General Dynamics Corporation (NYSE:GD) Second Quarter 2022 Earnings Conference Call July 27, 2022 9:00 a. m. m. ET
Participating companies
Howard Rubel – Vice President, Investor Relations
Jason Aiken, Senior Vice President and Chief Financial Officer
Bill Moss – Vice President and Corporate Controller
Conference Call Participants
Robert Stallard – Vertical Search
Seth Seifman – JPMorgan
David Strauss – Barclays
Ron Epstein – Bank of America
Robert Spingarn – Melius Research
Doug Harned – Bernstein
Peter Arment – Baird
Sheila Kahyaoglu – Jefferies
Cai von Rumohr – Cowen
Operator
Hello and welcome to the General Dynamics Quarter 2022 Earnings Convention call. My call is Brica and I will be your event specialist today. [Operator Instructions]
Now I have the excitement to pass the baton to our host, Howard Rubel, Vice President of Investor Relations. So, Howard, go ahead.
Howard Rubel
Thank you operator and hello everyone. Welcome to the General Dynamics convention call for the current quarter of 2022. All forward-looking statements made constitute our estimates relating to the Company’s prospects. These estimates are subject to certain risks and uncertainties.
Company documents 10-K, 10-Q and 8-K contain additional data related to those points. We will also refer to certain non-GAAP monetary measures. GAAP measures, please refer to the slides accompanying this webcast found on the Investor Relations page of our website, inverterrelations. gd. com.
Having done that, I’d like to pass it on to our senior vice president and chief financial officer, Jason Aiken.
jason aiken
Thank you Howard. Hello everyone and thank you for being with us. Before we begin, I must tell you that our president and CEO, Phebe Novakovic, cannot register for us this morning. don’t worry, she’s putting herself back in canopy and it’s okay, however, she asked me to make canopy on today’s call.
With me is Bill Moss, our Vice President and Corporate Controller, who will cover some of the major monetary points I would cover. So, with that, let’s move on to the results.
This morning, we reported earnings of $2. 75 consistent with a consistent diluted percentage of revenue of $9. 2 billion, a consistent source of revenue of $978 million, pre-tax earnings of $923 million and a net source of revenue of $766 million.
Revenue remained necessarily stable compared to the current quarter last year, but consistent with the cumulative revenue stream up to $19 million. Profit before tax increased to $42 million and net source of revenue to $29 million. to $0. 14, a cumulative of 5. 4%.
To be a little more specific, we benefit from profit increases in Aerospace and Marine Systems offset by decreases in Combat Systems and Technologies. We also saw an improvement in margins in 3 of the 4 segments, resulting in higher operating and pre-tax earnings than in the past. quarter of the year.
From another consistent perspective, we exceeded the consensus of $0. 03 consistent with the percentage reduction in revenue, but a higher than expected margin through sellers. This led to the modest increase in profits.
Since the beginning of the year, revenue, for all intents and purposes, was on par with the first part of last year. Similarly, the source of operating income remained necessarily stable, but the source of pre-tax income increased by $46 million, net source of revenue above $51 million, and EPS above $0. 25, or only about 5%.
During the quarter, loose money of $435 million accounted for 57% of net income. Cash from operating activities accounted for 86% of net income. That was pretty smart in light of the hard money in the first quarter. Loose money to date of $2. 3 billion accounted for 151% of net income.
In short, we had a solid quarter due to a profit attitude and the effects since the beginning of the year give us a smart start to the year. Let me move directly to the color around the performance of the business segment, ask Bill to load the color around the money flow, order book, taxes, and money deployment, and then I’ll provide up-to-date guidance. I’ll make sure to be brief to leave enough room for questions.
First of all, aerospace. Aerospace reported revenue of $1900 million, an operating revenue stream of $238 million and an operating margin of 12. 7%. FBO at Jet Aviation. La source of operating income increased $43 million or 22. 1% thanks to a margin improvement of 70 basis points. Therefore, the accumulation in sales volume along with the improvement in margins leads to very smart operating leverage.
We recorded an improvement in earnings in just 22 deliveries. We did not deliver the 4 G500s and 600s that were scheduled to be delivered in the quarter. They were postponed at the request of consumers in the 3rd quarter pending the elimination of the FAA’s wind directive. However, nine G500s and 600s were actually delivered to consumers during the quarter. As a result, we delivered nine of the thirteen that were planned for the quarter. From the point of view of orders, once again we have been very successful. In dollar terms, the aerospace industry had a book-to-turnover ratio of 2:1. Only Gulfstream aircraft had a turnover ratio of 2. 7:1, even higher if expressed in terms of units.
As previously reported, sales activity actually accelerated in mid-February 2021 and continued through the current quarter of this year. With a new product perspective, the G500 and G600 continue to perform well. Margins are improving and quality is excellent. We are making smart progress in verifying the flight of the software update for landing and maximum winds and expect the withdrawal of the FAA directive in mid-September.
You may remember that last quarter we informed you of a threat of a three- to six-month delay for G700 certification in the current quarter of 2023, due to time-consuming jobs to validate model-based software. Because of the flight of scientific engineering resources we needed to redistribute to cadres similar to the landing and wind restriction on top of the FAA’s G500s and 600s, the threat to the G700 calendar has become a reality. As we have already indicated, this will not have a negative effect on our monetary plan for 2022 and 2023. We are confident that the G800 will remain the G700 for about six months. For the future, we have planned 123 deliveries for the year and we hope that this will be the case.
Combat Systems reported a profit of $1. 7 billion, down 12. 3% from last year’s quarter. Revenues were affected through Ajax in the Land Systems and ELS pump bodies in OTS and in some programs. Operating profit source of $245 million decreased 7. 9% compared to last year’s quarter, with a 70 basis point improvement in margins. Operating margin 14. 7%. On a sequential basis, earnings were very similar to the first quarter, but the operating source of profit increased 7. 9% or $18 million thanks to a 110 basis point improvement in operating margin. In the first part of the year, Combat Systems’ profit declined 10. 2% and the operating source of profit fell just 7. 5% in a margin improvement of 40 basis points.
In June, Land Systems won the Mobile Protected Firepower contract, the first completely new combat vehicle for the military in decades. The initial value of LRIP-1 is $410 million for 25 cars. 2026. The overall requirement of the program is 500 cars for more than $5 billion. The program fills a critical gap in the Army Infantry Brigade’s combat force and we plan to put it into effect quickly.
The quarter was very smart for combat systems from an order perspective, with an order-to-turnover ratio of 1. 4:1, resulting in an accumulation in the overall order book and estimated value of the prospective contract. Demand for our products, especially our combat vehicles, remains strong with Europe leading the way. International ordering opportunities for Abrams are strong. Again, this is an impressive operational functionality for the Combat Systems Group in a limited profit environment.
At Marine Systems, profit of $2. 65 billion increased to $115 million compared to last year’s quarter. Solid sequentially, but increased since the beginning of the year. During the quarter, expansion led through Columbia, TAO and fixed volume. For the first time part of the year, earnings rose to $283 million or 5. 6%. This is a very impressive non-stop expansion. Source of operating profit $211 million in the quarter, necessarily strong compared to the prior-year quarter, due to a 30 basis point relief in margin.
The margin reduction is a result of the influence on Electric Boat of more planned delays in Virginia’s supply chain program as it struggles to recover from COVID. EB is operating strongly with the Navy and suppliers, adding on-site operations integration and body of engineering workers to repair the mandatory speed of the Virginia program. However, the functionality of electric ships has remained strong, and although it is still at the beginning of Columbia’s first shipbuilding contract, the program is in charge and as scheduled. The overall order book of approximately $42 billion remains strong and is by far the largest of our operating groups.
The segment posted a profit of $3 billion in the quarter, a decrease of $158 million from last year’s quarter or 5%. Two-thirds of the decline was attributed to Mission Systems, largely due to its ongoing fight against a chip shortage that continues to hurt its ability to deliver certain products. In contrast, the $304 million source of operating profit decreased just $4 million or 1. 3% due to a 40 basis point improvement in operating margin to 10. 1%.
The EBITDA margin was an impressive 14. 1%, adding national and local taxes, which weigh 50 basic problems in this result. GDIT’s operational functionality was strong, 140 more core issues than in last year’s quarter. These are the largest margin figures in the industry. . Technology recorded smart order activity in the quarter with an order-to-billing ratio of 1:1 and smart order customers on the horizon.
Mission Systems has won smart orders for many of its product offerings, especially those affected by chip shortages. The IT pipeline remains healthy in most of our federal IT lines of business as the government continues to modernize and upgrade its project systems. GDIT has the opportunity to present $35 billion in opportunities this year, adding $17 billion in the third quarter, of which the maximum represents new work.
This concludes my comments about a false quarter and first half. I will now pass the call to Bill for more feedback and then provide our updated tips.
invoice mousse
Thank you, Jason, and good morning. Starting with the monetary functionality of the quarter. From an operational monetary perspective, we generated over $650 million, which, after our strong functionality in the first quarter, brings us to over $2. 6 billion for the first six months of the year. This was achieved once back, thanks to Gulfstream’s backlog of orders and additional charges from our giant foreign combat vehicle contract, which continues to earn invoices as planned in accordance with the contract restructuring that took place in 2020.
Including capital expenditures, our loose money was $435 million in the quarter and $2300 million year-to-date, resulting in a conversion rate of 151% year-to-date. The robust functionality so far strengthens our outlook for the year of loose money. translation of one hundred percent or more of net income.
And, of course, as a reminder that the perspective presupposes the existing law regarding the fiscal remedy of the expenses of studies and progression. If Congress makes the decision to postpone or cancel the existing investment requirement, we expect a loose flow of money for the year. be equal to or greater than 110% of net income.
For capital implementation, capital expenditures were $224 million in the quarter, or 2. 4% of sales. This is more than last year, in line with our forecast of about 2. 5% of sales for the year. For the first six months, we are closer to 2% of sales, however, 2. 5% is still our target for the total year. We also paid $349 million in dividends and spent approximately $800 million on the repurchase of 3. 6 million shares. This brings buybacks to date to 4. 9 million shares for just $1. 1 billion.
The net source of revenue at the end of the current quarter was a cash balance of $2. 2 billion and net debt of $9. 3 billion, a decrease of more than $2 billion from the same era last year. As a result, net interest expense for the quarter was $95 million, compared to $109 million in the current quarter of 2021. This brings interest expense for the first part of the year to $193 million, compared to $232 million for the same era in 2021.
At this time, we continue to expect our interest expense for the year to be approximately $380 million, adding the assumed payment of $1 billion of notes due in the fourth quarter. partial rate at 15. 6%, so it does not replace our full-year outlook of 16%. But, of course, this implies a rate of around 16% for the current part of the year, to achieve this result. , we expect the rate to decrease somewhat in the third quarter and increase in the fourth.
Order activity and order book were strong again in the current quarter with an order-to-turnover ratio of 1. 1:1 for the company as a whole. , which is the fifth consecutive quarter in which the group’s booking-to-turnover ratio is 1. 6 times or more.
As a result, the aerospace order book has increased by more than $5 billion over the past year, a cumulative of nearly 40%. During the quarter, we completed negotiations on the restructuring of the last of our agreements with a fractional aircraft operator. , resulting in approximately $300 million relief in the aerospace order book and $900 million relief in aircraft options. beyond.
On the defense side, combat systems and technologies also recorded solid quarters with 1. 4 times and 1 time book-to-bill respectively. $300 million to date.
By the way, exchange rate fluctuations also had a negative effect on Combat’s earnings of $65 million in the first part of the year, with the euro falling almost on par with the dollar. We ended the quarter with a total order book of $87. 6 billion, while the overall prospective price of contracts, adding IDIQ features and contracts, was $126 billion.
That concludes my remarks. I’ll be giving Jason the floor back to give you an update on our 2022 forecast and some abstract comments.
jason aiken
Thank you, Bill. Let me do my best to provide you with an up-to-date forecast. The figures I’m about to give you are all compared to our January forecast, which I won’t repeat. However, there is a table about this that will be published on our website, which will be useful.
In the aerospace industry, we expect an additional profit of $200 million with an operating margin of approximately 12. 9%, 10 basis points above our previous guidance. aircraft in the year.
On the defense side, Combat Systems is expected to be behind our earnings with an improvement of up to 50 basis points in operating margin. That’s an overall profit of about $7100 million and an operating margin of about 15%.
There is no replacement in Marine Systems’ earnings, a margin reduction of 30 basis points. That’s an annual profit of $10. 8 billion with an operating margin of about 8. 3%, for the reasons I outlined above.
Technology gain will be in the midst of expected earnings diversity with the same operating margin driven through GDIT with year-over-year growth of 3. 5%. Therefore, for the group, we expect an annual profit of approximately $12. 9 billion with a margin of approximately 10%.
As a result, across the company, we expect annual profit to be as reasonable as possible from our initial direction and an overall operating margin of approximately 10. 8%, which remains unchanged. our previous third class range. In short, we expect only a slight deviation from our initial forecasts.
That concludes my comments, and we will be happy to answer any questions you may have.
Howard Rubel
As a reminder, we ask participants to follow up, so everyone has a chance to participate. Operator, remind participants how to enter the queue.
Q&A session
Operator
Thank you. [Operator Instructions] We have our first consultation from Robert Stallard of Vertical Research. Move forward as soon as you’re ready, Robert.
Robert Stallard
Thank you so much. Hello.
jason aiken
hello roberto
Robert Stallard
Jason, I’ll start with one for you. The big question we’ve gained from other people is what the impact on business jets and the aerospace department of a slowdown in the global economy might be. I was wondering if you could give us some perspectives on what this might look like. and how is the aerospace industry positioned differently than it was in 2007-2008?
jason aiken
So, I think the peak vital point here, Rob, is the physically powerful nature of the call that we’ve noticed so far, the order activity that has resulted in the large backlog of orders that this provides us. Not to speak frankly, and Bill talked a little bit about it in terms of cleaning up the quarter, but the sustainability of the order book that continues to increase the quality of that order book as we go along.
So obviously we can’t wait for when and what any kind of slowdown will look like. There is a lot of communication in the market about interest rates, inflation, the possibility of a stock market recession, etc. But to be honest with you, we haven’t yet noticed an effect on this in terms of our order book and the resulting order activity. Customer demand is still very strong. We continue to see that as we enter the third quarter here.
And I think the negative line between the duration of the order book, the ongoing order activity and the sustainability of this order book, which at this level exceeds 2. 5 times our annual sales for the group. Without prejudice to the option of an economic slowdown or similar conditions, we remain very confident and determined in our outlook for the next two years we have provided in terms of 2023, 2024 and beyond.
Robert Stallard
It is ok. Merci. Then, as a follow-up, he discussed the AJAX program in the Combat Systems division. Could you give us an update there and how it will develop from here?Thank you.
jason aiken
Of course. So the program is moving forward. Testing of the vehicle continues and continues to frankly verify the functionality of the vehicle that we have seen to date. When it comes to some of the things the visitor focused on when they came to the vibrations in the vehicle, some considerations that emerged some of the early visitor tests were resolved at this point. And lately we are working with visitors to ensure the right communication equipment.
So I think the key here at this point is that it will all depend on how temporarily approvals can pass through the formula as we go through this series of deliberate, time-consuming tests, as would be the case in any new platform progression program. Frankly, it’s not incompatible with the experience we expect in any new platform progression.
But as I said, we continue to work with the consumer and he continues to assure us of his commitment to the program as well as his desire for this transformative capability. So, it’s a way forward, keep moving forward and we hope to see ourselves in the other aspect of this era of testing and testing early and forward and up with the program.
Operator
Now we have an online message from JPMorgan’s Seth Seifman. Continue when you are ready.
Seth Seifman
Thank you very much and good morning.
jason aiken
Hello Set.
Seth Seifman
Just for starters, I’m sure I won this consultation several times, but when it comes to the G500 and six hundred advancement and touchdown restriction, it looks like it’s still on track for it to be removed this quarter. And whatever color you can give about what gives you confidence given that Gulfstream, I think, has done all its work, but does it have the FAA to do its job?
jason aiken
No, you summed it up well, Seth. The fact is that we have finished the hotfix for this problem. It has been developed. It has been tested. It was stolen. Therefore, we have great confidence in the effectiveness of this software patch. And lately we’re working with the FAA Gulfstream and the FAA running simultaneously on the initiative of this airworthiness directive. no later than mid-September. In his opinion, we rely in part on FAA resources to make this happen. But they’ve been very smart about it. They dedicate the resources we believe are needed and the teams work together. And now, everything seems to be on track to fix that, until the end of the third quarter.
Seth Seifman
According con. Merci. Et then only as a follow-up in the aerospace industry. This might be a crude measure, but just looking for the consistent gain with aircraft during the quarter, it looks pretty solid. But obviously, not necessarily have all the information about the combine and the price and things like that. Can you tell us what the expansion of the service has been to help us focus on that?Did this have an effect on quarter profits or other backlog mechanisms?Did it have effects on profits?
jason aiken
On the facilities side, therefore, we recorded a very strong expansion in the quarter. This continues a trend we’ve noticed since we came out of the pandemic, adding some sort of buildup in flight hours as flight activity resumes around the world. , as well as FBO activity in our Jet Aviation business, specifically on the US side. So I think we had a year-over-year expansion of over 35% at some point in the quarter, in the facilities business. the year.
As I mentioned earlier, we still expect our 123 aircraft deliveries for the year. Therefore, a few hundred million dollars of additional profits for the year come from this service aspect of the company. And I know you referred to cleanliness, we discussed accumulation, however, I missed the last component of your question. Does it bother you to repeat what you meant? Sorry, Seth. I’ve taken the line again.
You may have sought to know whether the cleanup of the buildup has affected revenue or other facets of the aerospace outlook. And the fact is, no, we’re in good shape there. Discussed in the comments was similar to an ongoing negotiation we had with our last significant fractional consumer in this backlog, and we reached an agreement with that consumer, got rid of some of the planes, and expired some of the features there. And none of those activities have an effect on the company’s prospects. Therefore, all forecasts remain intact.
Seth Seifman
Super. Thank you.
jason aiken
Operator, I hope we have our question.
Operator
Now we have the next one by David Strauss from Barclays. Your line is open, David.
david strauss
Thank you. Hello.
jason aiken
Hi David.
david strauss
Jason, when we were at Gulfstream in June, you spoke. Gulfstream talked about being in about 70% of the software validation check in the 700. Can you give us an accurate update of where you are today?
jason aiken
Oui. Je we do not have an accurate figure on the 70% update. Obviously, progress in this software validation has slowed down a bit by the fact that we’ve had to divert non-unusual resources in terms of flight science engineers to 500 and six. one hundred patch. So, as I mentioned earlier, that’s what’s kind of a confirmation of our threat in the 700’s access to the service slippage. So there’s been modest progress there, but call it in that diversity of over 70%. it remains where we are at this point. Once we have approved this solution on the airworthiness directive, we will reallocate those resources to this program and move forward to the date of the HIA update.
david strauss
It is ok. And as a follow-up, can you update us on the source string?Are there any restrictions you see on the Gulfstream side?I think when we were there, he communicated about some shortcomings on the engine side. What do you think of Gulfstream’s global supply chain and its ability to succeed in those 123 deliveries throughout the year?
jason aiken
So, as you mentioned, the chain of origin is definitely, not to sweeten it, it’s an ongoing challenge for the industry. It’s no wonder or secret that I think the aerospace advertising industry had a fragile chain of origin even before COVID hit. it’s probably not unexpected that this has only been exacerbated. And I would say it’s a daily struggle. But having said that, I don’t think there’s a team that I would have liked to deal with this factor than the Gulfstream team there. They have other people incorporated into the supply chain who actively manage those challenges with our partners to help them meet our customer commitments.
So I think there may be vendor to vendor issues and it is an active monitoring activity that is taking place. It is vital to consider the effect of any component or subsystem or otherwise on the total lead time of the aircraft production procedure and ultimately on the delivery schedule. So just because, say, a component is missing by its due date, will it necessarily have an effect on the overall aircraft finishing touch or customer delivery between the workaround our team has and other efforts to maintain the overall flow of moving aircraft, we don’t see any of that having an effect on the delivery customers that we have for the year.
Obviously, those kinds of activities are not optimal. We need this to be corrected frankly to gain advantages from the entire ecosystem. But we still have great confidence in the Gulfstream team to take on the challenge and they will be successful in delivering their aircraft. forecasts for the year.
david strauss
Thank you so much.
jason aiken
Of course.
Operator
Thank you for that. Now we have the following query from Ron Epstein of Bank of America. Pass when you’re ready, Ron.
Ron Epstein
Yes. Hey, thank you. Hello everyone.
jason aiken
Hi Ron.
Ron Epstein
A question for you: go back to the chain of origin, but focusing a little more on defense. So, it turns out that in Gulfstream they handle the limitations well. But it turns out that he has much more flexibility in his business affairs than in his defense affairs.
And one of the issues that turned out to have come out of this quarter is that, because of the way defense contracts are done, we continue to hear the shortage of A, B, and C. Is there anything you can do about the chip shortage by buying stocks in advance, or are you so limited by the kind of fabric takeover regulations that you can’t do that?Because it turns out that defense is that kind of just-in-time activity, yet we’re in a kind of global just-in-time event that you perceive the essence of the problem.
jason aiken
Sí. No, that’s a wonderful question. Ron and I are going to break this down into two facets of our business, namely the short-term aspect and the long-term aspect. And the room where we see a bigger short-term challenge and you referred to the chip shortage, is the Mission Systems component that we’ve been talking about for a while now.
And again, that’s because they’re quick orders. They are product-oriented. They have those chips and you want to get them out. And obviously, those are highly designed high-end design engineering products. So, in his opinion, the specifications are specific.
That said, first of all, I think the team is doing a wonderful job of looking to expand the solutions. They are there to ask for portions in advance where they can. It is difficult to make a position for themselves because it is a challenge that affects not only the industry, but the economy in general, however, they are doing their thing on this front.
They also try to replace designs, replace designs, settle for select portions where they can and be as agile as you can imagine on that front, but it evidently takes a while. I think what’s vital to this aspect of the business is just programming. factor that we have noticed here.
If you take, for example, the current quarter and the product that couldn’t be shipped at the end of the quarter, we saw that the vast majority of them were shipped in the first month of the third quarter. That’s how it happens. That’s not to say we’re still out of the woods. I think that’s going to be something that’s going to worry us for the rest of the year and it’s going to extend a little bit into next year.
But the thing is, he noticed some of the most powerful visitor ordering activities in this area. So I think it’s just a matter of time. We will get there and the call for orders is there to continue for the rest of this year and beyond. So, it’s kind of a short-term aspect of the business.
The other vital facet of the supply chain that we see frankly is a little different. This is frankly the longest aspect of the business and it’s in the shipbuilding aspect. And there, it’s less about portions or hardware availability. These are the availability of labor, the value, and availability of professional labor. And so we’re finding that the supply chain is affected for us.
And for us, it focuses primarily on the Virginia Class program. When you think of NASCO on the West Coast and, frankly, Columbia’s program at Electric Boat, everyone is succeeding at this rate. But on the Virginia show, the source network stumbled a bit. more.
And when you think about it, we’ve been working hard even before COVID to increase our resources on those systems to two Virginias a year, as well as the addition of Columbia. And we had a pretty smart headwind on that. And then COVID gets it right and instead takes two steps back, or at least one break instead of having to take two steps forward.
So when she thinks about shipbuilding and the nature of this activity, such a surprise for the formula can hit her quickly, but it only takes time for her to recover. And that’s what we’re seeing on the Virginia show as the origin network. struggle to catch up and get to the speed you want to be at.
But again, like Gulfstream and Mission Systems Electric Boat, we have all the resources we can put to use and all the sense of urgency to apply to this supply chain. And once we can set that timeline, I think we’re going to be back to normal. But in the meantime, this schedule extension involves pricing and this charge has an effect on margins and this is what affects our outlook for this business. That’s right, I’m looking to give you a complete answer as much as you can imagine about the chain of origin because it touches on the side of defense. So, from my point of view, it’s a kind of anyone on the spectrum.
Ron Epstein
If I understood. And then, maybe just a quick follow-up to the fight. With all the awards that have been awarded and the activity in Europe, when do you think this will have an effect on the company?When would you expect to see this kind of, at least on the front line?
jason aiken
Yes, smart question. I need to take a step back and explain a little bit what we saw in the first part of this year and then what that means for where we’re going. Obviously, in the early part of the year, we theoretically fell a little more than you expected given our outlook for the full year. I think we have about 10% less since the beginning of the year.
If you do some quick checks, you’ll see that what really worked last year, our quarter-consistent profit has been essentially consistent throughout the year, first quarter, momentary quarter, third quarter, which actually contrasts with testing and the actual year. Cycle that we see in the fighting systems and we see frankly this year that is a sequential scale, so to speak, the lowest in the first quarter, going up to the fourth quarter.
So this created a bit of a headwind in terms of year-over-year comparisons. But we’re still based on how the part of the moment is going, we still expect to be at the back of our earnings forecasts. So what does this imply? This implies an expansion of around 3. 5% at the present time compared to the current time last year and I believe that this can be achieved imminently through this group.
But regardless of what you say, there is a lot of activity in this market. Obviously, as I mentioned before, the MPF award is for us. It is an additional area totally new in the fighting design of the infantry brigade there. Ask for signals abroad, as he discussed. Obviously, we are taking advantage of the opportunity of tanks in Poland. There are other opportunities for foreign tanks as I have already discussed.
And then he alluded to some kind of foreign order and everyone has a suspicion that everything that is happening in Eastern Europe will lead to significant expansion for the defense side. And, in fact, we see those orders.
I think the key we all want to stay in the brain here is to stay and check our time expectations. The call to signals is there. We have a normal discussion and an ongoing verbal exchange with those clients about this interest. But it only takes time for interest to be converted into budgets to convert into credits to convert into contracts to become income.
So, I think all of this is consistent with our long-term perspective that through 2024 and beyond, we see a big upward trajectory in systems of struggle. We’re still talking about an average low- to single-digit expansion, but we see a tipping point. expanding during this era and all this is going in that direction.
But in the meantime, I would like to reiterate our insistence that Combat Systems and history are marginal. what happens in the most sensitive line.
Operator
Merci. La next one comes from Robert Spingarn of Melius Research. Your line is open Robert.
Robert Spingarn
Hey HELLO.
jason aiken
Good morning.
Robert Spingarn
Jason, I just need to go back to the paintings and communicate about all the corporations you’re in, obviously, you said that shipbuilding is complicated. So this is perhaps the most complicated area. But when you take a look at the total enterprise, what is the status of skill acquisition?
jason aiken
Yes, you talked about it, Rob. The shipbuilding aspect is the most difficult. We saw this in all the New England shipyards when we tried to expand. And frankly, it’s the two shipyards in EB and Bath that we have the maximum opportunities to develop.
And so it has: it’s not like many other industries where you hear about remote paintings the ability to attract other people from all over the country and around the world. It has to get the shipbuilders in those states and regions to do it. paintings, and that’s the challenge.
The good news is that we, as I mentioned long before COVID, had accelerated and expected acceleration. And so we put in position a lot of resources, as well as wonderful partnerships in national and local degrees to get the kind of trades and apprenticeships. schools, etc. , to make that happen.
So I think the resources are in place. We just want to maintain our processes, maintain our operational education capabilities and we can catch up with that. It will simply take time. And again, that’s the kind of nature of shipbuilding and that’s a challenge that those groups are taking on. When you look at the other end of the spectrum, I think it’s all about GDIT. And obviously, they’re in a hyper-competitive market for hyper-skilled skills, and that’s getting more competitive all the time. I think the leadership positions they have in their markets, the strong culture they have and continue to expand with that workforce and the opportunities they have offering their workforce within the company, to continue, I think, to put them in a smart position to be competitive and retain and expand that skill, that is, I’m not going to end it, it’s a war for skill every day.
And we just have: it’s our job to stick to that and overcome our weight, and keep retaining and attracting the kind of skill they want to do this task and as this business grows. So those are like the two ends of the spectrum. I think the other area, which we’re following closely, is Gulfstream. Obviously, with the expansion they have, you want other people to do it. I think you shouldn’t underestimate the challenge they have, however, I think they have A very clever task to keep up and I don’t see it as a nail, a detail for Gulfstream right now. There’s nothing we can take away from the ball, and they have to move on, but they think they’re in a position to meet that challenge as well.
Robert Spingarn
It is ok. And then just as a follow-up, going in particular to Electric Boat and the rise of Columbia and the state of the paint force, you just talked about that. Have we noticed that paint packs were moved between Electric Boat and Newport News, in order to manage volumes and cope with the shortage of hard work, either for you or for them?
jason aiken
So, Rob, I hate giving you that answer, but that’s the kind of thing I don’t think, I probably deserve to go into too much detail. Notoriously we painted a lot with them as a teammate in Virginia, as well as our subcontractor in Columbia. It’s a three-part verbal exchange between us, Newport and the Navy, to make sure we’re doing everything we can for this visitor and the expansion he needs. And I think the most important message is that we’re going through doing everything we can for that visitor and we’re working together as a team to make this happen. And on both sides, I think there’s reciprocity around that, it’s very vital and very favorable. Then. . .
Robert Spingarn
It is ok. That’s fine with me. Thanks guys.
jason aiken
Of course.
Operator
Now we have the next one on Bernstein’s Doug Harned phone line. Continue when you are ready.
Doug Harned
Hello. Hello. Thank you.
jason aiken
bonjour doug
Doug Harned
Bonjour. Je was looking to see, if you can give us a glimpse of Gulfstream’s command mix. Do you give us a concept of the composition and how do you see the production of the G650 over time?
jason aiken
Yes, you’re sure to be right. The G650’s ordering business continues to be strong, frankly, even beyond what we think would possibly be cautious. clarified for our market and our customers, where we are with this circle of aircraft relatives. And that clarifies what the 650 is in terms of opportunity for those customers. So, I think this plane still has legs.
Not to be mistaken, the 800 replaces the 650. When the 800 enters service, we will change the 650. There could be a slight overlap when we move from one to the other. But I think this is exaggerated since in the 650 it gives us many options. This gives us an opportunity, if this call by the environment continues. As for our prospects for 2023 and 2024, we’ll have to see how this plays out. It also gives us the opportunity to address some of those issues that we’ve discussed with the certification process. Like the 700 slips, we will not back down from our commitments to delivery units, revenue and profit forecasts we have given for 2022, 2023 and 2024. And frankly, the call for 650 contributes to this, as well as the call for environment in general.
And at this point, kind of questions asked about the entire portfolio. And I think there are questions and hypotheses between the network about the airworthiness directive and what it might mean for the 500 and 600. And I repeat, we delivered the vast majority of the plans we finished doing this quarter. We expect this to be resolved by the end of the third quarter.
And when you take a look at the order activity in the current quarter, I think the 500 and the six hundred were part of the order activity that we had. Therefore, there are no signs of slowing down. Our consumers perceive what this little bump in the road is and therefore those platforms are still very compatible.
So, in all grades, and I didn’t even mention the G280, which still has one of the top order requests. I think the area in the middle of the cabin has taken a step forward as a result of COVID. So, in all grades, in the portfolio, we’re seeing widespread demand for our aircraft.
Doug Harned
Well, and just as a follow-up, passing on to the generation, I mean, I know there’s been. . . has had demanding situations with the protests of the penalty and therefore there have been some difficulties. But it’s something we’ve been looking for expansion for a long time. And if you take a look at the next few years, I mean, how do you see the generation in terms of expansion trajectory?Because we haven’t noticed it yet.
jason aiken
So obviously this is a verbal exchange that we’ve been in for a while. And I think if you look back, we had low single-digit expansion last year. We expect further expansion this year. And as I said earlier, our updated outlook for the year sits amid our variety of earnings management services that we introduced in January.
Obviously, we have a slightly slower start to the year, but I would say a slightly slower start and that’s largely due to Mission Systems. I will not mention those problems again, but it is a matter of time for us.
GDIT is solid in the first part of the year, however, we surely have a transparent vision of expansion for them in the current part. So, look, I mean, what gives us confidence in this perspective?I think the way we look is not a concrete victory or defeat or one program or another. It is all the key knowledge or statistics of the main signs that fear a corporate composed of thousands of contracts in the portfolio.
You communicate about the activity of the order, the rates of profit and capture in new and recomposed businesses, the order book, the order book, the prospective price of the contract, etc. And all those measures for us continue with the prospect of this low-mid- to single-digit expansion business.
And when you take a look at GDIT, for example, they had costs in the first part valued at around $7 billion. And that’s particularly higher than in the early part of last year and the vast majority represent new work.
So obviously it can be frustrating, I think, for all of you. And it is for us, given the bulky facet of this case in terms of the delayed challenge and adjudication process. Starts. But we’re still positive about it and we think at the end of the day, we’re talking about an average low- to single-digit expansion outlook.
And frankly, on second thought, you may have noticed that a few weeks after the quarter, we had the announcement of the Air Force’s European aid contracts, an opportunity of more than $900 million. If this had happened a few weeks earlier, it would be an absolutely different kind of book-to-bill verbal exchange for the Technologies organization in the quarter.
So this is just a one-time example, yet it shows that while the timing can be frustrating and abnormal and the pipeline can be challenging to cross, it doesn’t replace our long-term outlook for this company.
Operator
We now welcome Peter Arment from Baird. Go ahead when you’re ready, Peter.
pierre armen
Yes. Thank you. Hello, Jason.
jason aiken
Good morning.
pierre armen
Maybe we can update your mind: We’ve noticed that the defense budget increases were extended to the Senate and the House. What effect does this have on some of your advocacy activities?And obviously, I mean there’s been a focus on fighting and technology, so kind of a return to growth. And any color you can provide there that would be useful.
jason aiken
Ouais. Je think the two things I would like to highlight. It is, of course, still very early in this process. But in the end, as you might expect, shipbuilding is still incredibly well supported. You can see the numbers there.
And so, I think, it continues our foundation of our continued customer expansion from $400 million to $500 million a year in the Marine Systems business, so everything is positive there.
I think the greatest domain of fear or hypothesis has to do with the fighting systems and the budgets of the army. We’ll see where that leads. This is evidently anything that comes and goes and has a much higher beta in terms of the army’s budget on an annual basis than on the strategic side of the navy.
But the fact is, we can’t forget the fact that within Congress there is something significant about building defense budgets. So Abrams, Stryker, they’re still very critical assets in the military infrastructure and we think they’re ongoing for them.
And so, while there’s a lot of talk about it, it’s going to decline and what’s going to happen. Let’s see how it goes. I think we’ll have to be vigilant and see.
pierre armen
It is ok. And just like a quick follow-up. His opinion on any effect on whether we have a resolution in progress is evidently not: he has succeeded through many ongoing resolutions.
jason aiken
Ouais. Je I don’t see any genuine higher anxiety right now. This is evidently all he said we have learned to paint and paint around. This is in fact not desirable through an effort of imagination, yet it has almost a component of our annual authenticity.
I think until those things get into a scenario of more than six seven months, that’s when our shorter cycle business really starts on the generation side, maybe on the ammunition side. But beyond that, we don’t really see anything significant. have an effect on this point. Again, this is a shame. We don’t like it, but we’ve learned to take a look to serve around it.
Operator
Now we would like to have the next one from Sheila Kahyaoglu from Jefferies. Go ahead, when you’re ready.
Sheila Kahyaoglu
Hello. Hi, guys. Thanks for the time Jason and Howard.
jason aiken
Yes, hello Sheila.
Sheila Kahyaoglu
Salut. Je might have wanted to make a short-term consultation to stick to Doug’s consultation on technology. It fell by 3% in the first part and increased by 10% in the expansion in the current part involved in the forecasts. GDIT turns out to be going well as flat.
And how do you think about the resumption of the expansion of the chain of origin in the current part of the investment moment, because many colleagues in the GDIT have complained about this, if it can bring us closer in the short term?
jason aiken
He touched on the key issues, however, the most important thing is what I discussed earlier, which is that we are already seeing here in the third quarter our ability to make up for some of that product shipment that has been delayed since the current quarter.
We made a ball towards the end of the current quarter and that hampered the revenue of the first part. But we, look, I don’t need to dilute the challenge, Mission Systems is not free of responsibilities.
Therefore, they are moving into combat and fighting in their own way, but they see their way to solutions in the aspect of the chain of origin. And I have a huge dose of confidence that they can do it. On the GDIT side, it’s a frustrating environment in terms of slow spending. Frankly, we’ve noticed it a bit in the project systems aspect and in the DTIS aspect. But I think the hill they have to climb in the moment part is not that high. And I think we have a moderate line of sight in terms of the paintings that are in the books and they just have to go through and execute what gets them there in the moment part. They are a little ahead in the part of the moment. So I feel even greater confidence in GDIT. aspect.
Sheila Kahyaoglu
It is ok. Merci. So, I only looked to ask for a cleaning in the aerospace industry. When we think about the 123 delivery side, how much does it come with the G700?And then, since construction in service, how much of the service business is in the order book?
jason aiken
Therefore, I do not necessarily move to the detailed order: delays and requests for flight cancellations according to the plane. Sorry, I’m having to kick ese. de service activity into the order book. We have a very modest amount in the category of unfunded aerospace backorders that is similar to the long-term maintenance agreements we have with some giant customers. But the services business in all grades at Jet Aviation and Gulfstream is a booking and billing base on a quarterly and annual basis, so it’s kind of a regular face-to-face meeting.
Howard Rubel
Operator, let’s answer another question.
Operator
We have the latest from Cai von Rumohr from Cowen. You can continue with your Array
Cai von Rumohr
Yes thank you very much. So, orders at Gulfstream for the planes it discussed in part in the quarter were for the 500,600. He discussed that the 650 is working well. How is the 800?Because it was brought in recently. Now it has a new competitor in the market that fits its diversity with 4 sections instead of three. How is the 800 doing?
jason aiken
Oui. La call for this plane is fake Cai. It works well each and every quarter. I think between the fact that the 650 is still taking orders and the fact that the EIS for the 800 is still a smart outlet, we don’t expect a large backlog of orders. As we begin to approach this transition, you may be expecting it to increase and move more than 650 to 800. But for now, I would tell you it’s just a smart forged ordering activity that supports our EIS timeline and we expect a lot for this aircraft.
Cai von Rumohr
Can you just give us a little more color in terms of prospective order for combat?He argued that Europe is strong. They talked about Abrams. And the rest of their vehicles?What about the ammunition business?
jason aiken
So, for the rest of the cars, you have to think about our European Land Systems business. They have an incredibly giant installed base of wheeled and tracked combat cars that, on the one hand, have a replacement cycle with them that provides opportunities for years to come, as well as an incentive for those looking to increase their defense spending point to do so in a way that aligns with their allies. And if your allies work and fight one specific platform or another, it’s an incentive for those who start spending more to achieve common ground with allies. We believe this puts us in a smart position for those opportunities that stand out from the threats in Europe.
Overall, to be a little more specific, a lot of those things are in the order book or on the horizon when you think of the Spanish 8×8 vehicle. You have the perspective, or the, I shouldn’t say the prospect, the imminent order for tanks outside of Poland. We communicate with Romania, Switzerland, all those countries are a kind of breads and stills that are accumulating expenses on a variety of platforms.
So, more than a kind of, again, a higher generic point of interest indicated throughout Europe, especially in Eastern Europe, I think it provides a great prospective opportunity. It is too early to check all this and anticipate exactly when or what it looks like. Weather in Europe can be challenging. So, it would probably be a bit silly for me to try to be too quick about it. But we keep in mind that a physically powerful intelligent environment is conducive to combat.
Cai von Rumohr
Thanks again.
jason aiken
You're welcome.
Howard Rubel
And Brica, the operator, I think we’re done with the question-and-answer period. And I thank you all for joining the call today. of highlights, which will involve our earnings perspective. If you have further questions, you can contact me at 703-876-3117. Brica, now you can imply that the call is over, please.
Operator
This concludes today’s appeal. Thank you all for your participation. Now you can disconnect your lines.