Huntington Ingalls Industries [HII] on Thursday reported higher earnings and sales in its third quarter, bouncing back from a rough second quarter.

Net income increased 44 percent to $222 million, $5.45 earnings per share (EPS), from $154 million ($3.74 EPS) a year ago as a favorable pension adjustment contributed $70 million (1.72 EPS) to the bottom line. Adjusted earnings of $3.73 EPS were 41 cents below analysts’ expectations.

Sales in the quarter increased 4 percent to $2.3 billion from $2.2 billion a year ago.

In the second quarter, the company’s earnings plummeted in part due to impacts from the ongoing pandemic, including absenteeism, supply chain and customer disruptions. Shipyard employee attendance has improved a lot versus the second quarter but effects from COVID-19 continue to linger, Mike Petters, HII’s president and CEO, said on the company’s earnings call.

“The rate of new cases has stabilized in our shipyards, and we are maintaining a sustainable and manageable level of attendance,” Petters said in a statement. “This has been driven by our ability to start rapid testing of employees and move them out of quarantine and back to work in a prudent way. While this has proven to be successful, the dynamic nature of this virus will force us to continue refining our policies to adapt to changing circumstances.”

The company’s higher sales in the third quarter were driven by its shipbuilding segments, which were up on aircraft carrier, submarine, destroyer and Coast Guard cutter work, and fleet support services.

However, business segment operating income fell due to a steep decline at Newport News Shipbuilding segment on lower risk retirement for the Virginia-class submarine program, lower profit booking rates after having to reset cost and schedule expectations for various programs in the second quarter—at least in part due to COVID—and lower risk retirement for fleet support services.

Programs at Newport News are holding to their revised schedules, Petters said.

Operating profit more than doubled at the company’s Technical Solutions segment and eked out a slight gain at Ingalls shipbuilding, partially offsetting the drop at Newport News.

The company’s overall operating margin held steady at 9.6 percent, aided by the pension benefit, while segment operating margin fell 1.6 percent to 7 percent largely due to a big drop at Newport News and a slight drop at Ingalls.

Orders in the third quarter were $1.6 billion and backlog stood at $45.3 billion, down about $1.2 billion since the end of 2019. Free cash flow in the quarter was $160 million.

HII reinstated its long-term cumulative free cash flow outlook of $3 billion for 2020 through 2024. The company expects free cash flow this year to exceed $500 million.

Earlier this week, HII said its board approved an 11 percent increase in the company’s dividend to $1.14 per share, up from the current $1.03 per share. Repurchases of company stock remain on hold but Chris Kastner, HII’s chief financial officer, said on the earnings call that stock buybacks will resume “once we see sustained normalization of activity related to the virus.”

HII fine-tuned its outlook for the rest of 2020, with shipbuilding sales expected to be around $7.9 billion and Technical Solutions to come in around $1.25 billion, the high end of previous guidance. Shipbuilding operating margin is still pegged at between 5.5 and 6.5 percent and the outlook at Technical Solutions was increased to about 2.6 percent from the prior range of between 2.2 and 2.4 percent. The company is expecting higher interest expense but a lower tax rate.

The company cautioned that COVID impacts could still potentially affect financial results this year and beyond.

Petters said that acquisitions in the unmanned and energy areas remain in play for HII. In the past five or six years, the company has acquired several businesses that have given it the ability to participate in a wide range of unmanned vessels ranging from small to extra-large systems.

Asked by one analyst on the call about new entrants into the unmanned space that have lower cost structures, Petters answered that the company is “very focused” on its cost structure and that its unmanned business is being kept “outside of the shipyards,” pointing out that in this space other companies don’t have dry docks that increase their overhead.

“So, we recognize that we got to be pretty lean and mean if we’re going to be competitive there,” he said, adding that the company has the capability and capacity to meet any of its government customers’ needs.