Jason W. Aiken
Executive Vice President, Technologies and Chief Financial Officer at General Dynamics
Thank you, Nicole. Good morning, everyone, and thanks for being with us. The first thing I'll note is that our Chairman and CEO, Phebe Novakovic, is under the weather today, so I'll be conducting today's call along with Bill. Earlier this morning, we reported earnings of $3.04 per diluted share on revenue of $10.6 billion, operating earnings of $1.06 billion and net income of $836 million. Revenue was up $596 million or 6% against the third quarter last year. Operating earnings were down $41 million or 3.7%. Net earnings were down $66 million. And earnings per share were down 6.7%. So the quarter-over-quarter results show significant growth in revenue, but 100 basis point contraction in operating margin. On the other hand, sequential results are quite good across the board. Here, we beat last quarter's revenue by 4.1%, operating earnings by 9.9%, net earnings by 12.4% and EPS by 12.6%. From a different perspective, we beat consensus by $0.13 per share on higher revenue and better operating earnings than anticipated.
Operating margin is about the same as expected. The beat came almost entirely from operations. On a year-to-date basis, revenue was up 7.2%. Operating earnings were down less than 1%. And diluted earnings per share were down 2.6%. We had another very strong quarter from a cash perspective. Net cash flow provided by operating activities was $1.32 billion and free cash flow was $1.1 billion, which is 131% of net earnings. This follows very good cash performance in the first half. Order performance was good in the quarter in all segments and particularly strong at Gulfstream and the Marine segment. You'll hear more detail on cash and backlog as well as some of the other financial particulars from Bill in just a minute. In short, we enjoyed a strong quarter, particularly so in light of the supply chain and program mix headwinds that time will cure. So let me move right ahead with some color around the performance of the business segments. First, Aerospace. Aerospace had revenue of $2.03 billion and operating earnings of $268 million with a 13.2% operating margin. Revenue was down $315 million from the year ago quarter, driven by fewer deliveries at Gulfstream due to supply chain constraints. Operating earnings were down $44 million on lower revenue and a 10 basis point contraction in margin. The sequential comparison is much better. Revenue was up $79 million or 4%, and operating earnings were up $32 million or 13.6% on a 110 basis point improvement in margin. There were 27 deliveries in the quarter, three more than in the second quarter. To provide some additional color here, Gulfstream has made 72 aircraft deliveries through the end of the quarter.
We're on track to deliver between 40 and 45 currently in-service aircraft in the fourth quarter. All in, including G700s, we anticipate in excess of 60 deliveries in the quarter, assuming we're granted FAA certification before the end of the year. That said, as you can tell, there's a considerable amount of uncertainty as we get closer to certification. Moving to the demand environment. This was yet another positive quarter, reflecting continuing strong demand. Aerospace book-to-bill was 1.4:1 and Gulfstream alone had a book-to-bill of 1.5:1. We continue to have vibrant sales activity going into the fourth quarter and expect strong orders. It would, however, be a stretch to get to 1:1 in the fourth quarter, given our expectation of over 60 deliveries. A wildcard in the quarter will be the conflict in Israel and its impact on demand, if any. The period of significant increased aircraft demand began in mid-February of 2021, over 2.5 years ago. In 2021, Gulfstream's book-to-bill was 1.7:1. In '22, it was 1.5:1. And year-to-date 2023, it's 1.3:1. This includes the first quarter of 2023 when there was a 3-week hiatus in orders as a result of the failure of several regional banks. In that quarter, we still managed a 0.9:1 book to bill. All of this leads quite naturally to an astonishing build of the Aerospace backlog. It grew from $11.6 billion at the end of 2020 to $20.1 billion at the end of the third quarter 2023, an increase of over 70% in 2.75 years. This all speaks to me of the underlying strength of the market for our products.
The G700 flight test and certification program continues to move closer to its ultimate conclusion. We continue to plan for certification in the fourth quarter of this year, largely dependent upon the availability of FAA resources and the credit the FAA may allow for company flying. We currently are spending most of our engineering time on final reports and data submission. Operationally, Gulfstream continues to make good progress under difficult circumstances. But as a result of the supply chain issues that we've previously discussed, we plan to deliver 10 to 12 fewer aircraft this year than the 145 we had originally forecast in the beginning of the year. On the other hand, we continue to expect more service revenue than initially predicted. Next, Combat Systems. Combat Systems had revenue of $2.22 billion, up a stunning 24.4% over the year ago quarter with growth at each of the business units, but particularly at OTS and European Land Systems. Earnings were $300 million, which is up 10.7%. Margins at 13.5% represent a 170 basis point reduction versus the year ago quarter. So once again, we saw a powerful revenue performance coupled with more modest operating margins in large part attributable to mix and new program starts. Some of our revenue increase is a result of facilities contracts to increase our artillery production capacity taken at lower margins. As you'd expect, these contracts will result in additional production at accretive margins over time.
On the subject of munitions, we're working very closely with our government customer and have accelerated production faster than planned. The large capacity expansion that we're putting in place today will further increase production. We have ways to go, but we're making progress. The increase in combat revenue also came from new international vehicle programs, the ramp-up of the M10 Booker, higher artillery program volume and higher volume on Piranha and EAGLE vehicles in Europe. On a sequential basis, revenue was up $300 million or 15.6% and earnings were up $49 million or 19.5% on a 50 basis point improvement in margin. Year-to-date, revenue was up $775 million or 15.1% and operating earnings were up $53 million or 7.1% over last year. So the numbers are quite impressive quarter-over-quarter sequentially and year-to-date. Combat Systems experienced very good order performance. Orders in the quarter resulted in a 1:1 book-to-bill, a very strong performance given the increased revenue and evidencing strong demand for munitions and international combat vehicles. Year-to-date, the book-to-bill is 1.3:1, which fully supports the growth outlook. Turning to Marine Systems. Once again, our shipbuilding units are demonstrating impressive revenue growth. Marine Systems revenue of $3 billion was up $233 million or 8.4% against the year ago quarter. Columbia-class Construction and Engineering drove the growth.
Operating earnings were $211 million, down $27 million versus the year ago quarter with 160 basis point decrement in operating margin. The year ago quarter had a number of favorable EAC adjustments, which did not repeat this quarter. Sequentially, both revenue and operating earnings were down somewhat. Importantly, year-to-date revenue was up $982 million, 12.2%. However, earnings were essentially flat on a 90 basis point contraction in operating margin. The real driver of the margin difficulty has been the late deliveries of Electric Boat from the supply chain, which causes out-of-station work and internal scheduling disruptions. Electric Boat has continued to improve its throughput, but not fast enough to offset the cost of late material. We continue with the help of the Navy to work this issue. At Bath, while we're seeing signs of improved productivity, it is yet to manifest in the business' financial performance. All that said, we're looking for slow but steady incremental margin growth over time. Importantly, Marine Systems enjoyed a very good quarter from an orders perspective with a 2.3:1 book-to-bill. This is a very large enduring backlog. And lastly, Technologies. It was another strong quarter with revenue of $3.3 billion, which is up 8% over the prior year and continues to build on the strong first half of the year. That growth was spread pretty evenly between GDIT and Mission Systems. In fact, each business grew both year-over-year and sequentially.
At GDIT, we're seeing particular strength in the defense and federal civilian portfolios as our technology accelerator investments in capabilities like Zero Trust, artificial intelligence digital engineering and 5G are really resonating with customers and driving increased demand. At Mission Systems, the cyber and naval platform markets have been particularly strong. The production and delivery cadence on the hardware side appears to have stabilized, so we expect the results to be somewhat more predictable despite the lingering fragility in the supply chain that will continue to be the new normal. Based on the strength of the first three quarters, the group is on track to achieve our increased sales forecast of $12.7 billion for the year. Operating earnings in the quarter were $315 million, up 10.5%, yielding a margin of 9.5%. That's up 20 basis points year-over-year and up 70 basis points sequentially. So very solid performance on strong revenue growth in the quarter. This is a drumbeat we expect to see continue in the fourth quarter. Backlog at the end of the quarter was $12.7 billion. Through the first nine months, the group achieved a book-to-bill ratio of 1:1, keeping pace with the strong revenue growth across the business. Prospects remain strong with a qualified funnel of over $125 billion in opportunities they're pursuing across the portfolio. Let me close with a review of the defense units in aggregate. As a whole, on a quarter-over-quarter basis, defense had revenue of $8.54 billion, up $911 million or 11.9% over the year ago quarter.
On the same basis, earnings of $826 million were up $32 million or 4%. On a sequential basis, the pattern is similar. Revenue was up $340 million or 4.1% and earnings were up $57 million or 7.4%. Year-to-date against the same period last year, revenue of $24.7 billion was up 10.2% and operating earnings were up $60 million or 2.6%. In short, our defense businesses are experiencing significant growth in and, to a lesser degree, in earnings. However, we need to continue to work with our supply chain in order to achieve appropriate operating leverage. So with that, let me turn it over to Bill.
