Huntington Ingalls Posts Strong Third Quarter Results

Huntington Ingalls Industries [HII] on Thursday reported a strong third quarter with sales higher mainly on Navy and Coast Guard programs and earnings up on the higher revenue, lower taxes, a favorable change in workers’ compensation expense and a pension benefit.

Net income increased 54 percent to $229 million, $5.29 earnings per share (EPS), from $149 million ($3.27 EPS), led by double-digit gains at both the Newport News and Ingalls Shipbuilding segments, which more than offset a decline at Technical Solutions. Results were $1.15 EPS better than consensus estimates.

Sales increased 12 percent to $2.1 billion from $1.9 billion a year ago, primarily on gains at Newport News and Ingalls and to a lesser degree at Technical Solutions.

Rendering of LPD 29 amphibious transport dock. Work on the new ship helped boost HII's sales in the third quarter. Rendering: HII

Rendering of LPD 29 amphibious transport dock. Work on the new ship helped boost HII’s sales in the third quarter. Rendering: HII

At the operating level, Newport News Shipbuilding’s sales were up 12 percent to $1.2 billion on work refueling and overhauling the aircraft carrier USS George Washington and conducting advanced planning on the carrier Enterprise, and work on naval nuclear support services.  Operating income rose 24 percent to $119 million due a $43 million benefit on the adjustment in workers’ compensation expense.

Sales at Ingalls Shipbuilding increased 17 percent to $694 million on work on the Navy’s LPD 28 and 29 San Antonio-class amphibious transport dock ships, the LHA 8 amphibious assault ship, and the Coast Guard’s ninth and 10th Legend-class National Security Cutters. Operating income rose 11 percent to $82 million on the higher sales.

Technical Solutions, HII’s smallest segment, posted a 2 percent increase in sales to $245 million largely on a pickup in services for the oil and gas industry, while income fell 27 percent to $16 million as the year ago quarter included a benefit related to a nuclear and environmental commercial contract.

Orders in the quarter totaled $2.8 billion, bringing total backlog to $22 billion, $17 billion of which is funded. Backlog at the end of the second quarter stood at $21 billion, with $15 billion funded.

Mike Petters, HII’s president and CEO, said during the company’s earnings call that, the orders include full funding of the first two ships from a new $5.1 billion contract the company won in the quarter for six flight three DDG-51 destroyers. He said the “contract represents one of the first awards that will form the foundation to support the business for the next 10 to 15 years,” with awards for CVN 80 and 81 aircraft carriers, the block five Virginia-class submarine, National Security Cutters 10 and 11, and the second light of the LPD program.

“All of this activity supports our sales outlook for the next five years and is expected to result in the award of base contracts or options to be exercised for 20 to 30 ships by the end of 2020,” Petters said.

Free cash in the quarter was a $195 million outflow.

On Wednesday, HII announced a 19 percent increase in its quarterly dividend to $86 cents per share. The company said it remains committed to increasing its annual dividend and repurchasing shares of its stock.

During the fourth quarter, HII sold its former Avondale shipyard. Dwayne Blake, HII’s vice president of Investor Relations, said on the call that the sale had no material impact on earnings or cash flow. The company’s goal with dividends is to increase them at least 10 percent annually, he said. There are no targets for share repurchases, he added.

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