Buoyed by a pension tailwind and strong operating profits in its Ingalls Shipbuilding and Technical Solutions segments, Huntington Ingalls Industries [HII] on Thursday posted solid earnings and sales in its second quarter.

Net income rose 11 percent to $147 million, $3.21 earnings per share (EPS), from $133 million ($2.80 EPS) a year ago. Excluding the benefits from pension income, per share results were $2.51, 16 cents below consensus forecasts.

Sales in the quarter were $1.9 billion, up 9 percent from $1.7 billion a year ago. The largest contributor to the revenue boost was the acquisition late last fall government services provider Camber Corp., which added $85 million to the top line.

Artist rendering of LHA 8 Bougainville amphibious assault ship. Huntington Ingalls said that increase volume on the Bougainville helped contribute to higher sales in the second quarter. Rendering by HII.
Artist rendering of LHA 8 Bougainville amphibious assault ship. Huntington Ingalls said that increase volume on the Bougainville helped contribute to higher sales in the second quarter. Rendering by HII.

The top line also benefited from strong sales at the Ingalls Shipbuilding division on higher revenues in several Navy amphibious assault ship programs and the Coast Guard’s National Security Cutter (NSC) program. The company’s new Technical Solutions segment also added to the higher sales, largely through the contribution of Camber but also due to increased support to the Navy and higher volume on oil and gas services.

Sales at Newport News Shipbuilding were flat as higher revenue from Naval nuclear support services were largely offset by lower revenues in submarines and aircraft carriers.

The pension adjustment added $14 million to net income, higher operating income at Ingalls and Technical Solutions more than offset a decline at Newport News to add $3 million to the bottom line, and lower taxes added another $3 million.

Segment operating margins slipped 70 basis points to 10.1 percent while overall margin was unchanged at 12.8 percent.

On the operational front, HII said that work on the second Ford-class aircraft carrier, the USS John F. Kennedy (CVN-79), is 50 percent structurally complete. Mike Petters, HII’s president and CEO, the company is targeting double-digit profit margins on the program.

The contract for Kennedy is built in part on a “pretty significant reduction in man-hours” versus the USS Gerald R. Ford (CVN-78), the lead ship in the new carrier class, more so than in any carrier work the company has done previously, Petters said. This is because HII used an incomplete digital design and three-dimensional product model at the start of the Ford program, while the “model was complete” with the start of the Kennedy, he said.

He also said the bill of material also wasn’t complete at the start of Ford while it was when the Kennedy was initiated.

“Those two factors alone will drive reductions in the cost of the program that we think are fairly significant,” Petters said.

Petters also said that construction of Kennedy benefits from coming down the learning curve from a first in class ship to the second. So far the plan for man-hours on the Kennedy is tracking to plan, he said.

Petters also said the 418-foot NSCs the company has been building and delivering for the Coast Guard has a “fighter’s chance” to compete for the Navy’s emerging FFG(X) guided-missile frigate for the service’s small surface combatant role depending on how requirements sort out. The Navy’s Littoral Combat Ship is currently being built for the small surface combatant role.

Earlier this week, Coast Guard Commandant Adm. Paul Zukunft said that the NSC design could meet the Navy’s needs for a new frigate.

“You would have to totally re-weaponize these platforms to operate at the higher spectrum of naval warfare, and that could certainly be done,” Zukunft said at a maritime security event hosted by the Center for Strategic and International Studies. “Many of the systems on there right now are Navy type, Navy owned,” he said, adding that an NSC is interoperable with the Navy and served the flag ship for the surface action group in a Rim of the Pacific international maritime warfare exercises.

Orders were $3.4 billion in the quarter and backlog stood at $21.1 billion, $14 billion of which was funded, versus backlog a year ago of $20.5 billion, $13.5 billion of which was funded. Free cash flow was $107 million.