HII [HII] on Monday reported strong first quarter results led by its Mission Technologies and Ingalls Shipbuilding segments.
HII credited work on C5ISR and cyber, electronic warfare, and space for driving performance at Mission Technologies, and higher volumes for Navy surface combatants and amphibious ships at Ingalls. Newport News Shipbuilding, which builds and repairs aircraft carriers and nuclear-powered attack submarines, was down modestly in the quarter.
Net income increased 19 percent to $153 million, $3.87 earnings per share (EPS), from $129 million ($3.23 EPS) a year ago, smashing consensus estimates by 35 cents per share. Sales increased 5 percent to a record $2.8 billion from $2.7 billion a year ago.
Operating income at the Mission Technologies segment was up 65 percent on a 20 percent increase in sales to a record $750 million. The higher income was mainly due to sales and operating performance, and the segment also enjoyed a tailwind stemming from less amortization costs.
Mission Technologies’ results were ahead of HII’s expectations, but the company is being “conservative” with its guidance although there are upside opportunities, Tom Stiehle, HII’s chief financial officer, said on the earnings call.
Ingalls’ operating income was up 9 percent on a 14 percent increase in sales to $655 million. At Newport News, operating income dipped 2 percent and sales dropped 5 percent to $1.4 billion. Shipbuilding margin was 6.8 percent in the quarter and HII is still forecasting between 7.6 percent and 7.8 percent for the year.
Labor challenges remain for HII’s shipbuilding operations and its suppliers and continue to impact programs, Chris Kastner, HII’s president and CEO, said on the call. The company hired more than 1,700 craft personnel in the quarter, putting it on track to meet its target of 6,000 for the year, although retention rates remain below pre-COVID levels, he said.
“We continue to use overtime, contract labor, and outsourcing to mitigate risk and strengthen the opportunity for progress and schedule stabilization,” Kastner said.
First-of-class issues on the bow for the Columbia-class nuclear missile submarine program that impacted schedule are “essentially behind us now,” he said, adding that work against the recovery plan is “a bit ahead of schedule.”
Asked by one analyst on the call about the Navy’s request for one Virginia-class attack submarine in the fiscal year 2025 request even though there is strong interest in Congress for two vessels, Kastner replied that two submarines would “keep the supply chain healthy.” This would “eliminate” risk for suppliers, he said.
HII tallied $3.1 billion in orders in the quarter and backlog stood at $48.4 billion, up shy of a percent from the end of 2023. Free cash flow was negative $274 million but the company still expects to generate between $600 million and $700 million of free cash this year.
Despite the strong financial results, HII left its 2024 guidance intact. Sales are forecast to range between $11.5 billion and $11.9 billion.