Huntington Ingalls Industries [HII] on Thursday reported a steep drop in fourth quarter earnings driven primarily by declines across its shipbuilding operations.

Net income slid 52 percent to $120 million, $2.99 earnings per share (EPS), from $249 million ($4.35 EPS) a year ago. Excluding pension impacts, per share earnings of $2.84 were 13 cents EPS below consensus estimates.

Sales dipped 3 percent to $2.7 billion from $2.8 billion a year ago.

At the operating level, the drop in sales was driven by lower shipbuilding revenue at the Ingalls and Newport News segments, which declined on lower revenue in amphibious assault ship, Arleigh Burke

-class DDG-51 destroyer, National Security Cutter (NSC), aircraft carrier and submarine programs.

The lower sales at the shipbuilding segments drove declines in operating profits, which were also down on lower risk retirements on the NSC and amphibious assault ship programs, and naval nuclear support services, and a contract actions that benefited the DDG-51 program a year ago.

The Technical Solutions segment posted higher sales due to the acquisition last year of Alion Science and Technology, although acquisition-related costs, less income from nuclear and environmental services joint ventures, and divestitures drove operating profit down.

HII didn’t quantify impacts from the ongoing COVID-19 pandemic but said the virus did pressure results in the fourth quarter. However, worker attendance is improving as case rates related to the virus are falling, Chris Kastner, HII’s chief operating officer and incoming president and CEO, said on an earnings call.

Mike Petters, HII’s outgoing president and CEO, said that 81 percent of the company’s workforce is vaccinated against COVID.

For all of 2021, net income tumbled 22 percent to $544 million ($13.50 EPS) from $696 million ($17.14 EPS), while sales increased 2 percent to $9.5 billion from $9.4 billion in 2020.

In 2022, HII is forecasting shipbuilding sales of between $8.2 billion and $8.5 billion, level with 2021 at the low end of the guidance and more than 3 percent growth at the high-end of the range. Tom Stiehle, HII’s chief financial officer, said on the call that if COVID case rates continue to decline and work comes through at normal run rates, sales will be at the high end of the outlook.

Operating margin in shipbuilding is expected to be between 8 and 8.1 percent in 2022, up from 7.7 percent in 2021. Shipbuilding margin is expected to improve further in 2023, Stiehle said.

Sales this year in Technical Solutions are expected to be about $2.6 billion, up from $1.5 billion in 2021, with all of the growth due to the Alion deal. Operating margin in the segment is forecast at about 2.5 percent, down from 3.4 percent in 2021.

The integration of Alion into Technical Solutions is on schedule, Kastner said. He also said that the pipeline of new business opportunities for the business exceeds $20 billion and has nearly $5 billion in bids under evaluation or in proposal development, including multiple opportunities above $1 billion expected to be awarded in 2022.

Free cash flow in 2022 is projected to between $300 million and $350 million versus $449 million in 2021. In 2023, HII expects free cash flow to rise to between $750 million and $800 million, and then to increase further in 2024 to between $800 million and $900 million.

HII tallied $1 billion in orders in the fourth quarter, lifting backlog to a record $48.5 billion, up 5 percent from $46 billion at the end of 2020.