Lower taxes, the gift that just keeps giving this year for corporations, combined with a pension benefit, propelled Huntington Ingalls Industries [HII] to a hefty increase in earnings despite a dip in operating profit at the segment level.

Net income soared 63 percent to $239 million, $5.40 earnings per share (EPS), from $147 million ($3.21 EPS) a year ago, with a lower tax rate, which was lower than expected due to a claim for prior year research and development tax credits, the primary driver of the gain followed by the pension tailwind. The results topped consensus expectations by $1.31 EPS.

USS George Washington (CVN 73). Photo: U.S. Navy.
USS George Washington (CVN 73). More work on the contract for the refueling and complex overhaul of the carrier helped increase second quarter sales at Huntington Ingalls Industries.  Photo: U.S. Navy.

Sales increased nearly 9 percent to $2 billion from $1.9 billion a year ago, driven by work on aircraft carriers and nuclear support services at the Newport News Shipbuilding segment. Sales at the Ingalls Shipbuilding segment were down slightly on lower revenue from Navy surface combatants and the Coast Guard’s National Security Cutter program while the top line was flat at the Technical Solutions segment.

Operating income was lower at Ingalls, on lower risk retirement on the Navy’s LHA-7 Tripoli amphibious assault ship and the NSC program, and at Technical Solutions on lower performance in fleet support services. Combined, those declines more than offset higher profit at Newport News, which benefited from the higher sales.

Operating margin dipped 30 basis points to 12. 7 percent and overall segment margin fell 110 basis points to 9 percent.

Free cash flow in the quarter was $154 million and orders totaled $1.1 billion. Backlog stood at around $21 billion at the end of the quarter, of which $15 billion is funded, down from $21.4 billion since the end of 2017.