Huntington Ingalls Industries [HII] on Wednesday posted strong financial results in its third quarter driven by work on aircraft carriers and amphibious assault ships for the Navy and the acquisition last year of a technical services company.
Net income jumped 39 percent to $149 million, $3.27 earnings per share (EPS), from $107 million ($2.27 EPS) a year ago, beating analysts’ estimates by 48 cents per share. Operating margins were 12.7 percent versus 10.4 percent a year ago.
Earnings were strong due to increases at all three of the company’ operating segments. Newport News Shipbuilding led the way with a big jump in income on the resolution of contract changes related to the inactivation of the decommissioned aircraft carrier USS Enterprise (CVN-65) and work on refueling and overhauling the carrier USS Abraham Lincoln (CVN-72).
The Technical Solutions unit was also a big contributor to the earnings increase due to a reversal of a portion of a reserve previously recorded for a nuclear and environmental commercial contract. Profit was also higher at the Ingalls Shipbuilding division on increased risk retirement for an amphibious assault ship that was delivered to the Navy in September.
Sales increased 11 percent to $1.9 billion from $1.7 billion a year ago, driven mainly by the acquisition of Camber a year ago, followed by an 8 percent increase at Newport News on overhauls and new construction of aircraft carriers, work on the Virginia-class submarines, nuclear support for submarines, and a 3 percent gain at Ingalls on amphibious assault ships.
HII recorded $3 billion in orders during the third quarter. Total backlog at the end of the quarter stood at $23 billion with $14 billion funded. Total backlog at the end of 2016 stood at $21 billion.
Free cash flow in the quarter was $5 million. On Tuesday, HII announced it will increase its quarterly cash dividend by 20 cents per share to 72 cents EPS. The company also increased its current share repurchase program authority to $2.2 billion, $1 billion higher than the previous program.
Mike Petters, HII’s president and CEO, said that the increases to the dividend and share repurchase program reflect the company’s commitment to return just about all its free cash flow to shareholders.
There continues to be uncertainty for the shipbuilding industrial base due to the inability of Congress to come to a long-term budget agreement, Petters said on the company’s earnings call. He also said there is support “in just about every corner” for the Navy to have more ships.
“The question of how you get the budget process through continues to be challenging,” Petters said. With the Budget Control Act still in place, it’s impossible “to make any strategic discussions and decisions about programs that would be longer and more sustainable…Since they can’t make those decisions, it becomes hard for us to program our investment to support those things.”