General Dynamics NYSE: GD opened fiscal 2026 with first-quarter results that President Danny Deep described as “a very powerful quarter in all respects,” highlighted by double-digit growth in revenue and earnings, strong cash generation, and a sharp increase in backlog.
Deep, who led the call alongside CFO Kim Kuryea due to Chairman and CEO Phebe Novakovic’s absence for a family illness, said the company reported earnings of $4.10 per diluted share on revenue of $13.5 billion. Operating earnings were $1.42 billion and net earnings totaled $1.125 billion.
Compared with the year-ago quarter, Deep said revenue rose 10.3%, operating earnings increased 12%, and net earnings were up 13.2%. Companywide operating margin improved 10 basis points to 10.5%. Deep also said General Dynamics exceeded consensus expectations by $0.43 per share, citing “more revenue and better operating margins than expected by the sell side.”
Cash flow strength and higher backlog
Kuryea said the quarter featured “outstanding cash performance,” with operating cash flow of $2.2 billion as business units “overwhelmingly” exceeded planned cash flow and reduced operating working capital. Capital expenditures rose more than 40% year-over-year to $203 million, which Kuryea said reflected plans to invest more heavily as the year progresses—“especially in our shipyards, to accelerate production and meet demand.”
Free cash flow for the quarter was “just shy of $2 billion,” producing a cash conversion rate of 174%. Kuryea reiterated the company’s expectation of a full-year free cash flow conversion rate of 100% of net income, but said the strong first-quarter performance changes the expected cadence: the first quarter is now expected to be the largest free cash flow quarter, with positive free cash flow in each remaining quarter.
General Dynamics paid about $400 million in dividends and repurchased roughly $200 million of common stock “to cover dilution,” Kuryea said. The company ended the quarter with $3.7 billion in cash and a net debt position of $4.4 billion, down $1.3 billion from the prior quarter.
On demand, Kuryea said General Dynamics received more than $26 billion of orders, generating a 2.0x book-to-bill ratio even as revenue grew more than 10%. Total backlog climbed to $131 billion, up 48% from a year earlier and 11% from the prior quarter. Total estimated contract value, including options and IDIQ contracts, reached a record $188 billion, up 33% year-over-year.
Kuryea also noted $500 million of notes due in June 2026 and another $500 million due in August 2026. “Our plan assumes that the $1 billion will be refinanced,” she said, adding that the company will continue to evaluate options during the year. Net interest expense declined to $69 million from $89 million in the year-ago period, which Kuryea attributed “almost entirely” to interest paid on commercial paper borrowings in the first quarter of 2025. The effective tax rate was 17.8%, consistent with full-year guidance of 17.5%.
Segment performance led by Aerospace and Marine Systems
Aerospace posted revenue of $3.3 billion and operating earnings of $493 million, with a 15% operating margin. Deep said revenue rose $253 million, or 8.4%, driven by two additional aircraft deliveries and higher services revenue at both Gulfstream and Jet Aviation. Deliveries totaled 38, “exactly as planned,” and represented “the highest number of deliveries for any first quarter in Gulfstream history,” according to Deep.
Aerospace operating earnings rose $61 million year-over-year, supported by higher revenue and a 70-basis-point improvement in margin. Deep emphasized that the margin improvement was not driven by unusual items, noting neither the year-ago quarter nor the current quarter was “significantly burdened by tariff costs.” He pointed to productivity improvements on the G700 and G800, and said G800 performance stood out with “very good gross margins,” adding that margins were better than the G650 deliveries in the prior-year quarter despite the program’s relative newness.
On demand, Deep said Aerospace produced a 1.2x book-to-bill ratio, with 17 more airplane orders than the year-ago quarter, though he added that “numerous transactions slowed at the end of the quarter as a result of the conflict in the Middle East.” Trailing 12-month book-to-bill was 1.3x, he said.
Combat Systems reported revenue of $2.28 billion, up nearly 5% year-over-year, and operating earnings of $310 million, up 6.5%. Margin rose 20 basis points to 13.6%. Deep attributed revenue growth to Ordnance and Tactical Systems and European Land Systems. Quarterly book-to-bill was roughly 0.9x to 1.0x, while trailing 12-month book-to-bill was 2.1x after especially strong order intake in the third and fourth quarters of 2025. Deep said demand was strong and “driven primarily by U.S. allies,” with munitions continuing to lead growth.
Marine Systems delivered 21% revenue growth, driven primarily by the Columbia- and Virginia-class submarine programs, followed by an oiler program at NASSCO, Deep said. Repair volume increased at both East and West Coast repair yards. Operating earnings rose 26.4% on productivity improvements “across all of our shipyards,” he added.
Deep provided updates on submarine production performance at Electric Boat, citing a 29% increase in hours earned compared with the first quarter of 2025 and a 52% increase in sequence-critical material items received. Bath Iron Works continued improving efficiency and schedule on DDG-51 destroyers, he said, while NASSCO expects to deliver the final Expeditionary Sea Base ship this summer and has capacity to support additional programs.
Technologies recorded revenue of $3.6 billion, up 4.2%, and operating earnings of $339 million, up 3.4%. Operating margin slipped 10 basis points to 9.5%. Deep said order activity was “encouraging,” with a 1.3x book-to-bill in the quarter and 1.2x over the trailing 12 months. He said the segment’s win and capture rates ran between 80% and 90%, and that at GDIT the company is seeing strong demand for AI and cyber capabilities, despite “elongated procurement cycles and fewer customer adjudications.” Mission Systems revenue increased 11.7%, and Deep said margins expanded 50 basis points on favorable product mix and a transition away from legacy programs.
Guidance raised; commentary on supply chain and geopolitical impacts
Deep said General Dynamics updated its full-year 2026 earnings guidance, raising the expected EPS range to $16.45 to $16.55 from the prior $16.10 to $16.20. He said the first and fourth quarters are expected to be the high points of the year, “favoring the fourth quarter,” with the second and third quarters trailing due to mix.
During Q&A, Deep said supply chain performance in Marine Systems has improved, with higher on-time deliveries and fewer quality issues than the prior year, though he acknowledged continuing challenges in complex, single-source components and systems.
Asked about the Middle East conflict, Deep said Gulfstream saw some slowing in order intake in the region late in the quarter. He also noted potential supply risks tied to labor availability, adding that first-quarter deliveries were not affected because the aircraft were already in inventory for completion prior to the conflict. In a later exchange, he said any prolonged conflict could create “a small impact” for the Gulfstream G280, which is produced in Israel.
On shipbuilding demand signals from the fiscal 2027 budget request, Deep said the budget supports programs already in work but he did not expect awards to “change dramatically the number of ships that we have to produce in the immediate term.” He also said the company has been investing for years in unmanned undersea platforms through Mission Systems’ Bluefin business, but does not anticipate moving into smaller surface ships beyond its existing focus areas.
On the Columbia program schedule, Deep said all major modules were received by the end of last year and are being integrated and assembled. He said the company expects to reach a key milestone by the end of this year and remains “on a path to deliver that first boat … by the end of 2028.”
Capital deployment and investment posture
On share repurchases, Deep said the company remains cautious, limiting buybacks to offset dilution from compensation programs. He reiterated the company’s commitment to dividends, noting General Dynamics has increased its dividend for 29 straight years.
Kuryea said the first-quarter cash outperformance was broad-based across business units and not driven by any significant unplanned customer advances, though she noted that the stronger first quarter effectively pulls some cash forward from the second quarter. She said the company is evaluating whether full-year cash conversion could exceed 100% and is focused on reducing working capital to help offset higher capital expenditures.
About General Dynamics NYSE: GD
General Dynamics is a major American aerospace and defense contractor that designs, manufactures and supports a broad range of products and services for government and commercial customers worldwide. Headquartered in the United States (Reston, Virginia), the company supplies platforms and systems used by armed forces, civil authorities and private operators across multiple domains including air, land, sea and cyber.
Its principal activities span several operating businesses: a business aviation unit that develops and supports Gulfstream business jets; land systems that produce armored combat vehicles and related logistics and sustainment services; marine systems that design and construct submarines and surface ships for navies; and mission systems and information technology operations that provide command-and-control, communications, cybersecurity and systems-integration services.
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