Phebe Novakovic
Corporate at General Dynamics
Thank you, Howard. Good morning, everyone, and thanks for being with us. Early this morning, we have reported earnings of $2.61 per diluted share on revenue of $9.2 billion, operating earnings of $959 million and net income of $737 million. Revenue was essentially flat against the second quarter last year, but operating earnings are up $125 million and net earnings are up $112 million. Earnings per share up $0.43. To be a little more granular, revenue on the defense side of the business is up against last year's second quarter by $308 million or 4.2%. Aerospace is down $352 million, pretty much as planned. Operating earnings on the defense side are up $98 million or 14.3% and operating earnings in aerospace are up $36 million on a 390 basis point improvement in operating margin. The operating margin for the entire company was 10.4%, 140 basis points better than the year ago quarter.
From a slightly different perspective, we beat consensus by $0.07 per share on somewhat lower revenue than anticipated by the sell side. However, operating margin is 20 basis points lower than anticipated coupled with a somewhat lower share count, this led to the earnings feed. On a year-to-date basis, revenue is up $596 million or 3.3% and operating earnings are up $129 million or 7.3%. Overall margins are up 40 basis points. The defense numbers are particularly good with revenue up $752 million or 5.2% and operating earnings up $143 million or 10.3%. On the aerospace side of the business, revenue on a year-to-date basis is down $156 million or 4.3%, but earnings are up $16 million or 4% on a 90 basis point improvement in operating margins. The quarter was also very strong from a cash perspective. Free cash flow of $943 million is 128% of net income. Cash flow from operating activities was 151% of net income.
In summary, we enjoyed a very good growth in the defense businesses in the quarter and had a very solid quarter from an earnings perspective across the board. The year-to-date results give us solid start to the year and enabled us to raise our forecast for the full year, which I will share with you at the end of these remarks. So let me move right into some color around the performance of the business segments, have Jason add color around cash, backlog, taxes and deployment of cash, and then I'll provide updated guidance and answer your question.
First, aerospace. Let me put the aerospace results and some recent historical context, so as to put our performance into a perspective where it could be understood. As you recall, then in April of last year, we told you we were cutting production as the result of certain supply chain issues. It subsequently became clear that there was a reduction in demand related to COVID-19, that resulted in additional cuts to production. Those production cuts were implemented slowly over the ensuing months and reached their low point this quarter. You may also recall, that I told you last quarter that the second quarter would be the most challenging for Gulfstream because of these pre-planned production cuts. On the good news side of the story, we had anticipated renewed post COVID demand in the second half of this year and plan increased production for the second half. In short, you will see more deliveries, revenue and operating earnings in the second half as a result.
With that, let me turn to the aerospace results in the quarter. Aerospace had revenue of $1.6 billion and operating earnings of $195 million with a 12% operating margin. Revenue was $352 million less than the year ago quarter was 17.8% as a result of fewer planned aircraft deliveries. On the other hand, operating earnings are up $36 million or 22.6% on a 390 basis point improvement in margins. From a pure operating perspective, we did very well.
From an order perspective, the quarter border norm [Phonetic] is spectacular. In dollar terms, aerospace had a book-to-bill of 2:1. Gulfstream alone had a book-to-bill of 2.1:1, even stronger if expressed in unit terms. This is the strongest order quarter in number of units in quite some time. It was all the more remarkable and that it did not include any fleet sales. As previously discussed, sales activity truly accelerated in the middle of February and continued on through the remainder of the first quarter. The pipeline that developed in that quarter rolled over into the second quarter as is obvious from these results. We continue to experience a high level of interest, activity and a growing pipeline.
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 have delivered a 115 of these aircraft to customers as we speak. The G700 has approximately 1,600 test hours from the five test aircraft. We remain on track for entry into service in the fourth quarter 2022, but much remains to be accomplished, particularly with respect to the certification of the new Rolls-Royce engine. Looking forward, we have planned 32 deliveries in the third quarter and 39 in the fourth. If all goes well, we may be able to bring in a few more forward from the first quarter 2022 to meet current demand.
Turning to Combat Systems. All of the comparisons Combat Systems quarter-over-quarter sequentially and year-to-date are quite favorable. Combat Systems has revenue of $1.9 billion, up 8.3% over the year ago quarter, while Ordnance and Tactical Systems did well. The primary source of growth was combat vehicles Above [Phonetic] Land Systems and European Land Systems. So, all in all very good growth. It is also interesting to observe the Combat Systems revenue has grown in 17 of the last 19 quarters on a quarter over the year ago quarter basis. For the first half of the year, Combat Systems revenue was $3.7 billion is $257 million or 7.4% over the first half of last year. Operating earnings for the quarter at $266 million are up 11.3% on higher volume and a 40 basis point improvement in margin.
For the first half, Combat Systems earnings of $510 million are up $48 million or 10.4% over the last year's first half. The quarter was also good for Combat Systems from an order perspective with a 1:1 book-to-bill, leaving a modest increase in total backlog. Demand for our products, particularly our combat vehicles remained strong with Europe leading the way. Abrams main battle tank demand is also increasing and the Stryker remains the Combat Vehicle of choice for multiple U.S. army missions and operations. This was an impressive performance once again by Combat Systems.
Marine Systems revenue of $2.54 billion is up $65 million over the year ago quarter. It is also up sequentially in year-to-date. In the quarter, the growth was led by the DDG-51 and T-AO volume. Submarine construction was stable with increases in Virginia Block V and Columbia offset by a decline in Block IV and engineering. For the first half, revenue was up $302 million or 6.4%. This is very impressive continued growth, in fact revenue in this group has been up for the last 15 quarters on a quarter versus the year ago quarter basis. Operating earnings were $210 million in the quarter, up $10 million or 5% on operating margins of 8.3%. You may recall that we experienced a strike [Indecipherable] last year. I'm pleased to report that our relationship with the union is strong and we are both committed to improving back performance. NASSCO is coming down the learning curve on the ESV is nearing completion on the first of the new Iolair. Repair was also strong.
Electric Boat performance remains strong and while early in the Columbia first ship construction contract, the program remains on cost and schedule.
Finally technologies. The segment has revenues of $3.16 billion in the quarter, up $98 million from the year ago quarter or 3.2%. The revenue increase supply by information technology, mostly associated with the ramp up of new programs with almost 10%. Mission Systems experienced a modest decline in revenue, driven by the [Indecipherable] business last year and the shortage of chips for certain products, which we are working to remedy in the second half. Operating earnings at $308 million are up $61 million or 24.7% on a 9.7% operating margin. EBITDA margin is an impressive 13.7%, including state and local taxes, which are a 50-basis-point drag on that result. Most of our competitors carry state and local taxes below the line.
Total backlog grew $95 million, so good order activity in the quarter with a book-to-bill of 1.1 and good order prospects on the horizon. The book to bill at IT was a little better than 1:1 and somewhat less at Mission Systems. This is particularly good performance in light of the continued delays by the customer and making contract awards. In total, GDIT has nearly $34 billion in submittals awaiting customer decision with most representing new work. In addition to these submittals, our first half order book does not reflect approximately $4.6 billion of awards made at GDIT that are now in protest, including two sizable contracts challenged by a competitor. These delays are pushing work we anticipated delivering in the second half of 2021 to 2022. While new award activity has generally been slower, new requests for proposals to remain robust. GDIT's hefty submittal from the first half reflect significant customer demand for modernization and securing IT infrastructure in the wake of COVID. Business had the opportunity to submit another nearly $20 billion in proposal through the end of the year. This concludes my remarks with respect to a very strong quarter and first half.
I'll now turn the call over to our CFO, Jason Aiken for further remarks to provide you some guidance.
