Huntington Ingalls Industries [HII] last week reported a third quarter profit on flat sales, although persistent problems in a series of ships it is building for the Navy resulted in charges that helped keep earnings below expectations.
However, the Navy shipbuilder is increasingly confident about its prospects during the next few years, particularly in meeting operating margin targets of more than 9 percent in 2015. That confidence led it to declare its first quarterly dividend and share repurchase program.
“We’re steadily retiring risk, we’re getting critical new business funded and under contract at both shipyards, we’re streamlining our operations, we’re executing well on new business, we’ve created and are reinforcing a culture based on safety, quality, cost and schedule, which drives affordability and we have a management team that is highly focused on maximizing shareholder value,” Mike Petters, HII’s president and CEO, said on last Thursday’s earnings call. “All of these things give us confidence in our outlook to begin distributing cash to our shareholders long before we originally expected.”
The $150 million share repurchase program is open for three years. The 10 cents per share dividend is payable next month.
Net income was $13 million, 26 cents earnings per share (EPS), versus a $248 million ($5.07 EPS) loss a year ago when results suffered from a hefty goodwill impairment charge. Third quarter results in 2012 included a $20 million charge related to HII’s work on four amphibious transport dock ships, primarily the LPD-24, which have been plaguing the company for several years. Despite difficulty completing work on the LPD-24, the ship is still scheduled to be delivered to the Navy later this year.
The final transport dock ship–LPD-25–being constructed under a four-ship contract, remains on schedule for delivery in 2013.
Excluding a non-cash workers’ compensation charge and the impact of non-cash expense, adjusted EPS was 74 cents, short of consensus expectations of 80 cents EPS.
Sales in the quarter were flat at $1.6 billion as higher revenues from work on aircraft carriers, surface combatants and the Coast Guard’s National Security Cutter were offset by less work on amphibious assault ships.
Orders in the quarter were $1.7 billion while backlog stood at $16.4 billion, up $200 million from the second quarter, with $12.9 billion of that funded, up $300 million from the second quarter.
HII didn’t provide detailed guidance but Petters said that earnings in the second half of 2012, excluding non-cash items, will be in line with results from the first half.