Phebe N. Novakovic
Chairman and Chief Executive Officer at General Dynamics
Thank you, Nicole. Good morning, everyone, and thanks for being with us. Earlier this morning, we reported earnings of $3.26 per diluted share on revenue of $11.98 billion, operating earnings of $1.16 billion and net income of $905 million. We enjoyed revenue increases at each of our four business segments compared to the year-ago quarter. Across the company, revenue increased a strong 18% with a 51% increase in our Aerospace segment and a 10% increase across our defense units, strong growth by any standard.
Importantly, operating earnings of $1.16 billion are up almost $200 million or 20.2%, demonstrating solid operating leverage. Similarly, net earnings are up 21.6% and earnings per share are up 21% over the year-ago quarter. You will note we missed Street EPS consensus by $0.02 due entirely to the slip of four G700 deliveries from the last week in the quarter to the beginning Q3. One has since been delivered, three are imminent.
From a different perspective, the sequential comparisons are also quite favorable. Revenue is up $1.2 billion and operating earnings are up $120 million on steady margins. On a year-to-date basis, revenue of $22.7 billion is up $2.67 billion or 13.3% over last year's first half. Operating earnings of nearly $2.2 billion are up 15.4%. Net earnings of $1.7 billion are up 15.6%, despite a higher provision for income taxes. In a few minutes, our CFO, Kim Kuryea, will provide you with free-cash flow for the first half and remainder of the year, our strong continued order activity and backlog as well as some additional relevant financial information.
But first, I will take you through each of the segments. We'll start with Aerospace. Let me give you some comparative numbers that will show the front-end of a tremendous growth surge for aerospace that will progress favorably throughout the year. Then I will attempt to put all of this in some reasonable perspective for you. Aerospace had revenue of $2.94 billion and operating earnings of $319 million with a 10.9% operating margin. Revenue is $987 million more than last year's second quarter, a remarkable 51% increase. The revenue increase was driven by additional new aircraft deliveries coupled with higher-service revenue. We delivered 37 aircraft, including 11 newly certified G700s in the quarter. This is fewer than we expected to deliver, but more about that in a minute.
Operating earnings of $319 million are up $83 million, 35% over the year-ago quarter. The 10.9% operating margin was 120 basis points lower than the year-ago quarter. This was driven by G700 deliveries that carried more than expected costs from three things: first, retrofit; second, attestation work related to the late arrival of parts; and three, the extended certification period. This cost burden will affect 20 Lot 1 aircraft, which includes five test aircraft that will not deliver this year. So we are through the Lot 1 cost burden for this year within the next four deliveries. The good news is that margins on the G700 are expected to increase by 600 basis points to 700 basis points in Lot 2 and by a similar increment in Lot 3. By the time we reach Lot 3 production and deliveries, we will have reached a steady state in terms of productivity and predictability.
A few comments on predictability. You might recall that I told you we expected to deliver 50 G700s to 52 G700s this year and that the deliveries would be more or less evenly divided over the last three-quarters of the year, but we planned 15 for Q2 and delivered 11, so much for predictability. We actually had the remaining four completed and ready to go, but could not get through the pre-flight delivery testing in time. You might be surprised to learn that each G700 has flown about 30 hours of test before delivery. Two of the planes also needed a supplemental type certificate because of a very different cabin configuration. That wasn't done by the end of the quarter.
All right, back to some numerical comparisons. The sequential numbers are equally impressive. Revenue is up $856 million, a strong 41% increase and operating earnings are up $64 million, about 25%, affected by 130 basis point degradation in operating margins for the reason I just mentioned a moment ago. You will see much stronger operating margins in the third quarter, followed by even better operating margin and related earnings in the fourth quarter.
Separately, we still expect to deliver 50 G700s to 52 G700s this year, look for about 16 in the third quarter and 23 to 25 in the fourth quarter. From an orders perspective, we had a respectable quarter at 0.9 to 1 book-to-bill in dollar terms. There is strong interest in a fair pipeline across the product mix. As I noted last quarter, bringing transactions to a close has elongated somewhat as there is some caution while customers digest the impact of geopolitical events in general and the U.S. Presidential election in particular. The United States remains our strongest market, but the EU is improving. The Middle East shows very strong potential and just very recently, we have seen some improvement in China.
The interest level of buyers and the expiration of accelerated depreciation at the end of the year suggests a reasonably strong order intake in the second half of the year, particularly in the fourth quarter. We are pleased to have both G700 FAA and EASA certifications behind us. The aerospace comparative revenue and earnings numbers in the quarter are very good by any reasonable standard, but still behind consensus largely attributable to deliveries that did not make it to the wire. In summary, the Aerospace team had a very good quarter. It is handling the rapid increase in deliveries and revenue in a methodical and disciplined fashion. We look forward to a powerful second half with increasing revenue and earnings quarter-over-quarter as we forecasted at the end of last quarter.
Moving to the Defense business as a collective, we once again saw strong growth and good operating performance across the portfolio. Let me walk you through each segment in turn. First, Combat Systems. Combat Systems had revenue of almost $2.3 billion, up 19% over the year-ago quarter with growth at each of the three business units. Earnings of $313 million are up almost 25% and margins at 13.7% represent a 70 basis point increase over the Q2 last year. In short, very strong operating performance from Combat Systems. The increased revenue came from facilities expansion and artillery work in our ammo business, coupled with increases in international tank and wheel vehicle sales and U.S. Army programs of record.
Each of the businesses increased earnings nicely with particularly strong operating leverage in our international vehicle business. On a sequential basis, revenue increased 8.8% and earnings rose 11%. Year-to-date, revenue of about $4.4 billion is up 19.3% and earnings of $595 million are up almost $100 million or 20%. Combat saw robust order intake with over $3.4 billion awarded in Q2, resulting in a book-to-bill of 1.5 to 1 for the quarter. Orders came from across the portfolio ranging from ammunition to main battle tanks for the U.S. Army and wheeled vehicles for an international customer. Demand remained steady, particularly for the Abrams main battle tank and international wheeled vehicles. We expect demand for ammo to continue to rise for some time to come as we rapidly increase production of artillery shells and components. All in all, a very strong growth and performance quarter for Combat Systems.
Turning to Marine Systems. Once again, our shipbuilding group is demonstrating strong revenue growth. Marine Systems revenue of $3.45 billion is up $394 million, almost 13% against the year-ago quarter. Columbia-class construction and engineering volume drove the growth while Virginia-class and DDG-51 revenue also increased nicely. Operating earnings are $245 million, up $10 million over the year-ago quarter with a 60 basis-point decrease in operating margin. Margins were impacted by continued delays to EB from the submarine industrial base, partially offset by improvement in DDG-51 performance at Bath and continued steady performance at NASSCO.
Sequentially, revenue increased 3.7% and earnings improved 5.6% in Q2, driven by volume at EB as we saw some quarter-over-quarter improvement in supply-chain deliveries to the yard and continued positive performance at NASSCO. Year-to-date, marine revenue of $6.8 billion is up 12.1% and earnings of $477 million are up 7%. As I noted a moment ago, although the supply chain is improving in places, EB continues to be impacted by late deliveries from the supply chain, which both delays schedule and impacts cost. Out of sequence work on multi-ton modules is time-consuming and expensive. Our strategy, as you know, has been to increase our productivity to somewhat offset that impact. To that end, throughput, a significant measure of productivity continues to improve, hiring is good and attrition is lower, so all good signs. In summary, we are starting to see some momentum build in our shipyards to meet the delivery and repair requirements of our customer, the U.S. Navy. We anticipate that all of our yards are now well-positioned for slow but steady incremental margin growth over time with fewer perturbations.
Finally, Technologies. The Group had another good quarter with revenue of nearly $3.3 billion, up 2.5% over the year-ago quarter, and operating earnings of $320 million, up 13.1% on a 90 basis point improvement margin. This nice improvement in operating performance was across both businesses. GDIT margins increased 40 basis points and Mission Systems margins were up 130 basis points as they continue to recover from supply chain impacts experienced in 2023 and before.
Sequentially, revenue was up $81 million or 2.5% and operating earnings are up 8.5% on a 50 basis point improvement in margin. And the story is much the same for the year-to-date with revenue of $6.5 billion, up about 1%, and operating earnings of $615 million, up 5.7% against the first six months of last year. As a result, margins for the Group were up 40 basis points year-to-date to 9.4%. So all relevant comparisons this quarter show revenue and earnings growth and a margin expansion of both businesses, positioning them well going forward.
In short, GDIT is holding its industry-leading margins while consistently delivering year-over-year growth, while Mission Systems is delivering nice margin expansion as it transitions from sunsetting legacy programs. The Group received $3.3 billion in orders in the quarter, bringing the total of $7.2 billion for the first six months. That results in a book-to-bill for the Group of 1.0 for the quarter and 1.1 for the year-to-date. Total awards for the Group in the first half were up 30% compared with the first six months of 2023. This is on the strength of win rates consistently around 80% for the Group and capture rates at roughly 65%, both very strong for this industry. Backlog was down slightly from the end of the first-quarter due to the removal of backlog associated with an international divestiture in the quarter, but was up almost $200 million from a year-ago. As importantly, the qualified pipeline remains very robust at over $120 billion. So the Group is well-positioned to continue its growth trajectory.
Let me now turn the call over to Kim.
