10-QPeriod: Q2 FY2020

GENERAL DYNAMICS CORP Quarterly Report for Q2 Ended Jun 28, 2020

Filed July 29, 2020For Securities:GD

Summary

General Dynamics Corporation (GD) reported revenues of $9.26 billion and $18.01 billion for the three and six months ended June 28, 2020, respectively. This represents a decrease compared to the same periods in the prior year, primarily due to impacts from the COVID-19 pandemic, particularly in the Aerospace and Information Technology segments. Net earnings for the three and six months were $625 million ($2.18 diluted EPS) and $1.33 billion ($4.61 diluted EPS), respectively, down from $806 million and $1.55 billion in the prior year. Despite the revenue decline, the company's defense segments, particularly Marine Systems and Combat Systems, showed resilience with revenue increases driven by key programs. The company also highlighted its strong liquidity position, ending the quarter with $2.3 billion in cash and equivalents and maintaining access to significant credit facilities. Management is actively managing costs and production rates, especially in the Aerospace segment, to navigate the ongoing economic uncertainties associated with the COVID-19 pandemic.

Financial Highlights

49 data points
Beta

Revenue

$9.26B

Net Income

$625.00M

6.7% Net Margin

Total Assets

$50.22B

Cash & Equivalents

$2.30B

Free Cash Flow

$622.00M

Financial Statements
Beta
Revenue$9.26B
Operating Expenses$8.43B
Operating Income$834.00M
Net Income$625.00M
Shares Outstanding (Basic)286.39M
Shares Outstanding (Diluted)286.93M

Key Highlights

  • 1Consolidated revenue decreased by 3.0% to $9.26 billion for the three months ended June 28, 2020, and by 4.3% to $18.01 billion for the six months ended June 28, 2020, largely impacted by COVID-19 disruptions.
  • 2Net earnings for the three and six months ended June 28, 2020, were $625 million and $1.33 billion, respectively, down from $806 million and $1.55 billion in the prior year periods.
  • 3Diluted earnings per share (EPS) were $2.18 for the three months and $4.61 for the six months ended June 28, 2020, compared to $2.77 and $5.33 in the respective prior-year periods.
  • 4The Aerospace segment experienced a significant revenue decline of 7.6% and 16.2% for the three and six months ended June 28, 2020, respectively, due to reduced aircraft deliveries and services, exacerbated by COVID-19.
  • 5Defense segments, particularly Marine Systems and Combat Systems, showed revenue growth or resilience, driven by strong performance in submarine construction and weapons systems/munitions, respectively.
  • 6The company maintained a strong liquidity position with $2.3 billion in cash and equivalents at the end of the quarter and ample credit facilities.
  • 7Total backlog remained substantial at $82.7 billion as of June 28, 2020, though slightly down from the prior quarter, indicating continued demand for its products and services.

Frequently Asked Questions

The COVID-19 pandemic significantly impacted General Dynamics' performance, leading to a decrease in consolidated revenue for both the three-month and six-month periods ended June 28, 2020. The Aerospace and Information Technology segments were particularly affected by disruptions such as delayed aircraft deliveries, reduced customer activity, and travel restrictions. While the company is designated as critical infrastructure and continued operations, these disruptions led to lower revenues and operating earnings compared to the prior year.

The outlook varies by segment. The Aerospace segment's revenue is expected to be around $8.4 billion in 2020, with an operating margin of approximately 13.5%, reflecting reduced production rates and the impact on aircraft services. The Combat Systems segment anticipates revenue of about $7.3 billion with an operating margin of around 14.3%. The Information Technology segment projects revenue of approximately $8.1 billion with a lower operating margin of about 6.3% due to ongoing COVID-19 impacts. Mission Systems is expected to generate revenue around $4.9 billion with an operating margin of approximately 14.5%, and Marine Systems projects revenue of about $9.6 billion with an operating margin of around 8.8%.

General Dynamics maintained a strong liquidity position, ending the quarter with $2.3 billion in cash and equivalents. In March 2020, the company issued $4 billion of fixed-rate notes to repay maturing debt and for general corporate purposes, reinforcing its financial flexibility. It also has $5 billion in committed bank credit facilities. The company's net debt position was $12.3 billion at the end of the second quarter of 2020. Financing activities also included share repurchases and dividend payments.

The total backlog, representing remaining performance obligations, stood at $82.7 billion as of June 28, 2020. The estimated potential contract value, which includes options and other agreements, was $132.2 billion. These figures indicate a substantial pipeline of future work, providing visibility and a degree of stability, particularly for the defense segments. While the Aerospace backlog was impacted by order activity affected by COVID-19, defense segment backlogs remained robust, with significant awards received in the quarter, especially in Marine Systems for the Columbia-class submarines.