Key Metrics
- Revenue: $11,671 million (10.4% yoy)
- Aerospace: $2,482 million (22.1% yoy)
- Marine Systems: $3,599 million (19.9% yoy)
- Combat Systems: $2,212 million (-0.5% yoy)
- Technologies: $3,378 million (2.0% yoy)
- Operating Income: $1,181 million (11.7% yoy)
- Operating Margin:
- Aerospace: 12.3%
- Combat Systems: 14.7%
- Technologies: 9.7%
- Cash from Operations: $1,952 million
- Free Cash Flow: $1,391 million (decreased from $2,914 million yoy)
- Total Backlog: $92.6 billion
- Funded Backlog: $74.95 billion
- Estimated Potential Contract Value: $137.6 billion
- Gulfstream Aircraft Deliveries: 28 units
Forward guidance
- Aerospace Revenue Guidance: Expected sales of approximately $12.3 billion with a 13.2% margin for the year.
- G700 Deliveries: Anticipating 150 deliveries for the year, down from previous guidance of 160, with 10 deliveries slipping into next year.
- Marine Systems Revenue: Projected revenue of about $13.9 billion with margins of 6.9%.
- Company-wide Revenue and Margins: Forecasting annual revenue of around $48 billion and margins of approximately 10.3%.
- EPS Guidance: Expected earnings per share of approximately $14, about $0.45 below previous expectations.
- Combat Systems Growth: Anticipating 5.9% growth for the Combat Systems group for the year.
- Free Cash Flow: Expecting free cash flow for Q4 to again be greater than 100% of net income, but full-year conversion expected to fall short of the 100% target due to G700 deliveries pushed into 2025.
Key takeaways
- Positives:
- Aerospace segment revenue increased by 22%, driven by higher service center and special missions volume, indicating strong demand despite G700 delivery shortfalls. Phebe Novakovic noted, "This is still eye-watering growth."
- Combat Systems reported robust order activity with a book-to-bill ratio of 1.5:1, reflecting strong demand for munitions and combat vehicles. Novakovic stated, "We see our pipeline is pretty robust, but domestically and outside the United States."
- Marine Systems revenue grew by 20%, supported by Columbia-class and Virginia-class construction, showcasing strong performance in shipbuilding. Novakovic highlighted, "Impressive growth by any standard."
- Overall cash flow improved, with free cash flow at $1.2 billion, or 131% of net income, indicating strong financial health. CFO Kim Kuryea remarked, "We expect free cash flow to again be greater than 100% of net income."
- Negatives:
- G700 deliveries fell significantly short, with only four delivered against expectations of 15-16, primarily due to supply chain issues and late engine certifications. Novakovic explained, "Whenever we miss our forecast so badly, it is almost always for a number of reasons."
- Supply chain challenges continue to impact Marine Systems, with delays affecting submarine schedules. Novakovic stated, "The supply chain is not getting better at a fast enough rate as we had hoped."
- Margins in Marine Systems remain under pressure, with operational inefficiencies due to supply chain delays. Novakovic noted, "We need to get our cadence in sync with the supply chain and take costs out of the business."
- The overall tax rate increased to 17%, slightly higher than expected, which could impact net earnings.
Peer Summary
- Lockheed Martin Corp: "The demand for Lockheed Martin systems and services remains robust across all four of our business areas," indicating strong market demand. However, "Aeronautics segment sales declined 3% year-over-year due to delays in F-35 Lot 18/19 contract negotiations," highlighting operational challenges that could impact future revenue.
- Boeing Co: "The IAM strike significantly impacted operations," with free cash flow reflecting ongoing financial strain. Despite a substantial backlog of approximately $0.5 trillion, "BDS faced persistent charges and margin pressures," indicating challenges in managing costs and profitability.
- Northrop Grumman Corp: "Global events continue to highlight the need for advanced capabilities," suggesting strong demand for defense offerings. However, "Supply chain challenges persist," which could hinder operational efficiency.
- RTX Corp: "Demand across the business, including double-digit growth in commercial aftermarket and defense remains robust," but "Collins faced challenges with commercial OE sales down 8%," indicating potential volatility in revenue streams.
- Honeywell International Inc: "Discrete supply chain disruption in September in aerospace," affected sales, leading to a downward revision of full-year sales guidance, while "Organic growth of 3% in Q3 was below expectations," reflecting ongoing market challenges.
