The first Columbia-class submarine is more than a decade away from joining the fleet and General Dynamics is preparing its Electric Boat business — and the Wall Street analysts watching the company — for what the almost $100 billion project means to its operations.
During the quarter, the U.S. Navy awarded General Dynamics $225 million for Block V Virginia-class submarine long-lead materials, and $100 million for advanced nuclear plant studies in support of the Columbia-class submarine project. Later this year, General Dynamics expects to finalize the Block V contract with the Navy, Phebe Novakovic, chief executive, told analysts during a conference call Wednesday morning.
Overall, these awards, steady work at the shipyards and good performance by other General Dynamics business lines helped the company report strong financial results for the three months ending July 1. Revenues were $9.2 billion, compared to revenues of $7.7 billion for the same period a year ago, according to the General Dynamics earnings report. Profits for the quarter were $786 million, an increase from the $749 million reported a year ago.
Looking forward, Novakovic said the marine division, which builds and maintains submarines and surface ships, is expected to continue providing a strong revenue stream.
“We have a great deal of insight into our customers and their spend rates. Certainly, in marine, that’s steady, predictable growth,” Novakovic said. “No particular surprises here.”
Later this year, Novakovic expects to finalize a contract for the Arleigh Burke-class guided-missile destroyer Flight III upgrade, which will bring work to the company’s Bath Iron Works yard.
The Virginia Block V contract is expected to be a multi-year contract for 10 submarines. These subs will include the Virginia Payload Module and have an estimated purchase price of about $3.2 billion per sub, according to a June 2018 Congressional Research Service report.
However, Novakovic warned analysts there will be some growing pains when General Dynamics starts Columbia-class submarine manufacturing. The Columbia-class project is massive and ramping up production will likely squeeze its margins – the profits General Dynamics earns from selling the subs to the Navy. The Virginia-class performance, though, is expected to offset any earnings pressure, Novakovic said.
“Columbia will in seven to eight years completely dwarf or heavily dwarf Virginia. That’s simply because of the volume coming into the yard,” Novakovic said. “We start manufacture of that first Columbia in ‘20 and then it will ramp up pretty expeditiously through the next four or five years.”