Huntington Ingalls Industries [HII] yesterday posted a rise in net income in the fourth quarter due to a favorable $10 million adjustment to goodwill impairment charge taken in the third quarter that was originally $300 million but was revised to $290 million.

Net income increased 10 percent to $69 million, $1.39 earnings per share (EPS), from $63 million ($1.29 EPS). Excluding the impact of the goodwill adjustment, income fell 6 percent to $59 million ($1.19 EPS) though still whipping analysts’ expectations of 94 cents EPS.

Operating margins, excluding the goodwill adjustment, were 6.6 percent, up 60 basis points from a year ago and the company still believes it can get to 9 percent margins in 2015.

Margins will hit an “inflection point” in 2013 when it delivers the LPD-25 amphibious transport dock and LHA-6 amphibious assault ship, Mike Petters, HII’s president and CEO, said on yesterday’s earnings call. Those programs remain on track as do the schedules for the LPD-23 and 24 ships slated to be delivered later this year, he said. All four vessels have suffered from cost overruns.

In the quarter, HII’s Ingalls Shipbuilding division drove the higher net earnings due to progress on the LPD program and new contracts. The adjusted gains were more than offset by decline at the Newport News Shipbuilding division as lower margin programs accounted for more of the business.

Going forward from 2013, Petters said margins will expand at Ingalls and remain steady at Newport News.

Sales in the quarter were essentially flat at $1.7 billion, as sales increases at Newport News were offset by declines at Ingalls.

Newport News benefited from higher sales on the CVN-78 Gerald R. Ford aircraft carrier, the advanced planning contract for the CVN-79 John F. Kennedy carrier, the advance planning contract on the CVN-72 Abraham Lincoln refueling and overhaul, and construction on the Virginia-class submarine program.

At Ingalls, sales slid on the DDG-51 destroyer and the LPD ship programs.

Petters said that HII’s outlook for budget and margins for the CVN-78 program remain unchanged. Navy Secretary Roy Mabus recently told a Senate panel that the service is withholding fees on the carrier program due to cost overruns (Defense Daily, March 9). Petters said the HII “team” is performing at a higher level than he’s ever seen on a lead ship, which the Ford represents.

For 2011, HII swung to a $94 million ($1.93 EPS) loss due to the $290 million charge versus net income a year ago of $135 million ($2.77 EPS). Excluding the charge, adjusted earnings rose 45 percent to $196 million ($3.97 EPS).

Backlog at the end of 2011 stood at $16.3 billion, down $1 billion from a year ago. Orders for the year were $5.6 billion and free cash flow was $331 million.

Petters still expects the Navy to award contracts later this year for up to nine DDG-51s. He expects the Navy to split the buy between General Dynamics [GD] and HII.