Jason Aiken
Senior Vice President and Chief Financial Officer at General Dynamics
Thank you, Howard. Good morning everyone and thanks for being with us. Before we get started, I want to let you all know that, our Chairman and Chief Executive Officer Phebe Novakovic is unable to join us this morning. She recently came down with COVID but not to worry she is on the mend and doing well but she has asked me to cover today's call. With me is Bill Moss, our Vice President and Corporate Controller, who will cover some of the financial particulars that I would normally address. So with that let's get into the results.
Earlier this morning we reported earnings of $2.75 per diluted share on revenue of $9.2 billion, operating earnings of $978 million, earnings before taxes of $923 million and net income of $766 million. Revenue was essentially flat against the second quarter last year but operating earnings were up $19 million. Earnings before taxes were up $42 million and net earnings were up $29 million. Earnings per share were up $0.14, a 5.4% increase. To be a little more granular we enjoyed revenue increases at Aerospace and Marine Systems offset by declines at Combat Systems and technologies. We also had margin improvement in 3 of the 4 segments, which led to higher operating earnings and earnings before taxes against the year-ago quarter. From a slightly different perspective, we beat consensus by $0.03 per share on somewhat lower revenue, but a somewhat higher operating margin than anticipated by the sell side. This led to the modest earnings beat.
On a year-to-date basis revenue for all practical purposes was even with last year's first half. Similarly, operating earnings were essentially flat, but earnings before taxes were up $46 million, net earnings were up $51 million and EPS was up $0.25 almost 5%. In the quarter free cash flow of $435 million was 57% of net income, cash flow from operating activities was 86% of net income. This was pretty good in light of the powerful first quarter cash to that point year-to-date free cash flow of $2.3 billion was 151% of net earnings. In summary, we had a solid quarter from an earnings perspective and the year-to-date results give us a solid start to the year. So let me move right into some color around the performance of the business segments. Have Bill add color around cash, backlog, taxes and deployment of cash, and then I'll provide updated guidance. I'll try to keep my remarks brief to leave ample opportunity for questions.
First Aerospace Aerospace had revenue of $1.9 billion, operating earnings of $238 million and a 12.7% operating margin. Revenue was $245 million more than the year-ago quarter or 15.1%, largely as a result of higher service center sales at Gulfstream and higher service volume particularly FBO at Jet Aviation. Operating earnings are up $43 million or 22.1% on a 70 basis point improvement in margins. So increased sales volume coupled with improved margins leads to very good operating leverage. We captured improved revenue on only 22 deliveries. We didn't deliver the 4G500 and 600s that were scheduled to deliver in the quarter. They've been deferred at customer request to the third quarter, awaiting removal of the FAA wind directive. However, 9G500 and 600s in fact were delivered to customers in the quarter. So, we delivered 9 of the 13 that were planned in the quarter.
From an order perspective, we did very well once again. In dollar terms, Aerospace had a book to bill of 2 to 1. Gulfstream aircraft alone had a book-to-bill of 2.7 to 1 even stronger if expressed in unit terms.
As previously discussed, sales activity truly accelerated in the middle of February 2021 and continued on to the second quarter of this year. The pipeline and sales activity remains strong as we enter this quarter. The Farnborough Airshow was a good one for us. From a new product perspective, the G500 and G600 continue to perform well. Margins are improving on a consistent basis and quality is superb. We're making good progress in the flight test of the software update for landing and high wins and expect removal of the FAA directed in mid-September. You may recall that last quarter, we advised you of a risk of a 3 to 6 months delay for certification of the G700 to second quarter of 2023 as a result of the time-consuming work on model-based software validation. As a result of the flight sciences, engineering resources we needed to redeploy onto the work related to the G500 and 600 FAA limitation on landings and high wind conditions, the risk to the G700 schedule has become a reality. As we've previously advised, this will not adversely impact our financial plan for 2022 and 2023. We feel confident that the G800 will follow the G700 by about 6 months. Looking forward, we planned 123 deliveries for the year and we fully expect to do just that.
Turning to defense. Combat Systems had revenue of $1.7 billion, down 12% over the year-ago quarter. Revenue was impacted by AJAX at both Land Systems and ELS, Boby Bodies at OTS and some program mix. Operating earnings of $245 million were off against last year's quarter by 7.9% with a 70 basis point improvement in margins. Operating margin was a strong 14.7%. On a sequential basis, revenue was very similar to the first quarter but operating earnings were up 7.9% for $18 million on a 110 basis point improvement in operating margin. For the first half Combat Systems revenue was down 10.2% and operating earnings were down only 7.5% on a 40 basis point improvement in margins. In June Land Systems was awarded the mobile protected firepower contract. The first all-new combat vehicle for the Army and decades, the initial award for LRIP 1 was $410 million for 25 vehicles. The program of record for LRIP is $1.1 billion for 95 vehicles through 2026. The entire program requirement is 500 vehicles for more than $5 billion. The program fills a critical gap in the Army's inventory brigade combat force and we expect to move out swiftly on the program.
The quarter was very good for Combat Systems from an orders perspective with a 1.4 to 1 book-to-bill, leading to an increase in total backlog and estimated potential contract value. Demand for our products, particularly our combat vehicles remained strong with Europe leading the way. International order opportunities for Abrams are particularly strong. This was an impressive operating performance once again by the Combat Systems group in a constrained revenue environment.
At Marine Systems revenue of $2.65 billion was up $115 million over the year-ago quarter. It was flat sequentially but up year-to-date. In the quarter growth was led by Colombia, TAO and repair work volume. For the first half, revenue was up $283 million or 5.6%. This is very impressive continued growth. Operating earnings were $211 million in the quarter essentially flat with the year-ago quarter as a result of a 30 basis point reduction in margin. The margin compression was the result of the impact on electric Boat of additional scheduled delays on the Virginia program from the supply chain as it struggles with recovering from COVID. EV is working closely with the Navy and suppliers including embedding operating and engineering personnel onsite to restore the necessary Virginia program cadence. Nonetheless, Electric Boat performance remains strong and while still early in the Columbia first ship construction contract the program remains on cost and schedule.
Total backlog of almost $42 billion remains robust and is by far the largest of our operating groups and lastly technologies. The segment had revenue of $3 billion in the quarter, down $158 million from the year-ago quarter or 5%. Two-thirds of the decline was attributed to Mission Systems largely related to their continuing struggle with a shortage of chips, which continues to plague their ability to deliver certain products. On the other hand, operating earnings of $304 million were down only $4 million or 1.3% on a 40 basis point improvement in operating margin to 10.1%. EBITDA margin was an impressive 14.1% including state and local taxes, which are a 50 basis point drag on that result. Operating performance at GDIT was particularly strong 140 basis points better than the year-ago quarter. These are industry-leading margin figures. Technologies had a good order activity in the quarter with book to bill of 1 to 1 and good order prospects on the horizon. Mission Systems had nice orders many of their product offering, especially those impacted by the chip shortage. The IT pipeline remains healthy and most of our federal IT lines of business, as the government continues to modernize and upgrade its mission support systems. GDIT has the opportunity to submit $35 billion in opportunities this year including $17 billion in the third quarter, most of which represents new work.
That concludes my remarks with respect to a solid quarter and first half. I'll now turn the call over to Bill for further remarks and then I'll provide our updated guidance.
