BWX Technologies is about halfway through repairing 12 submarine missile tubes it welded incorrectly in 2018, Rex Geveden, president and CEO of the Lynchburg, Va., nuclear-hardware and fuel provider told investors Tuesday.
Under multiple subcontracts to Columbia- and Virginia-class submarine production prime General Dynamics Electric Boat, BWXT is on the hook to deliver tubes through 2021. The latest contract alone calls for the company to produce 26 tubes by that point.
In the wake of last year’s gaffe, which was disclosed in the 2018 second quarter and will cost BWXT $30 million, the current tube work is no longer profitable.
Geveden, on his 2019 second-quarter earnings conference call Tuesday, said BWXT should complete the fixes by year’s end, and that the company has not received new orders for missile tubes since last year’s bad welds. He also reaffirmed that BWXT will exit the tubes production business if future contracts do not include “favorable terms so that we could be profitable.”
Geveden said the company is in “discussions” with its customers about future tube work, and that “the ultimate client,” Naval Sea Systems Command, “would like to have more than one domestic supplier, at least on the Common Missile Compartment Tubes.”
BAE Systems also makes common missile compartment tubes.
A BWXT spokesperson would not say Friday whether the company would only accept future tube contracts if those potential deals offset the roughly $30-million charge the company took to account for costs of fixing the botched welds.
Geveden has attributed the bad tube welds to the difficulty of the work rather than BWXT’s workforce. The company’s Nuclear Operations Group, the largest of its three operating segments, manufactures the tubes at a factory in Mount Vernon, Ind.
BWXT is also repairing the tubes at Mount Vernon, “removing the defects and employing various customer-approved repair methods, including replacements of welds or parts of a weld, to restore the hardware to the meet the contract-required specifications,” the spokesperson said Friday. “We are not making new tubes” to replace the ones with the bad welds, according to the spokesperson.
If its customers won’t let BWXT stay in the tubes business on its own terms, the company will cease using Building 219 at Mount Vernon for that work and instead manufacture naval nuclear reactor components there, Geveden said Tuesday.
BWXT is already working near capacity on naval nuclear reactor and missile tube programs at its Mount Vernon and Barberton, Ohio, factories. The company is running mandatory overtime at the factories to finish work on reactors for the Virginia and Columbia submarines, plus Ford-class aircraft carriers, Geveden said. The company plans to expand its manufacturing footprint, and letting Building 219 take over reactors work — rather than acquiring new factory space — would save about $10 million, Geveden said.
Overall for the quarter, net income dropped slightly to $58.9 million, or $0.62 per diluted share, from $60.7 million, or $0.60 per diluted share, a year earlier.
However, after accounting for debt costs and foreign exchange gains in the year-ago period, and excluding a small cost related to a restructuring recognized in the period just ended, second-quarter income would have risen roughly $1 million year over year, BWXT reported.
Revenue for BWXT’s Nuclear Operations Group, which includes the Navy nuclear business and uranium downblending for the Energy Department’s semiautonomous National Nuclear Security Administration (NNSA), jumped 7.9% to $358.4 million. That compares with $332.1 million for the quarter ended June 30, 2018.
The increase was due mostly to higher production volumes on reactor builds for Virginia- and Columbia-class submarines and Ford-class aircraft carriers. More long-lead material purchases for those programs also contributed, the company reported.
