General Dynamics Corporation (GD) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals strong financial performance with increased EPS guidance, robust demand in Aerospace and Combat Systems, and improved margins. Despite some uncertainties in Marine Systems and tariffs, the positive outlook in Technologies and strong order momentum in Gulfstream drive a positive sentiment. The Q&A highlights margin improvements and strategic investments, bolstering confidence. The absence of a market cap suggests a neutral to positive reaction, but given the optimistic guidance and strategic growth plans, a positive stock movement (2% to 8%) is anticipated.
Key Financial Performance
Earnings per diluted share (Q4 2025) $4.17, relatively flat year-over-year due to significant one-time items in the prior year driving high margins.
Revenue (Q4 2025) $14.379 billion, up 7.8% year-over-year due to strong performance across segments.
Operating earnings (Q4 2025) $1.452 billion, up 2% year-over-year, reflecting steady operational performance.
Net earnings (Q4 2025) $1.143 billion, relatively flat year-over-year due to high prior-year margins from one-time items.
Revenue (Full Year 2025) $55.3 billion, up 10.1% year-over-year, driven by growth in Marine Systems and Aerospace.
Operating earnings (Full Year 2025) $5.7 billion, up 11.7% year-over-year, with contributions from all segments.
Net earnings (Full Year 2025) $4.6 billion, up 11.3% year-over-year, reflecting strong operational performance.
Earnings per diluted share (Full Year 2025) Up 13.4% year-over-year, driven by revenue and earnings growth.
Aerospace revenue (Q4 2025) $3.788 billion, up 1.2% year-over-year, driven by Gulfstream aircraft demand and service business.
Aerospace operating earnings (Q4 2025) $481 million, down $104 million year-over-year due to fewer aircraft deliveries, higher overhead, and tariffs.
Aerospace revenue (Full Year 2025) $13.1 billion, up 16.5% year-over-year, driven by delivery of 158 new aircraft.
Aerospace operating earnings (Full Year 2025) $1.75 billion, up 19.3% year-over-year, reflecting strong demand and operational improvements.
Combat Systems revenue (Q4 2025) $2.5 billion, up 5.8% year-over-year, driven by strong order intake and demand for munitions and vehicles.
Combat Systems operating earnings (Q4 2025) $381 million, up 7% year-over-year, with a 10 basis point improvement in operating margin.
Combat Systems revenue (Full Year 2025) $9.2 billion, up 2.8% year-over-year, reflecting steady demand and operational performance.
Combat Systems operating earnings (Full Year 2025) $1.33 billion, up 4.3% year-over-year, with a 20 basis point increase in operating margin.
Marine Systems revenue (Q4 2025) $4.8 billion, up 21.7% year-over-year, driven by submarine programs and Electric Boat.
Marine Systems operating earnings (Q4 2025) $345 million, up 72.5% year-over-year, reflecting improved productivity and operating margins.
Marine Systems revenue (Full Year 2025) $16.7 billion, up 16.6% year-over-year, driven by growth across all shipyards.
Marine Systems operating earnings (Full Year 2025) $1.18 billion, up 25.9% year-over-year, reflecting productivity improvements.
Technologies revenue (Q4 2025) $3.24 billion, flat year-over-year, impacted by government efficiency reviews and contracting delays.
Technologies operating earnings (Q4 2025) $290 million, down $29 million year-over-year, with an 80 basis point decrease in operating margin.
Technologies revenue (Full Year 2025) $13.5 billion, up 2.6% year-over-year, reflecting resilience in a challenging market.
Technologies operating earnings (Full Year 2025) $1.28 billion, up 1.3% year-over-year, reflecting steady performance despite market challenges.
Free cash flow (Full Year 2025) $4 billion, up $1 billion year-over-year, driven by improved collections and inventory reductions.
Capital expenditures (Full Year 2025) $1.2 billion, up 30% year-over-year, reflecting investments in facilities and fixtures.
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Operating Highlights
G700 and G800 Aircraft: Delivery and performance in customer hands driving increased demand. Improved interest across all models in all sales jurisdictions.
G600 Aircraft: Faced margin issues due to fewer deliveries, higher overhead, and tariffs. Adjusted earnings and margin rate similar to prior quarters.
Combat Systems International Orders: Received over $4 billion in awards for EAGLE tactical vehicles in Germany, $600 million for bridges in Norway and the UK, and $640 million for light armored and logistics vehicles in Canada.
Marine Systems Growth: Revenue up 21.7% year-over-year, driven by submarine programs and Electric Boat. Backlog and contract value at record levels.
Marine Systems Productivity: Increased productivity and throughput at shipyards, with submarine tonnage up 13% at Electric Boat.
Cash Flow Performance: Free cash flow conversion rate of 94% for 2025, driven by strong collections and inventory reductions.
Capital Expenditures: Significant investments in shipyards to accelerate production, with capital expenditures up 30% over 2024.
Technologies Group Positioning: Focus on encryption, subsea warfare, and strategic deterrence aligning with customer priorities. Robust order pipeline of $120 billion.
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Risk or Challenges
Aerospace Operating Earnings: A $104 million decrease in operating earnings on a quarter-over-quarter basis, driven by delivery of fewer G600 aircraft, higher overhead costs, and imposition of tariffs not present in the prior year.
Defense Technologies Revenue: Revenue stagnation in Technologies segment due to long continuing resolution and government contract reviews, which slowed contracting activity and impacted growth.
Marine Systems Productivity: While productivity improvements were noted, the Marine Systems group had previously experienced poor operating earnings in 2024, indicating challenges in maintaining consistent performance.
Capital Expenditures: Significant increase in capital expenditures, up 79% from 2025, which could strain cash flow and financial flexibility.
Interest Expense: Expected increase in interest expense to $340 million in 2026 due to refinancing of maturing notes at higher interest rates.
Operating Margins in Technologies: Operating margins in Technologies are expected to decrease by 30 basis points in 2026, reflecting potential challenges in maintaining profitability.
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Guidance & Outlook
Aerospace Revenue and Margin: In 2026, Aerospace revenue is expected to be about $13.6 billion, up $500 million over 2025. Operating margin is projected to increase to around 14%, resulting in operating earnings of approximately $1.9 billion. Gulfstream deliveries are anticipated to reach 160, with potential upside.
Combat Systems Revenue and Margin: Revenue is projected to range between $9.6 billion and $9.7 billion in 2026, with an operating margin of 14.1%. Operating earnings are expected to improve to around $1.36 billion at the midpoint of the revenue range.
Marine Systems Growth: Marine Systems revenue is forecasted to range between $17.3 billion and $17.7 billion in 2026, with a 30 basis point improvement in operating margin. Operating earnings are anticipated to be approximately $1.3 billion.
Technologies Revenue and Margin: Revenue for Technologies is expected to increase to $13.8 billion in 2026. Operating margins are projected to decrease by 30 basis points to 9.2%, resulting in operating earnings of about $1.3 billion.
Company-Wide Financial Outlook: For 2026, company-wide revenue is expected to range between $54.3 billion and $54.8 billion, with operating margins of 10.4%, up 20 basis points from 2025. Operating earnings are projected to be around $5.7 billion, and EPS is forecasted between $16.10 and $16.20. Quarterly EPS distribution is expected to vary, with the fourth quarter seeing the highest increase.
Capital Expenditures: Capital expenditures are projected to increase by $900 million or 79% from 2025, equating to 3.5% to 4% of sales. Investments will focus on shipyards to accelerate production and meet future demand.
Cash Flow Projections: Free cash flow conversion rate is expected to return to 100% of net income in 2026, supported by strong operating cash flow and elevated investment levels.
Defense Segments Backlog and Pipeline: The Defense segments ended 2025 with record backlog levels. Technologies has a robust order pipeline of close to $120 billion in qualified opportunities, positioning the group for durable growth beyond 2026.
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Shareholder Return Plan
Dividend Program: No specific mention of a dividend program was made in the transcript.
Share Buyback Program: No specific mention of a share buyback program was made in the transcript.
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Key Q&A
Q:What are the expectations for aerospace profitability and margin improvement?
A:Margins are expected to improve by about 70 basis points in 2026 compared to 2024. Improvements are anticipated due to better pricing, efficiency, lower overheads, and reduced R&D costs. However, headwinds include tariffs and supply chain cost increases, which are being addressed through pricing adjustments.
Q:What are the updates on future submarine contracts for Columbia and Virginia?
A:The company does not have specific updates on the timing or details of future submarine contracts for Columbia and Virginia. The demand exists, but it depends on the government’s timeline.
Q:How is the Marine segment performing in terms of throughput and efficiency?
A:Marine segment throughput and efficiency are improving, with retention and proficiency being key factors. Supply chain constraints remain a challenge, but government investments have led to some improvements. Sole source suppliers are still bottlenecks, and further supply chain productivity is needed to accelerate deliveries.
Q:What is the outlook for combat systems backlog and revenue growth?
A:Revenue growth is expected to increase in 2027 as production ramps up for European programs. 2026 will focus on planning, engineering, and R&D work, with a smooth transition to production anticipated.
Q:What is the impact of tariffs on Gulfstream in 2025 and 2026?
A:The tariff impact in 2025 was $41 million. Tariffs in 2026 are expected to be higher, but they are factored into the 2026 margins. The timing of tariff costs and revenue recognition creates variability in the financial impact.
Q:What is driving the strong order momentum in Gulfstream?
A:Strong order momentum is driven by new product introductions (800, 700, and 600 models), bonus depreciation, and strong economies. The demand pipeline remains active and growing.
Q:What is the company’s capital deployment strategy?
A:The company focuses on investing in its growing business to support backlog execution and customer demands. Dividends are a priority, but share repurchases are not commented on. CapEx investments will continue year-over-year to support long-term growth.
Q:What is the outlook for Gulfstream delivery growth in 2026?
A:Delivery growth in 2026 is expected to be modest (1% increase) due to capacity constraints in completion, final testing, and delivery. Efforts are underway to expand completion capacity through efficiency and additional tooling.
Q:What is the margin outlook for Aerospace in the medium term?
A:Margin improvement is expected over time, driven by execution and backlog growth. The company sees significant and consistent margin improvement opportunities, but specific targets depend on cost and pricing dynamics.
Q:What is the status of the AJAX program?
A:The AJAX program is currently paused in fielding, but the company is confident in the vehicle’s performance, which has been extensively tested.
Q:What is the impact of geopolitical activities on European demand for U.S.-sourced equipment?
A:There has been no change in European demand for U.S.-sourced equipment. The company’s European businesses are largely indigenous and sourced locally.
Q:What is the outlook for munitions demand and margins?
A:Munitions demand is strong due to low inventories and replenishment needs. Margins are expected to remain in the 14%-15% range, with variability depending on operating leverage and cost control.
Q:What is the impact of commercial aerospace production ramp-up on Gulfstream’s supply chain?
A:Some suppliers have successfully ramped up, while others face capacity constraints. Investments in capacity and workforce training are ongoing, but quality remains high.
Q:What is the book-to-bill ratio for European Land Systems, and what is the growth outlook?
A:The book-to-bill ratio for European Land Systems was over 4:1 in Q4. Significant growth is expected, particularly in 2027 and beyond, as long-cycle programs transition to production.
Q:What is the market outlook for unmanned ground vehicles (UGVs)?
A:The U.S. Army is transitioning to advanced systems, including UGVs. The company has made investments to support this growth and is confident in its position to meet future demand.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the timing and structure of future submarine contracts for Columbia and Virginia, stating that it depends on the government’s timeline. Additionally, they did not comment on share repurchases, citing current unpopularity, and provided limited details on the competition strategy for the recently announced battleship design.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Combat Systems
Defense segment
European Land
Gulfstream aircraft
Jet Aviation
Land Systems
Marine Group
Marine Systems
Orders
Systems Aerospace
Systems book
Technologies basis
United
activity order
asset
award vehicle
backlog order
bill demand
comparison
conversion rate
decrease basis
delivery aircraft
expenditure capital
expense interest
expertise
flow conversion
intake
item
laser
line expectation
midpoint
output
plan note
productivity shipyard
prospect
rate capital
record level
story
submarine
variance
GD Transcript
General Dynamics Corporation (GD) Q4 2025 Earnings Call Transcript
Positive1-28
The earnings call reveals strong financial performance with increased EPS guidance, robust demand in Aerospace and Combat Systems, and improved margins. Despite some uncertainties in Marine Systems and tariffs, the positive outlook in Technologies and strong order momentum in Gulfstream drive a positive sentiment. The Q&A highlights margin improvements and strategic investments, bolstering confidence. The absence of a market cap suggests a neutral to positive reaction, but given the optimistic guidance and strategic growth plans, a positive stock movement (2% to 8%) is anticipated.
General Dynamics Corporation (GD) Q3 2025 Earnings Call Transcript
Unknown10-24
The earnings call highlights stable financial metrics, with slight improvements in revenue forecasts. However, the Q&A section reveals concerns about supply chain fragility and potential government shutdown impacts. While there is optimism in product transitions and international demand, lack of clarity on future developments and specific risks tempers overall sentiment. The company's market cap is unavailable, but the mixed signals suggest a neutral stock price movement in the short term.
General Dynamics Corporation (GD) Q2 2025 Earnings Call Transcript
Positive7-23
Earnings call highlights strong aerospace revenue growth, order activity, and shareholder returns. Q&A reveals positive factors like higher margins for G800 and stable demand across aircraft types. Concerns include service slowdown and margin dips, but overall, positive elements outweigh negatives. Despite uncertainties, optimistic guidance and robust demand suggest a positive stock reaction.
General Dynamics Corporation (NYSE:GD) Q1 2025 Earnings Call Transcript
Unknown4-24
The earnings call presents mixed signals: strong financial performance with increased EPS and revenue, but concerns about negative free cash flow and market uncertainties. The Q&A highlights cautious sentiment due to tariffs and supply chain issues. Positive elements include improved operating margins and significant shareholder returns. However, the lack of clear guidance and ongoing risks like potential strikes and order activity challenges temper the overall outlook. With no market cap provided, a neutral prediction (-2% to 2%) is reasonable, reflecting balanced positive and negative factors.
GD Slides
GD Report
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