General Dynamics on Wednesday posted lower earnings and sales in its second quarter on continued weakness in its Aerospace segment and an overall decline in its government and defense businesses due to impacts from the COVID-19 pandemic.
Net income fell 23% to $625 million, $2.18 earnings per share (EPS), from $806 million ($2.77 EPS), three pennies above consensus expectations. Segment operating margin slid to 9.1% from 11.4%.
Sales dipped 3% to $9.3 billion from $9.6 billion.
Through the first half of the year, GD said impacts from COVID have gouged $1.2 billion out of the company’s expected sales and $451 million ($1.25 EPS) in operating income, with most of the hits to the Aerospace segment followed by the Information Technology (IT) segment.
There have been direct costs associated with GD’s response to COVID-19 and about $127 million in programmatic costs during the first half of the year, Phebe Novakovic, GD’s chairman and CEO, said at the outset of the company’s earnings call.
GD’s Aerospace segment drove the earnings decline in the second quarter as profits dropped more than 50% on charges at its Jet Aviation services and Gulfstream business jet divisions. Sales at Aerospace were down nearly 8% due to continued uncertainties around the economy related to COVID and the inability to deliver some aircraft, Novakovic said.
In GD’s government and defense businesses, the GDIT segment registered top and bottom-line declines as sales were down nearly 13% and operating profit fell 46%. The IT segment suffered from a $40 million charge in a legacy program in Europe, Novakovic said, adding “We can’t get our people from here to there to do the work required by this contract. This is the most painful programmatic impact from COVID-19 we have experienced.”
Novakovic said the company will “aggressively seek contract relief as we move forward” on the contract in Europe. She also said that GDIT’s “highest margin programs have come to a hard stop because of COVID-19.”
Marine Systems was the only segment to increase sales and earnings, with revenue up 6% and operating profit nearly 2% higher. The modest uptick in earnings were hindered by product mix at the company’s National Steel and Shipbuilding Co. operations in California and a strike at its Bath Iron Works facility in Maine, Novakovic said.
General Dynamics Electric Boat is the Navy’s prime contractor for production of the Columbia-class ballistic missile submarines. The Navy expects to pay about $110 billion for 12 boats, the first of which is scheduled to begin patrol in the 2030s.
