Defense Contractors Deliver: Q1 Earnings Spotlight on General Dynamics and Industry Outperformers

The defense sector has long been a haven for investors seeking stability amid geopolitical volatility, and Q1 2025 earnings reports underscore its resilience. Among the standout performers, General Dynamics (NYSE:GD) and Lockheed Martin (NYSE:LMT) led the charge with robust top-line growth, margin expansions, and record backlogs. Other players like Leonardo DRS (LEA) and Curtiss-Wright (CWXT) also delivered strong results, signaling a sector-wide upswing. Here’s what investors need to know.

General Dynamics: Aerospace Drives Record Quarter

General Dynamics reported 13.9% revenue growth to $12.2 billion in Q1, with its Aerospace segment surging 45.2% to $3.0 billion, fueled by higher production of the Gulfstream G800 (deliveries up to 30 units from 21 in Q1 2024). Operating margins expanded 210 basis points to 14.3%, while diluted EPS rose 27.1% to $3.66, crushing estimates.

The company’s $141.3 billion total contract value—including $88.7 billion in funded backlog—offers clear visibility into future revenue streams. Management emphasized operational efficiency, with $600 million in share repurchases and a 28th consecutive dividend hike (up 5.6%) further boosting shareholder returns.

Lockheed Martin: Missiles and Cybersecurity Lead the Way

Lockheed Martin’s $18.0 billion in sales reflected strong demand for its precision strike missiles (e.g., JASSM/LRASM), with the Missiles and Fire Control segment posting a 50% jump in operating profit to $465 million. The Aeronautics segment also thrived, benefiting from F-35 production ramp-ups and $80 million in profit adjustments from classified programs.

Despite a dip in Space segment sales (-2%), operating profit rose 17%, thanks to cost discipline and adjustments in commercial space programs. With a $172.97 billion backlog, including $10 billion in missile programs, Lockheed remains positioned for steady growth.

Leonardo DRS and Curtiss-Wright: Niche Strengths Fuel Growth

Smaller players are also outperforming:
- Leonardo DRS saw 16% revenue growth to $799 million, driven by demand for electric propulsion systems and tactical radars. Its Integrated Mission Systems segment expanded margins by 260 basis points to 13.7%, offsetting margin pressures in its sensing division.
- Curtiss-Wright raised its full-year guidance after 13% sales growth to $806 million. Its naval defense programs (e.g., submarine components) and commercial nuclear orders pushed margins to 16.6%, with bookings hitting a record $1.0 billion.

Both companies highlighted supply chain resilience, mitigating tariff risks through U.S.-centric manufacturing and operational efficiencies.

Key Drivers and Risks

Why Investors Should Pay Attention:
1. Geopolitical Tailwinds: Defense budgets remain elevated amid tensions in the Indo-Pacific, Eastern Europe, and the Middle East. The U.S. DoD’s $846.9 billion FY2025 budget supports long-term demand.
2. Backlog Stability: Combined backlog for GD ($141.3B), LMT ($172.97B), and others totals over $314 billion, ensuring multi-year revenue predictability.
3. Margin Expansion: Operational discipline (e.g., GD’s Gulfstream efficiencies, LMT’s missile cost controls) is boosting profitability.

Risks to Watch:
- Supply Chain Volatility: Leonardo DRS’s ASC segment margin contraction (-1.3%) highlights raw material cost pressures.
- Government Funding Delays: LMT noted risks tied to U.S. budget negotiations and inflation’s impact on fixed-price contracts.
- Macroeconomic Sentiment: GD’s stock dipped 2.15% pre-market despite beating estimates, reflecting broader market jitters about recession risks.

Conclusion: A Sector Built for the Long Game

The defense sector’s Q1 results affirm its status as a high-quality, cash-generative industry with strong balance sheets and shareholder-friendly policies. General Dynamics’ 27% EPS growth, Lockheed’s $10B missile backlog, and Curtiss-Wright’s upgraded free cash flow guidance ($495–515 million) all point to durable outperformance.

While near-term risks like supply chain bottlenecks and fiscal policy uncertainty linger, the sector’s $314 billion combined backlog and 47-year dividend growth streak (GD) provide a solid moat. For investors seeking stability and growth, defense contractors are worth considering, particularly as geopolitical risks keep defense spending elevated for years to come.

Final Takeaway: Defense stocks like GD and LMT offer a mix of income stability and capital appreciation potential, making them compelling plays in an uncertain macroeconomic landscape.

Data as of Q1 2025 earnings reports. Past performance does not guarantee future results.