Insulated from the worst of the COVID-19 pandemic by its large government contracts and a bread-and-butter nuclear Navy business that didn’t shut down in the spring, BWX Technologies [BWXT] posted a modest uptick in both profit and revenue for the second quarter of 2020.
Quarterly net income rose $5 million to about $64 million, or $0.67 per share, from about $59 million, or $0.62 per share, a year ago.
“The core Navy franchise continued to beat our internal expectations through a combination of work volume increases and contract performance improvements driven by operational excellence,” BWXT CEO Rex Geveden stated in a press release accompanying the latest quarterly earnings report.
On a call with investors Tuesday morning, Geveden said BWXT is happy with the dueling versions of the National Defense Authorization Act that Congress has produced this year, either of which should provide enough funding for Virginia-class submarine programs to keep the Nuclear Operations Group stable in the near term.
The House act has funding for two Virginia boats, the Senate for only advanced components. Now, a bicameral conference committee has to negotiate a unified bill for both chambers to approve. The Navy’s 2021 funding request sacrificed one Virginia build in fiscal 2021 to add funding to the civilian nuclear-weapons programs managed by the National Nuclear Security Administration (NNSA).
“Consequently, the actions of both chambers are trending favorably for BWXT to maintain production cadence on the Virginia program,” Geveden said on the call.
The House, as part of an appropriations package passed last week, has also lined the NNSA up for an $18 billion 2021 budget. That is $2 billion short of the request but over $1 billion more than the 2020 appropriation. Geveden said most of that increase would flow into the agency’s nuclear-weapon labs, increasing BWXT’s income from the equity stakes it has in the joint-venture contractors that manage those labs for the NNSA.
Late last week, the NNSA announced it would continue to manage two major nuclear-weapons production sites under a single contract. On Sept. 30, 2021, the agency will kick the Bechtel National-led incumbent out of the Pantex weapons assembly plant in Amarillo, Texas, and the Y-12 National Security Complex in Oak Ridge, which produces uranium-fueled secondary stages for nuclear weapons.
BWXT used to manage both sites under separate contracts and has already indicated a willingness to compete for the new contract. The NNSA said the follow-on will be worth up to $28 billion over 10 years, including five years of firm funding. The agency expects to release the draft solicitation in August.
Separately, Geveden said that BWXT is “likely” out of the common missile tube business for good, after eating the cost of repairs on a dozen tubes the company improperly welded in 2018. The tubes are intended for future Columbia-class ballistic-missile submarines, and BWXT should deliver the repaired hardware to Columbia prime General Dynamics [GD] Electric Boat “shortly,” Geveden said Tuesday morning.
The tube work, which Electric Boat awards as subcontractors, “just doesn’t have the margin profile that we want to see in the business,” Geveden said. BWXT has been sending similar signals for around a year now, hinting that if the prime didn’t bake enough profit into future tube awards to make up for the money lost on the botched tubes, it would probably spell the end of that business at BWXT.
Consequently, Geveden said, BWXT will shift its entire Mt. Vernon, Ind., manufacturing facility, which had handled tube work, to make long-lead components for future Columbia submarines. BWXT makes the reactors for nuclear submarines and warships, and that work typically gets underway two years before final assembly starts at a shipyard, Geveden said.
Geveden said that swapping Mt. Vernon over from tube work will save the company a little bit of money on capital expenditures the company otherwise would have to make to expand and maintain the shop space for tube work. The benefit is “not striking, but it’s incrementally positive to the business,” Geveden said.
Quarterly operating incoming in the Nuclear Operations Group, the flagship unit that includes the Navy business, rose around $10 million year over year to more than $85 million. Segment revenue rose more than $50 million to about $410 million. The segment cleared some $1.5 billion in backlog in the first six months of 2020, leaving it with just under $4 billion still in the pipeline. That does not include roughly $1 billion worth of unexercised options on an unspecified federal contract. BWXT expects the government to pick up the options.
The Nuclear Operations Group makes both naval reactors and their uranium fuel. The segment also purifies uranium that the Tennessee Valley Authority uses to produce tritium for U.S. nuclear weapons maintained by the NNSA.
The ongoing COVID-19 pandemic during the quarter whacked the Nuclear Power Group, which includes the company’s commercial nuclear-power and medical-isotope businesses. The unit’s second-quarter operating income plummeted almost $14 million to about $1 million. Segment revenue there dropped about $20 million to some $68 million. Backlog increased to more than $770 million from $730 million in the first half.
In the release, Geveden said the group “is well positioned for recovery through the remainder of the year.”
The core defense business continued to operate amid the pandemic response.
“We remain committed to protecting employee health and safety first while also maintaining business viability,” Geveden said. “Company protocols continue to demonstrate effectiveness in minimizing employee exposure and business interruption, as evidenced by the limited number of cases within the company and the absence of workplace transmission.”
Quarterly operating income in the Nuclear Services Group, which includes operations at DoE defense-nuclear sites, more than doubled to just over $4 million, as revenue ticked up more than $3 million to around $33 million. Backlog remained at $43 million, but the figure does not include BWXT’s share of the joint venture companies that run DOE defense-nuclear sites under federal contracts.