improve the submarine industrial base.

Taken together, these will help further improve EV throughput and productivity. As I said last quarter, Electric Boat, we continue to experience delays and quality problems in the supply chain. Material and parts are late and sometimes exhibited quality escapes. This obviously disrupts workflow, but we are developing good workarounds. We have more work to do here, but we are making progress. We are working closely with the Navy and the new administration to continue to address the problems in the supply chain and to work diligently to improve throughput and performance at Electric Boat. Our job remains to continuously improve to help the industrial base get stronger and to improve the cadence of ship delivery to the Navy. Next, Combat Systems.

I’m going to summarize the group’s results for the quarter and first half of the year and then ask Jason, our new Executive Vice President, to give you some color on the quarter from his perspective. Revenue in the quarter of $2.28 billion is essentially flat versus the year ago quarter. Operating earnings of $324 million are up 3.5%, on a 50 basis point increase in operating margin to 14.2%. Year-to-date, the comparison is not dissimilar with modest revenue growth of 1.6% to $4.46 billion, stronger earnings growth of 3.4% to $615 million and a 20 basis point expansion of operating margin to 13.8%. And sequentially, even stronger revenue growth, 4.9% to $2.28 billion, an impressive increase of 11.3% in operating earnings to $324 million on an 80 basis point improvement in operating margin.

Order activity was solid with a book-to-bill of 1x for the quarter. So solid performance all around for Combat Systems. Jason?

Jason W. Aiken: Thank you, Phebe, and good morning. As you can see from the numbers Phebe detailed for you, the group continues to demonstrate strong operating leverage irrespective of the top line trajectory, flat versus the prior year quarter, up modestly year-to-date and up more significantly on a sequential basis. And that’s a testament to the operating discipline of this group. Growth in the quarter in Europe was offset by lower volume in our U.S. combat vehicle business, driven largely by the cancellation of the Booker program. While the Booker cancellation represents a headwind, we’ve stayed very close to the Army and are supporting their efforts as they work through budget and program prioritization activities. To that point, we’ve invested ahead of need to make sure we’re well positioned to support priorities such as the rapid development and fielding of the next-generation main battle tank.

The growth in Europe is particularly encouraging and is representative of significant potential in that business as defense spending in Europe is poised to accelerate. To that point, the book-to-bill in our European business was 1.5x in the first half, and they’ve got solid opportunities as we look ahead. Our munitions business continues to focus on facility expansion and increasing production rates in all areas related to artillery, including projectiles, load assembly and pack and propellant. We’re making progress and working closely with the Army in support of their artillery production goals.

Phebe N. Novakovic: Thanks, Jason. And finally, Technologies. As with Combat, I’m going to summarize the group’s results for the quarter and first half of the year and then ask Amy and Jason to give you some color on the quarter from the perspective of GDIT and Mission Systems, respectively. The group had another strong quarter with revenue and earnings up quarter-over-quarter sequentially and year-to-date. Revenue of $3.5 billion was up 5.5% from the year ago quarter while earnings of $332 million were up 3.8%. Operating margin for the group was 9.6%, down 10 basis points from a year ago, on a shift in mix as GDIT grew faster than Mission Systems in the quarter. On a sequential basis, revenue and earnings were up by 1.3% and 1.2%, respectively, on a steady margin rate of 9.6%.

And for the first half, revenue of $6.9 billion was up 6.1%, and operating earnings of $660 million were up 7.3% on a 20 basis point expansion in operating margins to 9.6%. The group continues to have solid order activity with a book-to-bill of just under 1x for the quarter and just over 1x for the first 6 months. As a result, the group’s backlog is up 7.5% from this time a year ago, and their total estimated contract value is up more than 11% over the same period. With that, I’ll turn it over to Amy first to talk about GDIT’s quarter.

Marguerite Amy Gilliland: Thank you, and good morning, everyone. As Phebe noted, GDIT delivered a solid quarter and first half with growth in all of our customer-facing divisions. This performance highlights the discipline and agility of a business focused on mission execution and cost control in a particularly dynamic environment. The pace of contract award activity was slower than normal in the first half, albeit somewhat improved in the second quarter. Despite significantly lower first half customer adjudications, GDIT enjoyed 6 wins over $100 million, including 1 over $1 billion and the business delivered a first half book-to-bill of essentially 1x on a growing business. First half book-to-bill would have been even stronger, but for the protest by a competitor of a significant new second quarter win in the defense business.

We are pleased with the results we are seeing from the investments we’ve made in our portfolio of digital accelerators, capabilities that enable customers to quickly leverage AI, cyber and mission software technologies, and our deepening relationships with strategic and emerging technology partners. We reliably deliver and integrate the best technology has to offer day in and day out, and that has helped us navigate the changes in administration priorities throughout the first half. With that, I’ll turn it over to Jason to talk about Mission Systems.

Jason W. Aiken: Thanks, Amy. Mission Systems also had a great quarter with revenue, earnings and margins up on every comparator basis, quarter- over-quarter, sequentially and year-over-year. As been discussing for some time, Mission Systems has been transitioning from legacy lower-margin programs to new franchises for several years now. So the top line has been relatively flat, even as the margin profile is improving steadily. We said this is the final year of that transition, and so we’re starting to see an inflection to growth. So that’s very encouraging. Like GDIT, Mission Systems has been investing ahead of need in areas like unmanned platforms, smart munitions, high-speed encryption, strategic deterrents and contested space.

And as a result, they’re seeing increasing opportunities across the portfolio. To that point, their total backlog is up 15% from a year ago and total potential contract value is up 23% over the same period. All in all, a very strong first half of the year. I’ll now turn it back over to Phebe.

Phebe N. Novakovic: Before getting into guidance, I wanted you to hear from Danny Deep about his new responsibilities and what we are up to here with the new Executive VP for Operations.

Danny Deep: Thank you, Phebe, and good morning. As you are all aware, General Dynamics takes great pride in being an outstanding operating company focused on cash generation, earnings and dependable delivery of highly differentiated and critical capabilities to our customers. As the portfolio has grown, and in some cases, quite rapidly, we see opportunity across each of our business units to further optimize our operating leverage. Along with the senior corporate leadership team and the operating unit presidents, we will focus on driving continuous improvement across the entire value chain, from competing to winning while maintaining discipline in our contracts to ensuring a robust supply chain and efficient manufacturing footprint to execute on our commitments.

We’ll place particular attention on programs where we have challenges to ensure we get them up the learning curve and performing to the high standards that have been the hallmark of General Dynamics. In summary, we see a wealth of value creation opportunities across the portfolio. With that, I’ll turn it back to Phebe.

Phebe N. Novakovic: So let me provide you our operating forecast for 2025 with some specifics around our outlook for each business group and then the company-wide rollup. For 2025, we now expect Aerospace revenue of around $12.9 billion, up around $250 million over prior estimate. Gulfstream deliveries will be $150 million to $155 million, up a little over our previous estimate. We anticipate a 13.5% operating margin for the year, 20 basis points lower than our earlier estimate. The third quarter operating margin will be about the same as this quarter with a somewhat better fourth quarter. In short, revenue is up on more deliveries, margin is down a little due to mix in airplane deliveries and at the service businesses. In Combat, we expect revenue of about $9.2 billion, coupled with a 14.5% operating margin.

This should lead to somewhat improved earnings over our last estimate. As noted earlier, the Marine Group has been on a remarkable but difficult growth journey. It will continue during the rest of 2025, albeit at slightly lower growth rate. Our outlook for this year now anticipates revenue around $15.6 billion with operating margin of 7%, which should provide better earnings than previously estimated. In Technologies, we are making no change to the 2025 revenue and earnings estimate provided at the beginning of the year. So for 2025 company-wide, we expect to see revenue of approximately $51.2 billion and operating margin of 10.3%. The revenue estimate is increased by $900 million and the overall operating margin held constant. You have already heard Kim’s commentary about our estimate for increased cash for the year.

All of this rolls up to an increased EPS forecast of $15.05 to $15.15. So to wrap up, as we go into the second half coming off a very strong first half, we feel very good about the potential for the year. Nicole, back to you.

Nicole M. Shelton: Thank you, Phebe. As a reminder, we ask participants to ask 1 question and 1 follow-up so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue?

Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Gautam Khanna with TD Cowen.

Gautam J. Khanna: Nice results. Phebe, I was wondering if you could elaborate on the G800 delivery cadence. You mentioned 13 in the second half. Do you have a sense for when the first one might deliver and what the SKU will be Q3 to Q4? And relatedly, you’ve given color on the lots and the G700 margins, if you will. Any sort of guidance you can give us on how to think about G800 profitability by lots over time?

Phebe N. Novakovic: So the first G800 should deliver very soon. And I actually am not — I don’t really know the distribution of each by quarter, but we’ll be pretty much on what we — what I noted in my remarks. As you know, as we talked about before, the G700 lot 1 carried lower margins for all the developmental cost reasons. Lot 2 is better. Lot 3 is going to be better yet or is better yet, and I expect the same from lot 4. The G800 comes out of the box at a higher lot 1 at a higher incremental margin than the 700 that didn’t bear as much of the developmental costs. And it will to have margin expansion as we come down our learning curves and move from one lot to the next.

Operator: Your next question comes from the line of Seth Seifman with JPMorgan.

Seth Michael Seifman: I wanted to ask, first of all, I thought it was helpful to have the breakdown of Aerospace and thinking about the different ingredients in margin. It seems like in services after a strong couple of years, things seem to have slowed down a little bit here in the first half. And so maybe if you could talk a little bit about kind of why that’s happening. And while I realize that there’s a lot of unpredictability around the different dynamics there in terms of the contributors and the mix, what’s sort of a good algorithm for services going forward? Does it grow at kind of a pace with flight hours or I guess, or deliveries or kind of how to think about it and how it fits into the margin mix going forward as well?

Phebe N. Novakovic: Sure. So the theory of the case behind our services was that if we build additional service centers at or near location of Gulfstream airplanes, then in fact, that would drive additional incremental revenue. And in fact, that’s been the case. And as I tried to walk you through in my remarks, the margins are varied by — principally by mix, but also by volume. And so in any given quarter, it depends heavily both at Jet Aviation and Gulfstream on what the mix is of both MRO and then in the case of Jet, a lot of — there are other services lines of business that also accrue to the margin story. So I don’t know that there’s a given algorithm for thinking about margin in the service world, but we expect it to continue to grow with the fleet, and we’re very pleased with how we have done there.

Seth Michael Seifman: Okay. Great. And then just as a follow-up, it seems like based on the new guidance with Technologies unchanged, there’s a step down in terms of both margin and sales in the second half. And so maybe if you could talk a little bit about what’s driving that and then kind of where it goes from here.

Phebe N. Novakovic: Yes. So we were given the fluidity in that market so far this year, we thought it prudent to keep our earnings and our revenue estimates about where they are. But I’ll ask both first Amy and then Jason to give you a little bit of color.

Marguerite Amy Gilliland: So from a GDIT perspective, we did navigate the first half very well. That was not without some impact from contract scope changes, from cancellations of some of our contracts. And so as we look at the second half, the thing that will most impact our positioning is really the cadence of award activity. And as commented in my remarks, the adjudications were down significantly in the first half of 2025 compared to the first half of 2024. And so we’re running out of days of the year to be able to win that work and deliver on it. And so really from a revenue expectation, it is the pace of adjudications that we’re watching for the second half of the year, but feel very good about where we are from an earnings perspective. Jason?

Jason W. Aiken: Yes. So from Mission Systems perspective, a good bit of the strength that we saw in the first half came from activity in their high- speed encryption product business, which is — it’s really a transactional business. And so while we still see incredible demand on that side of the business, the timing of that is somewhat less predictable given the transactional nature. So I would tell you there’s opportunity for them in the second half, depending on how that demand goes. But as Phebe said, just given the uncertainty overall in the market for the group as a whole, that’s the reason we’re holding to the full year guidance.

Operator: Your next question comes from the line of Doug Harned with Bernstein.

Douglas Stuart Harned: On Marine, the big increase you saw in revenues in Q2, that’s unusual to see that large of a jump there. Can you talk about what happens specifically related to Virginia-class, Columbia-class that really took it up so much?

Phebe N. Novakovic: So Virginia was about 60% of the volume, Columbia, about 40%, and it really just was the construction volume. And I’d say we’ll give you a little bit of perspective here. We’ve been growing on average at about 9% year-over-year for the last couple of years. And some quarters, we’ve hit high teens, but I’d say the 22% growth in this quarter is really just a question of largely both timing, but also continued increasing performance at the shipyard.

Douglas Stuart Harned: And then you’ve gotten this — early in the quarter, you got the award for the 2 — last 2 Block V boats, which was certainly very good news with support for labor. Can you talk about the increased funding, both that and what we may see in the ’26 budget, and how you can get that to translate into higher throughput, which it looks like you’re already getting some of and ultimately higher margin as well?

Phebe N. Novakovic: Okay. Let me answer that kind of in the inverse order. As we’ve been telling you for some time, the margin improvement at the Marine Group and particularly within the submarine industrial base improves at Electric Boat when we get additional stabilization in that industrial base and in our supply chain. So that has been a key driver of really the productivity at the shipyard. And as you know, part of our strategy is really dependent on controlling what we can control and on the deck plates, getting better and better and better maximizing or optimizing the work we have in-house with workarounds on late deliveries of major — from major suppliers as well as any quality escapes. So that’s sort of if you think about our big strategy, it’s that, and we are seeing productivity improvements at — in a number of key places in our — on the deck plates at Electric Boat, frankly, in our other businesses as well across the board.

I would say that with respect to the supply chain, we’ve seen some stabilization an improvement in some important areas. I think the Navy and the Congress have been allocating funding for the industrial base to undergird their performance and some of that is beginning to improve, but we’ve got a ways to go there. With respect to the fiscal year ’26 funding levels, we are still working out with our Navy customer what the exact funding levels are by program. There’s a fair amount of complexity as we unpack the ’26 budget and the reconciliation bill, but our programs are fully supported. And then with respect to the anomaly, we were glad to get that under contract. One of those boats is a particularly complicated boat. And as we gear up on that.

And I think that this is an important — that contract was important in that it provided the type of funding for the shipyards that we’ve seen going into the supply chain over the last few years. So that kind of funding support on training and wage increases as well as productivity, maybe funding productivity improvements at each one of those, at each of the yards, that will be very, very helpful as we go forward.

Operator: Your next question comes from the line of Scott Deuschle with Deutsche Bank.

Scott Deuschle: Phebe, does getting to high teens margins at Aerospace require meaningfully higher Gulfstream deliveries then the $150 million to $155 million you’re planning for 2025? Or is that bridge to high teens, primarily driven by coming down the learning curve and optimizing the mix?

Phebe N. Novakovic: I think it’s a combination of all of that. I tried to spend some considerable time in my remarks, dragging you all through the knothole that is Aerospace margins. So I think I’m not quite sure what other clarification I can give you. But it’s a lot — it will be mix and it will be volume in simple terms.

Scott Deuschle: Okay. That’s fair. And sorry if I missed this, but was the order strength at Gulfstream this quarter pretty well spread across aircraft types? Or was it concentrated in any particular pockets of the Gulfstream portfolio, particularly in the context of the G800?

Phebe N. Novakovic: It was across all of our airplanes. First with the 700, 600, right behind it, and we had nice geographic distribution as well. So it was a good solid demand. And we continue to see that in the third quarter with particular just in the 800 I might add.

Operator: Your next question comes from the line of Robert Stallard with Vertical Research.

Robert Alan Stallard: Phebe, I was wondering if you could comment on the management reorganization that you announced this quarter and how this could affect the way that the business is ran going forward?

Phebe N. Novakovic: Well, it was one of the reasons I asked Danny to give you some clarity on how we see his role in particular, playing out. We’ll continue to manage the business as we have been managing it and really driving for value creation across each and every one of our portfolios. But as we grow, we have believed as a leadership team, and we’ve talked on this call and I’ve talked with many of you individually and in groups about our desire to increase our operating leverage. And you’ll note in almost every single one of our calls, we’ll stress and point out and then stress where we are on our operating leverage. So one of Danny’s missions is to really focus on the operating performance of each and every one of our businesses. But we will manage the business in the same way.

Robert Alan Stallard: Okay. The quick follow-up. Are you also looking to combine Combat Mission going forward? Or is they going to remain stand-alone businesses?

Phebe N. Novakovic: Now, we’ll keep them as they are.

Operator: Your next question comes from the line of David Strauss with Barclays.

David Egon Strauss: Phebe, following up on Rob’s question. So the portfolio as a whole, I think, used to run 12 — in the range of 12% to 13% margins more recently running in the low 10s. I know there are a lot of moving pieces, but any thoughts you might have in terms of where the margin potential is for the portfolio as we move forward?

Phebe N. Novakovic: So look, we — as Danny noted, we pride ourselves on our operating performance, and I think we can improve, and particularly, I mean the sort of the one that jumps out at you is in the Marine group. So those margins over time need to improve. But I’ll ask Danny if he has any particular insights that not that far into his new position, but he’s been a senior operating executive with the company for some time.

Danny Deep: Okay. Well, thank you. Yes, I mean I think Phebe hit it. We’re going to look across each of the operating units and program by program and where we’ve had some challenges in getting up the learning curve, I think that’s where our focus is going to be and not to point any one particular operating unit out, but if you look at where the largest operating pieces of the business are and where we’ve historically had our margins, that’s where we see our best opportunities. But this company has been focused on operations and has been very disciplined from an operating perspective for a long time, and we’re just going to put a finer point on that.

Operator: Your next question comes from the line of Myles Walton with Wolfe Research.

Myles Alexander Walton: Phebe, the strength of bookings at Aerospace in the first half, are you feeling more confident in seeing a book-to-bill at or above 1x for 2025 at this point?

Phebe N. Novakovic: I think we’re keeping it about 1x. That’s sort of been our cadence and our thought patterns and our observations, frankly. But the demand has been quite good. And as I noted, in my previous answers to one of the questions, we see that demand carrying through into the third quarter.

Myles Alexander Walton: Okay. And then I think in your prepared remarks, you mentioned margin pressure in 2028 from the G280 (sic) [ G400 ]. I had my notes a certification in 2026.

Phebe N. Novakovic: 400s.

Myles Alexander Walton: Sorry, the G400. I had in my notes that certification was in 2026. Does that slipped to the right?

Phebe N. Novakovic: I don’t think so. I will tell you, we’ve slowed down the 400 a bit because we’ve got our hands full. That’s not about the FAA. It’s simply we’ve got an awful lot as we continue to grow and really work on our operating leverage at Gulfstream. But 400 is doing quite well. But I think we’ve — I don’t know that we’ve ever actually given you — I don’t recall that we’ve given you an entry into service estimate. And the word is estimate. But I was just trying to give you some kind of color about year-over-year progression without getting into next year’s guidance, which, of course, we won’t do.

Operator: Your next question comes from the line of Sheila Kahyaoglu with Jefferies.

Sheila Karin Kahyaoglu: I really appreciate the color on Aero. I might follow up a little bit on Myles’ question. Just I think the point on aerospace is it’s a stable growing business, both on revenues and operating profit. So maybe if you could talk about just the capacity of volume Gulfstream could produce. Is it growing off this 150 base annually? And to Myles’ question, why the dip in ’28? If G400 comes in there, I thought it would be maybe a year after the 800. So if you could just provide that dip timing.

Phebe N. Novakovic: As 400 comes on, it will be a lower-margin airplanes than the very large cabin. And I think — remind me what the first part of your question was?

Sheila Karin Kahyaoglu: Just on the capacity, production capacity.

Phebe N. Novakovic: Yes. So on the capacity question, we’ve got the plant and equipment jigs and fixtures as well as the workforce to support a capacity of 200 airplanes, but we’ll continue to work to increase our production exporting to the market.

Sheila Karin Kahyaoglu: Maybe one more, if I could ask, was services down in the quarter?

Phebe N. Novakovic: Yes.

Operator: Your next question comes from the line of Jason Gursky with Citi.

Jason Michael Gursky: You mentioned the — you made some comments about NASSCO, maybe a small negative EAC there. I was wondering if you can just talk a little bit generally about what’s going on out at NASSCO and the priorities of the new administration and the impact that, that might have on that yard out there? And then just provide a little bit color on EAC.

Phebe N. Novakovic: Yes. So let me talk about sort of what we see as the market environment, and then I’ll turn it over to Danny to talk a little bit about this particular impact, which, by the way, at NASSCO is extremely unusual. So let’s just set the table here and remind ourselves that NASSCO produces primarily auxiliary ships for the U.S. Navy. And the demand for those has been increasing over the last few years, and we continue to see that need as the war ships all need support ships in order to function at sea. So we’ve seen nice increases in demand, and we expect that to continue. We’re working on the oiler program, and we’ve got several other programs in place as well. But I’ll turn it over to Danny to talk about this quarter’s EAC.

Danny Deep: Okay. Yes. So at NASSCO, it really started with the flood and the impact the flood had on our prime line. It took us down from 2 lines to 1, and then we had a subsequent issue. And after that issue, it created a fair bit of rework in the system. And so that’s what’s reflected in the EAC as we speak. And we think we’ll largely be through that by the end of the year and have both of those prime lines up and running, and this issue will be behind us.

Nicole M. Shelton: Okay. Lacey. I think we have time for just 1 more question.

Operator: Final question comes from the line of Scott Mikus with Melius Research.

Scott Stephen Mikus: Phebe, the Secretary of the Navy commented that it might be preferable to have Huntington Ingalls and Electric Boat each build Virginia-class submarine separately rather than in a teaming arrangement. So if the Navy were to actually pursue that route, how much capital would you need to invest to make that happen? And is there enough skilled labor for Electric Boat to handle 1 Virginia by itself while also continuing to work on Columbia?

Phebe N. Novakovic: So skilled labor has not been an issue for Electric Boat for some time now. But I — and we do not see a capacity problem in the region with the availability of our touch labor. So we can support additional growth. We would need some additional capital if, in fact, the Navy ups on that strategy, but not an enormous amount. But I’ll defer to the Navy on any future discussions about that.

Scott Stephen Mikus: Okay. And then a quick question on Aerospace. The book-to-bill in the quarter was very good despite the stock markets perturbations around Liberation Day. Have you seen any uptick in the pipeline since the One Big Beautiful Bill Act was signed into law and reinstated bonus depreciation?

Phebe N. Novakovic: I wouldn’t cite one macroeconomic factor. I think that there are a lot of them here. There wasn’t one in particular from my perspective that drove the demand. Bonus depreciation helps quite a bit, always has.

Nicole M. Shelton: Okay. Thank you, everyone, for joining our call today. As a reminder, please refer to the General Dynamics website for the second quarter earnings release and highlights presentation. Finally, we want to let you know that we expect to hold our Q3 earnings call on Friday, October 24, at 9:00 a.m. That’s a slight change from our normal practice of announcing earnings on Wednesday. So we want to advise you that early for planning purposes. We will resume our normal schedule for the fourth quarter call. If you have additional questions, I can be reached at (703) 876-3152.

Operator: This concludes today’s conference call. You may now disconnect.