Financial Trends -- 8.2/10
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Total Revenue | $42,272M | $47,716M | $52,550M |
| Revenue YoY | — | +12.9% | +10.1% |
| Operating Earnings | $4,245M | $4,796M | $5,356M |
| Op Earnings YoY | — | +13.0% | +11.7% |
| Diluted EPS | $12.02 | $13.63 | $15.45 |
| EPS YoY | — | +13.4% | +13.4% |
| Free Cash Flow | $3,806M | $3,196M | $3,959M |
| FCF YoY | — | -16.0% | +23.9% |
| Total Backlog | $93,627M | $90,597M | $118,046M |
| Backlog YoY | — | -3.2% | +30.3% |
- Revenue grew from $42.3B to $52.6B over 3 years, a 11.5% CAGR driven by Aerospace and Marine
- EPS growth was remarkably steady at +13.4% in both FY2024 and FY2025
- FCF was volatile -- down 16% in FY2024 then up 24% in FY2025 -- but FY2025 conversion of 94% was strong
- Backlog exploded +30.3% to $118B in FY2025, providing the best revenue visibility in the peer group (2.2x coverage)
- Consolidated operating margin expanded slowly: 10.0% to 10.1% to 10.2% (about 10 bps per year)
- Aerospace was the fastest grower in FY2024 (+30.5%) as G700 deliveries ramped, decelerating to +16.5% in FY2025
- Marine Systems sustained mid-teens growth (+15.1% then +16.6%) on submarine and surface combatant demand
- Combat Systems decelerated sharply from +8.8% to +2.8%, but the $27.2B backlog (3.0x revenue) signals future acceleration from European rearmament orders
- Technologies grew at a low-single-digit pace (+1.6% then +2.6%), constrained by the continuing resolution and DOGE pressure on government IT contracting
| Segment | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Aerospace | 13.7% | 13.0% | 13.3% |
| Marine Systems | 7.0% | 6.5% | 7.0% |
| Combat Systems | 13.9% | 14.2% | 14.4% |
| Technologies | 9.3% | 9.6% | 9.5% |
| Consolidated | 10.0% | 10.1% | 10.2% |
- Aerospace margins dipped from 13.7% to 13.0% in FY2024 (G700 certification headwinds) then partially recovered to 13.3%
- Marine Systems margins followed a similar pattern (7.0% to 6.5% to 7.0%), with supply chain disruption the gating factor
- Combat Systems margins expanded steadily: 13.9% to 14.2% to 14.4% -- the most consistent margin improver
- Technologies margins were stable around 9.3-9.6%, reflecting the mature and competitive government IT market
- Consolidated margin expansion was glacial at about 10 bps per year (10.0% to 10.2%), constrained by the low-margin Marine mix shift
| Metric | FY2025A | FY2026E | FY2027E |
|---|---|---|---|
| Revenue | $52.6B | $56.3B | $58.8B |
| Rev Growth | 10.1% | 7.1% | 4.5% |
| Diluted EPS | $15.45 | $16.79 | $18.56 |
| EPS Growth | 13.4% | 8.7% | 10.5% |
| Mgmt FY2026 Guide (EPS) | -- | $16.10-$16.20 | -- |
| Guide vs Consensus | -- | Consensus ~$0.60 above guide | -- |
- Consensus expects revenue growth to decelerate from 10.1% (FY2025) to 7.1% (FY2026E) and 4.5% (FY2027E)
- EPS growth expected to moderate to 8.7% in FY2026E before reaccelerating to 10.5% in FY2027E
- Management guided FY2026 EPS to $16.10-$16.20, roughly $0.60 below consensus of $16.79 -- classic Novakovic sandbagging
- After the FY2024 guidance miss and massive FY2025 beat, the pattern strongly suggests another beat in FY2026
- The Combat Systems backlog-to-revenue ratio of 3.0x points to potential upside surprise in FY2027-2028
General Dynamics delivered a strong FY2025 with revenue crossing $52.6B (+10.1% YoY), EPS of $15.45 (+13.4%), and free cash flow of $3.96B at 94% net income conversion. The financial profile is compelling for a defense prime: all four segments grew revenue, EPS growth was perfectly steady at 13.4% for two consecutive years, and the backlog exploded +30% to $118B -- providing 2.2x revenue visibility, the strongest in the peer group.
The segment story is nuanced. Aerospace and Marine Systems drove the top-line growth (+16.5% and +16.6% respectively), while Combat Systems decelerated to +2.8% and Technologies grew just +2.6%. Margins expanded only modestly at the consolidated level (10 bps per year), constrained by the mix shift toward the lower-margin Marine segment. However, Combat Systems margins expanded steadily to 14.4%, and Aerospace margins are recovering from G700 headwinds.
The most important forward-looking metric is the backlog. At $118B (2.2x revenue), GD has the best earnings visibility among defense primes. The Combat Systems backlog alone stands at $27.2B on $9.2B of revenue (3.0x coverage), signaling a significant revenue acceleration from European rearmament orders expected in 2027-2028.
The primary constraints on a higher score are: (1) decelerating consolidated revenue growth (12.9% to 10.1%), (2) glacial margin expansion at the consolidated level, (3) FCF volatility (negative in Q1 both years), and (4) the Technologies segment struggling under DOGE and continuing resolution headwinds.
Score: 8.2/10 -- Strong and broad-based revenue growth with best-in-class backlog visibility. Steady EPS compounding and strong FCF conversion offset by slow margin expansion and revenue growth deceleration. The backlog explosion is the key differentiator.