Strong operational performance at the Ingalls Shipbuilding division combined with a pension tailwind and favorable accounting change led Huntington Ingalls Industries [HII] to open 2016 with strong financial results.
Net income soared 56 percent to $136 million, $2.87 earnings per share (EPS), from $87 million ($1.79 EPS), handily beating consensus estimates of $2.11 EPS.
Segment operating margin increased more than a percent to 9.4 percent, nearly in the middle of the company’s 9 to 10 percent annual target range, which HII expects to hit this year, Mike Petters, the company’s president and CEO, said on the earnings call. He added HII expects to be in this segment margin range “out to 2020.”
Sales increased 12 percent to $1.8 billion from $1.6 billion a year ago.
At Ingalls, operating income rose 82 percent to $82 million, which the company attributed to performance improvement and higher risk retirement on the LPD amphibious transport dock and DDG destroyer ship programs. Segment margin was 14 percent, a 440 basis point improvement from a year ago
Sales at Ingalls increased 25 percent to $586 million on the DDG and LPD programs.
Operating income at the Newport News Shipbuilding division dipped 4 percent to $89 million on lower risk retirement on the Virginia-class submarine program, lower volume on the CVN-72 Abraham Lincoln carrier overhaul and refueling program, and lower performance on the CVN-78 Gerald R Ford carrier program under construction.
Petters said that test problems with the Ford program led to a delay in builder’s trials, pointing out that “the challenges are not out of the ordinary for the lead ship of ship.” He added that overall the “ship looks great” and that “it’s really a finished ship except for the folks that are testing it.”
Newport News enjoyed strong sales, up 9 percent to $1.2 billion, on work for the Department of Energy and on the Virginia-class submarine program.
HII’s “other” segment, which largely consists of a business that supports the oil and gas industry, posted a $5 million operating loss, down from a $10 million loss a year ago. This business has been an unwelcome thorn in the company’s results due to weakness in the oil and gas markets. Sales in the segment fell 40 percent to $24 million.
Despite a recent rise in the price of oil, Petters said the company’s business here won’t benefit until its customers make capital investments, which isn’t happening “in any consistent way.”
Free cash flow in the quarter was $17 million and the company spent $72 million on share repurchases and dividend payments. Bookings were $1 billion and total backlog stood at $21.3 billion, down $700 million from the end of 2015, with $13 billion funded.