General Dynamics (GD) Q4 2025: Backlog Surges 30% as Defense Demand Fuels Multi-Year Investment Cycle
General Dynamics enters 2026 with a record $118 billion backlog, driven by explosive defense order intake and durable aerospace demand. Management is prioritizing capacity investment and margin expansion across segments, even as supply chain bottlenecks and tariffs weigh on near-term delivery growth. Elevated capital expenditures signal a multi-year commitment to scaling production and fulfilling surging global defense needs.
Summary
- Defense Backlog Momentum: Unprecedented demand in combat and marine systems anchors a robust multi-year growth outlook.
- Margin Expansion Focus: Execution and supply chain productivity are central to driving margin gains, especially in aerospace.
- Investment Cycle Commitment: Elevated capital spending reflects management’s conviction in long-term order visibility and capacity needs.
Performance Analysis
General Dynamics delivered broad-based top-line growth in Q4 2025, with Marine Systems and Aerospace leading segment results. Marine revenue climbed 21.7% year-over-year, powered by submarine programs and improved shipyard productivity. Combat Systems posted a 5.8% revenue increase, with notable order wins across munitions and European vehicle programs. Aerospace revenue edged up, but operating earnings fell versus a prior-year quarter that benefited from discrete gains. However, sequential trends were positive, underscoring resilience in Gulfstream demand and services.
Technologies, the IT and mission systems segment, saw flat revenue and lower margin, reflecting a challenging government contracting environment. Still, order activity was solid, and the segment ended the year with a higher backlog. Company-wide, operating cash flow reached $5.1 billion, up $1 billion year-over-year, while free cash flow conversion hit 94% despite a 30% jump in capital expenditures. Notably, the company ended 2025 with a record $118 billion backlog, up 30% from last year, with every defense segment at all-time highs.
- Marine Productivity Gains: Electric Boat submarine output rose 13%, driving margin and revenue growth.
- Defense Order Surge: Combat Systems’ book-to-bill hit 4.3x in Q4, led by $4 billion in European tactical vehicle awards.
- Aerospace Demand Resilience: Gulfstream posted a 1.4x book-to-bill in Q4, with strong order flow across models and geographies.
General Dynamics’ financial and operational performance reflects strong execution against a backdrop of surging defense demand and ongoing supply chain normalization.
Executive Commentary
"The robust demand across our portfolio resulted in finishing the year with a record total backlog of $118 billion, an astonishing 30% increase over last year. Total estimated contract value, which includes options and IDIQ contracts, ended the year also at a record level of $179 billion, a 24% increase from last year."
Kim, Senior Vice President and Chief Financial Officer
"Our new airplanes are driving demand. We continue to come down our learning curve. The supply chain is improving as a way to go, but it's definitely better than it was and all of that will drive additional margin improvement measured over time."
Phebe Novakovic, Chairman and Chief Executive Officer
Strategic Positioning
1. Defense Backlog and Order Visibility
General Dynamics’ record backlog is anchored by multi-year defense awards, especially in European land systems and U.S. shipbuilding. Combat Systems’ Q4 book-to-bill of 4.3x, fueled by over $4 billion in German tactical vehicle orders, signals sustained demand visibility and positions the segment for revenue acceleration as engineering transitions to production in 2027 and beyond.
2. Aerospace Margin and Product Transition
Gulfstream’s new product cycle (G700, G800) is catalyzing both order momentum and margin opportunity. Management expects margin expansion through improved pricing, efficiency, and lower R&D, though tariffs and supply chain costs remain near-term headwinds. The focus is on absorbing recent rapid growth while building delivery and completion capacity for durable profitability gains.
3. Capacity Investment and Execution Discipline
With capital expenditures rising nearly 30% in 2025 and set to climb another 79% in 2026, General Dynamics is committing to a multi-year investment cycle—particularly in shipyards and munitions. This approach aims to convert backlog into revenue while maintaining operational discipline and margin expansion across all segments.
4. Technologies Segment Resilience
Despite a tough contracting environment, the Technologies group maintained solid order flow and backlog, benefitting from its expertise in encryption, subsea warfare, and strategic deterrence. Management sees a robust pipeline of $120 billion in qualified opportunities, supporting a long-term low single-digit growth outlook with industry-leading EBITDA margins.
Key Considerations
General Dynamics’ Q4 2025 results underscore the company’s pivot to a growth and investment phase, with defense demand and operational execution driving both backlog and cash flow. The strategic context is shaped by global security needs, supply chain normalization, and a deliberate capital allocation stance.
Key Considerations:
- Supply Chain Bottlenecks Remain: Throughput constraints, especially among sole-source suppliers, continue to limit delivery acceleration in both aerospace and marine segments.
- Tariff Headwinds Impact Margins: Tariffs imposed in 2025 ($41 million) will rise in 2026, though these are factored into margin forecasts.
- CapEx Surge Reflects Demand Conviction: Capital expenditures will reach 3.5% to 4% of sales in 2026, with half allocated to shipyard expansion and the remainder supporting munitions and aerospace productivity.
- Cash Generation Remains Strong: Free cash flow conversion is targeted at 100% of net income in 2026, despite higher investment levels.
- Capital Deployment Strategy Is Disciplined: Management is prioritizing reinvestment and dividend stability over share repurchases, in line with government and customer expectations.
Risks
Execution risk is elevated as General Dynamics ramps production to meet record backlog, with supply chain bottlenecks and tariff volatility posing ongoing margin pressure. The Technologies segment faces continued uncertainty from government contracting delays and budget constraints. Rising CapEx and debt refinancing needs in a higher interest rate environment add financial complexity, while geopolitical shifts could alter defense procurement priorities.
Forward Outlook
For Q1 2026, General Dynamics guided to:
- Lower EPS sequentially, with Q1 expected to be $0.40 below the quarterly average due to typical seasonality.
- Continued positive free cash flow in each quarter, with the fourth quarter remaining the largest contributor.
For full-year 2026, management guided:
- Company-wide revenue between $54.3 billion and $54.8 billion
- Operating margin of 10.4%, up 20 basis points year-over-year
- EPS between $16.10 and $16.20 (excluding capital deployment)
- CapEx of 3.5% to 4% of sales, up 79% year-over-year
- Free cash flow conversion goal of 100% of net income
Management cited backlog conversion, supply chain normalization, and continued investment as key drivers, emphasizing:
- Margin expansion through operational discipline and improved pricing
- Focus on executing against a multi-year order book and scaling capacity
Takeaways
General Dynamics is positioned for multi-year growth, with backlog-driven visibility and a clear commitment to margin and capacity expansion. Investors should focus on execution against backlog, supply chain normalization, and the impact of sustained capital investment on both revenue conversion and profitability.
- Backlog Conversion Is the Central Theme: Record orders, especially in defense, will drive revenue growth as production ramps over several years.
- Margin Expansion Hinges on Execution: Supply chain improvement and learning curve gains in both aerospace and marine are critical to sustaining profitability.
- Investment Cycle Will Test Discipline: Elevated CapEx and debt refinancing must be managed against free cash flow and margin targets.
Conclusion
General Dynamics exits 2025 with unmatched backlog visibility and a disciplined strategy to convert orders into revenue and margin gains. Sustained investment in capacity and operational execution will determine the pace and durability of growth, as the company navigates supply chain and macro headwinds in 2026 and beyond.
Industry Read-Through
General Dynamics’ results reflect a broad-based surge in global defense demand, especially in Europe, with multi-year orders driving industry-wide investment in production capacity. The marine and land systems segments highlight the importance of supply chain resilience and government partnership to meet national security needs. Aerospace’s margin and product cycle dynamics offer a read-through for business jet peers facing similar supply chain and tariff challenges. Elevated CapEx and backlog conversion will be key themes for defense contractors, while IT and mission systems players must navigate continued budget and contracting volatility. Investors should watch for margin discipline and capital allocation trends as defense primes scale for a new era of demand.