Huntington Ingalls Industries [HII] on Thursday posted higher net income and sales in its fourth quarter, driven by a pension tailwind, higher operating profits in two of its segments, and an increase in shipbuilding revenue.

Net income in the quarter soared 67 percent to $249 million, $6.15 earnings per share (EPS), from $149 million ($2.96 EPS) a year ago. Adjusting for the pension benefit, net income was up 44 percent to $176 million ($4.35 EPS), short of consensus estimates by 18 cents a share.

Sales in the quarter increased 14 percent to $2.8 billion versus $2.4 billion a year ago.

At the operating level, higher profits at the Ingalls Shipbuilding and Technical Solutions segments more than offset a decline at Newport News Shipbuilding. Profit was up Ingalls due to higher risk retirements across the portfolio and Technical Solutions swung to a profit on the absence of impairment charges in the oil and gas business, which hurt the segment a year ago, and a contract loss a year ago.

Ingalls and Newport News drove sales higher in the quarter due to work on Aegis-class destroyers, amphibious assault ships, aircraft carrier construction and overhauls, work on the Virginia-class and Columbia-class submarines, and fleet support services, partially offset by a decline at Technical Solutions in oil and gas work and ship repairs at the San Diego Shipyard.

For 2020, net income increased 27 percent to $696 million ($17.14 EPS) from $549 million ($13.26 EPS) a year ago and sales increased 5 percent to a record $9.4 billion from $8.9 billion.

Operating margin in the quarter was 11.1 percent versus 8.5 percent a year ago and for the year margin increased 20 basis points to 8.5 percent.

Orders in the fourth quarter were $3.5 billion and backlog at the end of 2020 stood at about $46 billion, down around $500 million from a year ago. Free cash flow for the year was $757 million and the company restarted purchasing its stock in the first quarter of 2021 after suspending buybacks last March due to uncertainties related to the emerging COVID-19 pandemic.

For the past five or six years, HII has built out its Technical Solutions segment through a series of acquisitions in the federal services space and in unmanned and autonomous technologies and platforms for the maritime environment. Mike Petters, HII’s president and CEO, said on the company’s earnings call that they are still looking for acquisitions in the unmanned space to add technology and expand the portfolio.

“We’re just kind of keeping our eyes open on how do we make sure we have the right footprint of capabilities and the right portfolio to go support where we think the Navy might be going,” he said.

HII is also looking out for opportunities to support environmental management as part of its energy and nuclear operations work in Technical Solutions, and Petters described the federal cyber and information technology market as being “dynamic,” although the valuations for potential acquisitions in these areas are “challenging.” Still, HII is focused on the “capability sets” it needs in this area “versus how big we need to be,” he said.

In 2021, HII is forecasting sales in its shipbuilding segments to be between $8.2 billion and $8.4 billion and around $1 billion in Technical Solutions. In 2020, shipbuilding sales neared $8.3 billion and Technical Solutions generated $1.3 billion. Long-term, HII is forecasting average annual sales growth of 3 percent in its shipbuilding operations.

The outlook for operating margin this year is between 7 and 8 percent for shipbuilding and between 3 and 5 percent at Technical Solutions. The company expects to generate between $150 million and $250 million in free cash flow in 2021 and is maintaining guidance for about $3 billion in cumulative free cash flow from 2020 and 2024.

In December, HII announced that Christopher Kastner, chief financial officer, would become chief operating officer, a new position for the company to oversee the operating segments. That promotion is effective on Friday.

Kastner will “work closely with the division presidents to drive execution on our historic backlog,” Petters said.

Petters said that HII traditionally has taken a federated approach to its operations with each segment having more autonomy. However, the company’s customers have been asking for more integrated solutions from across HII “in order to solve their complex problems,” he said. “They actually see us as more of an integrated whole than as a collection of businesses and it’s up to us to find ways to create value from this opportunity set by smartly collaborating across our shipbuilding and Technical Solutions segments.”