GD
#Good morning, <UNK>.
So, let me talk about revenue.
As we noted before we reduced the G50 ---+ G550 rate for the fourth quarter.
We had less pre-owned revenue than anticipated and somewhat less than anticipated service revenue.
But Gulfstream was up and their backlog was up.
Jet was down 5% in revenue, and that was mixed driven as we increased our engineering work in anticipation of the production work that we're starting this year.
And we had lower FPO revenue because of fuel prices.
We also had reduced business jet completions in St.
Louis.
So that sort of ties the bow on revenue.
In margins, it's the same old stuff we always get, right.
We had some of the usual suspects.
We had a mix shifts, we had liquidated damages, launch assistant, and by the way you quite rightly point out we had improved margins in the 650.
So we anticipate roughly comparable margins.
Those aren't what we are leading you to, guiding you to ---+ are not sufficient or significant, material degradations in the margin rate.
But what we are focused on and have been laser focused on and have been telling our investors for some time, we are going to keep earnings flat.
And that's what we signed up for and we see the path forward to clearly do that.
Okay let me talk a little bit about the book-to-bill.
With the exception of the fourth quarter, the 2014 and 2015, our IS&T book-to-bill has been approximately 1 to 1 every other quarter in both years.
Q4 in those lines of businesses tends to be more of an issue, timing issue, than anything else.
And we expect book-to-bill for 2016 about 1 to 1.
These are businesses that are performing extremely well and winning more than their fair share based on their ability to increase their operating leverage by decreasing costs.
And their performance has been outstanding.
So, it's more of the same for them going forward.
Ruthless dedication to cost-cutting, operating performance, must perform on that backlog and that then quite nicely leads to the kinds of book-to-bill that we've seen in these businesses.
So I see that as more goodness to come.
Well, they are different margin businesses.
Mission Systems tends to be more heavily product oriented in nature and product tends to carry higher margins.
Our IT businesses is services, services have lower margins but like I like to tell everybody they got great cash performance.
In fact, by the way, both of those businesses have had great cash performance and with our services business, terrific return on invested capital because there is no invested capital.
Think about our information, our IT services businesses.
When they go to market, they go to market in their core.
And they are very competitive in their core, both through past performance and cost competitiveness.
So I like where they're positioned and that hasn't changed for us.
They continue to win and they're a big dog in the barnyard.
Not to mix too many metaphors.
Let me answer that in the inverse order.
We have seen and don't anticipate seeing any impact from the planes that are in the used market.
It really hasn't impacted us at all because the guidance of the demand for that airplane has been and we believe will continue to be very, very wholesome.
Despite taking up our production rates slightly, we are still at first quarter 2018, first available.
So that tells you that is a strong, sustainable backlog for a very powerful airplane.
So yes, let me talk about all three of those businesses and give you a little bit of color.
We have the ---+ achieved a very significant agreement with our partners, our workforce in Maine at Bath that will allow Bath to be increasingly competitive going forward in all of its competitions.
We're very proud of our workforce there and we are very optimistic about our ability to compete on a going forward basis.
So I like what I see at Bath.
And by the way it announced on the DDG-1000 the first one is 98% done so almost out the door, second one is 84% done and again with the kinds of issues that you might expect on first of class ships, but nothing that has been particularly surprising to us.
The third ship I think is only about 40% done but it has a deck house that we entirely designed and built, so that reduces the risk going forward.
So I see the future for Bath very nice.
At NASSCO, we are continuing to work off the backlog of Jones Act ships as you quite rightly point out.
There is, we believe, significant demand going forward because of the age of the fleet that has to be replaced for more Jones Act ships.
Our experience in the Jones Act market is it's highly lumpy and ---+ but there is demand out there and because of NASSCO's performance.
And because of it's good cost structure, they have been very competitive in their Jones Act competition and won a nice backlog and we continue to believe we're going to add to that backlog.
Their service business has been performing very, very nicely.
The Navy is, what we believe quite rightly, moving to fixed-price service contracts.
And we know how to work those and we been working closely with our Navy customers.
So we like what we see in service, particularly out west in San Diego.
A little bit of lightness in Norfolk area as the Navy re-jiggers some of its home porting of major ships, but we anticipate service to grow reasonably well at ---+ on the surface ship side.
Single-digit, low single-digit, with a nice operating performance.
We also anticipate additional submarine service at electric boat.
Nothing too significant but again right in our sweet spot.
Then again at electric boat we still have to worry about Virginia and Ohio, right.
I think a once over of that entire portfolio.
Sure.
Let me have <UNK> answer the first part of your question on pension.
Sure.
<UNK>, if I understand your question, you're talking about the walk forward on EPS from 2015 to 2016.
Really when you think about our pension, our pension plans and our accounting for those plants especially in the defense businesses, that is a muted effect in EPS, so really it's just isolated with the commercial pension side which had a negligible effect so I haven't calculated it, but it's nothing that would be materially---+
There you go.
So, let's talk about the businesses.
On a going forward basis, we anticipate the IS&T group to be at around a 10% margin business.
That may vary from quarter to quarter or year to year depending on how much revenue the service business brings in, but for our foreseeable future that's about a 10% business.
Combat we see in the mid-15%, 15.5%, pretty steady Eddie.
We may have, and we do I believe, have margin expansion opportunity at the platform businesses but remember that will be somewhat offset by the short cycle business of OTS which we had terrific margins out of that business after we consolidated two units in 2014.
With all things defense some of that business needs to go back to our customer, quite appropriately so, so that will cause some margin compression for them.
But from right now what we are planning for, for Combat, steady-state, 15%, 15.5% margin we will of course try for higher.
And then the Marine group will be a 9.5% to 10% margin business depending on mix.
We talked about before, performance at shipyards is all about ---+ well-performing shipyards is all about the mix and we got a number of mix shift issues which we kind of articulated.
So I think that gives you a sense of how we see our business going forward.
Let me talk a little about the reduction and I'll turn it over to <UNK>.
We've been talking for the last year or so about this transition period from moving from the 450, 550 to [500 and 600] ---+ we'll, we're in it now, and quite appropriately you would expect us to size for that.
So our headcount reductions were all about sizing appropriately for the ---+ what we see in terms of revenue.
And our promise to keep margins ---+ keep earnings flat year-over-year.
So we did some pruning.
Headcount reductions were just part of our cost cutting effort as we improved our operating performance, took a fair amount of overhead out and touched labor and we'll continue to do so on a going forward basis.
So on the R&D question, as you can imagine the pace of that will sort of fall the cadence of the flight test programs, so we expect that to pick up modestly in the next year and a little bit more in 2017 as we continue through that program, but I say modestly and materially still well within the range of our normal collar that we normally expect R&D to flow in.
Your question around the launch assistance payments, they'll continue to flow.
I don't have the exact schedule of that but it will cause that quarterly amount to be lumpy as it has always been and we will report that to you when it gets sort of out of line, but expect net-net sort of modest immaterial growth in R&D next year and then again the following year.
Hi.
So I think consistent with the position we've held in the past is levering up really is not something we are interested in particularly as it relates to our current capital deployment approach of share repurchase and dividends.
Incurring debt for the proper long-term strategic opportunity is certainly out there, but that's something we'll continue to hold us dry powder until that type of opportunity shows up.
And Abigail I think we have time for one more question.
So Fed IT, I think what you are saying is what we anticipated seeing the same players just with new t-shirts on in the brand.
In the pipeline it is what it has been and I think to <UNK>'s point it has always been our view that if we found something attractive and very accretive we would lever up for it, but we haven't been there and we don't see that as we stand at the moment.
I don't think anything is fundamentally changed in the broader portfolio defense and Aerospace portfolio.
Service a little bit but that, I gave you my view of that.
Thank you for joining us on our call today.
If you have any additional questions, <UNK> can be reached at 703-876-3583.
Have a great day.
