The operator welcomes participants to the General Dynamics Fourth Quarter and Full Year 2023 Earnings Conference Call. Nicole Shelton, Vice President of Investor Relations, introduces Phebe Novakovic, Chairman and CEO, and Jason Aiken, Executive Vice President and CFO. Novakovic reports earnings of $3.64 per diluted share on revenue of $11,668,000,000, with a 7.5% increase in revenue compared to the previous year. Operating earnings are up $61 million and earnings per share are up $0.06. The previous year's quarter had $52 million more in other net income, which accounts for the more modest earnings per share growth.

The company's quarterly and sequential results have shown significant improvement, with strong growth in revenue and earnings. The fourth quarter was the strongest of the year, and there was a steady progression of improvement throughout the year. While there was a slight decrease in earnings for the full year, this was due to factors beyond the company's control. Order activity and backlog were strong for the year, with a total backlog of $93.6 billion. Cash performance was also strong.

In the fourth quarter, the total estimated contract value for the company was $132 billion, with the aerospace segment leading the way in orders and a book-to-bill ratio of 1.2 to 1. The defense segments also had a strong book-to-bill ratio of 0.7 to 1. The company had a book-to-bill ratio of 1.1 for the year, with all segments meeting or exceeding this ratio. The company had a strong cash performance with operating cash flow of $1.2 billion in the fourth quarter and $4.7 billion for the year. Capital expenditures were higher than expected at $304 million in the fourth quarter, but still lower than the original expectation for the year. The company also paid $360 million in dividends and did not repurchase any shares in the quarter.

In 2023, the company contributed $106 million to their pension plans and expects to contribute $75 million in 2024. They ended the year with a cash balance of $1.9 billion and a net debt position of $7.3 billion, down 20% from the previous year. They expect interest expense to decrease in 2024 and their effective tax rate to increase to around 17.5%. In the aerospace segment, there was a 12% increase in revenue and a 33% increase in earnings on a quarter-over-quarter basis, with a significant increase in the delivery of in-service airplanes.

The strong performance of large aircraft, pricing in the backlog, improved overhead absorption, and supply chain response contributed to a 16.4% margin in the quarter. However, revenue and earnings for the full year were lower than expected due to delays in G700 certification and supply chain issues. The company is almost complete with the final technical inspection authorization for G700 and is asking customers to schedule pre-delivery inspections. The book-to-bill ratio was 1.2 times in the quarter and for the year, and backlog increased significantly. Aerospace demand for both aircraft and services remained strong, despite interruptions due to macroeconomic and geopolitical events.

In summary, the company saw a brief pause in order intake due to regional bank failures and conflict in Gaza, but sales activity has picked up and the sales pipeline remains strong. Aerospace backlog has increased significantly since the first quarter of 2021. Combat systems also had a good year, with revenue and earnings up, driven by higher volume in various programs and strong international demand. The company's performance in 2023 exceeded expectations.

The company's operating earnings have increased by $72 million, with a strong margin performance and a strong pipeline of opportunities. The marine division also saw strong revenue growth, driven by construction and service contracts. However, operating earnings were down due to decreases in EAC rates and quality issues from vendors. The Technologies group had a solid quarter and a strong year, with a decrease in revenue but a decrease in operating earnings.

The group's revenue for the year increased by 3.4%, exceeding expectations due to strong demand for their products and services. GDIT saw increased volume and growth in all customer-facing segments. Operating earnings were down by 2% due to a shift in revenue mix. Both businesses saw growth in all quarters, except for a supply chain anomaly in 2022. Order activity and backlog were strong, with GDIT receiving a record-breaking amount of awards and Mission Systems seeing a significant increase in submitted bids.

The company's technologies group has had a successful year, with a backlog of $41 billion and a qualified pipeline of $130 billion. The CEO provides an operating forecast for 2024, with aerospace revenue expected to increase by 40% and operating margin to increase by 130 basis points. Gulfstream deliveries will be around 160, with 50 G700 deliveries and fewer G280s due to supply chain challenges. Combat systems revenue is expected to increase by 3% and operating margin to improve by 50 basis points, driven by strong order activity and demand signals in Europe. There may be potential for additional revenue later in the year.

The Marine group has experienced significant growth and is expected to continue this trend in 2024 with an increase in revenue and operating margin. The technologies sector also saw strong revenue in 2023 and is expected to continue growing in 2024. The company anticipates overall revenue of $46.3 to $46.4 billion and an EPS of $14.40. The first two quarters are expected to be similar, with a strong finish in the third and fourth quarters. The company is confident in the demand environment and has opportunities to improve operating margins. The focus will be on execution and operations. Participants are reminded to ask one question and one follow-up.

During a conference call, Phebe Novakovic, the operator, and Myles Walton from Wolfe Research discuss the status of the 700 aircraft deliveries. Novakovic mentions that they have 15 planes ready for pre-delivery inspection and hopes to deliver them this quarter. She also mentions that recent FAA rules may not have a material impact on the certification process. When asked about the 800 delivery, Novakovic declines to provide specifics on guidance. She explains that they have no control over the certification process and will not make any predictions about timing. Ron Epstein from Bank of America also asks a question, but it is not mentioned in this paragraph.

Phebe Novakovic discusses the impact of COVID on the shipbuilding industrial base and the submarine industrial base, which are heavily manpower-driven businesses. She mentions that there has been a significant increase in retirements and labor shortages, leading to disruptions in the supply chain. However, she believes that the supply chain will stabilize as new workers come down their learning curves and improve delivery and quality. Electric Boat, where Novakovic works, is currently able to handle the demand, but will work closely with the Navy if demand increases.

Phebe Novakovic discusses the positive performance of Electric Boat, mentioning a 10% increase in velocity and throughput on Virginia and a 30% increase on Columbia. She also mentions the challenges of the supply chain and the Navy's efforts to provide certainty of demand. When asked about the G400, Novakovic says it is performing well and there is considerable interest in that market segment. Finally, she mentions the potential for European orders in the second half of the year, but it is not factored into the current guidance.

Phebe Novakovic, CEO of General Dynamics, says that the speed of orders depends on what they are for, with faster transactions like service and munitions moving more quickly. The company has factored in known demand signals and contracting velocity into their plan for '24, with potential upside coming from armament munition programs and increased productivity. They are comfortable with their 50-50 plan, which includes opportunities and risks. Regarding the budget process for '24, Novakovic hopes that Congress will pass a critical defense bill. Analyst Davis Strauss asks about free cash flow and capital deployment, to which Jason responds that inventory was a drag, but advances helped, and cash taxes were high. The guidance for '24 does not include anything for capital deployment.

Jason Aiken explains that despite fluctuations in cash flow over the past few years, the company expects a steady conversion rate of around 100% in 2024 and beyond. This is due to a balance of tailwinds and headwinds in different business sectors. The aerospace group will have a regular burn rate, while combat systems will continue to see tailwinds. The technologies group has a steady conversion rate, and the marine systems group is finishing up large projects. In terms of capital deployment, there is not much commitment, with only $500 million in notes maturing in November of this year.

Phebe Novakovic discusses the company's plans for capital deployment and the potential for stepped up share repurchases in the future. She also clarifies that the one-to-one book-to-bill ratio is for planning purposes, not a forecast. Sheila Kahyaoglu asks about the profit profile of the G700 compared to other Gulfstream models, and Phebe mentions that the G700 is expected to have margins above 20% and that they already have a significant number of orders built up.

Phebe Novakovic, CEO of General Dynamics, discussed the margin performance at Gulfstream and how it is impacted by various factors such as mix, pricing, and out of station work. She emphasized the balanced plan for the company and mentioned that the new G700 aircraft is coming in at high margins. When asked about the defense side of the business, Novakovic mentioned the impact of COVID on the industrial base and the importance of focusing on operating excellence to drive profitable growth. Analysts also asked about the 3% growth guide for combat and Novakovic emphasized the value of operating excellence in achieving profitable growth.

In the paragraph, the speaker is discussing projected growth in the first half of the year and the potential for a slowdown in the second half. They attribute this potential slowdown to the timing of contracts and assure that the demand is still there. The speaker also mentions an update on the multi-year outlook for the aerospace business, stating that they plan to deliver 160 airplanes this year and expect more deliveries in 2025 and 2026 but cannot provide more details at this time due to supply chain issues and certification delays.

In this paragraph, Noah Poponak asks Phebe Novakovic about how General Dynamics is managing supply and demand in the business jet market. Phebe responds by stating that they have a robust backlog and pipeline, and do not anticipate a decrease in demand. She also mentions that new clean sheet airplanes are driving incremental demand and they expect more orders to come in this year.

During a conference call, Phebe Novakovic addressed questions about the future of the company. She mentioned that they rely on foundational elements for production and that they have adjusted their plan due to the impact of a recent attack on the G280. She also discussed the 18% incremental margin at Gulfstream, stating that it is not a P&L drag but rather a result of multiple factors and that 2024 is a pivotal year for the company. She also noted that they saw an improvement in the supply chain in the latter half of the year.

The company delivered more aircraft than expected in the fourth quarter, leading to increased optimism about production. However, there is caution about the supply chain's ability to keep up. The company's operating leverage and mix of business may affect margins, but there is nothing systemic to be concerned about. Unbilled receivables decreased due to payments on large international programs.

Phebe Novakovic, CEO of General Dynamics, discusses the growth potential for the company's Marine division, which is expected to see $600 million to $1 billion in annual growth in the next two years. She also mentions the possibility of an economic price adjustment for the Virginia-class submarine program, but states that it is premature to include any numbers before an agreement is reached with the Navy. The Defense Production Act has been used to improve capacity for rocket motors and munitions in the industry.

Phebe Novakovic, CEO of General Dynamics, discusses the company's relationship with the Navy and the need for continued support in stabilizing on-time delivery and quality from the supply chain. She also thanks CFO Jason Aiken for his years of service and announces his departure. The call concludes with a reminder to refer to the company's website for earnings release and highlights.

This summary was generated with AI and may contain some inaccuracies.