By Cal Biesecker
Defense Daily
Huntington Ingalls Industries on Thursday posted lower fourth-quarter earnings despite a strong increase in sales due in part to an impairment charge stemming from the company’s decision to put its oil and gas business up for sale.
Net income sank 30% to $149 million, $3.61 earnings per share (EPS), from $212 million ($4.94 ESP) a year ago, hampered by a pension headwind at the non-cash charge. Excluding the $35 million ($0.75 EPS) charge, adjusted earnings of $4.36 EPS beat consensus estimates by $0.18 per share.
Sales increased nearly 10% to $2.4 billion from $2.2 billion.
Segment operating margins, excluding the pension headwinds and charge, were 8.4% versus 6.7% a year ago.
At the operating level, the Newport News Shipbuilding segment led the way, more than doubling operating earnings due to the award of the Navy’s Virginia-class Block V submarine and contract changes for support work on the Los Angeles-class submarine program. Sales in the segment were up 9% on work on the Block IV and Block V Virginia-class vessels and higher volume on the Columbia-class ballistic missile submarine.
Huntington Ingalls is a key subcontractor to General Dynamics Electric Boat for production of 12 Columbia boats, which starting in 2031 will replace the Ohio-class submarine fleet. In late 2018, the company’s Newport News Shipbuilding subsidiary took home a $200 million subcontract modification to provide long-lead components for the Columbia-class subs.
The company also works at several Department of Energy nuclear facilities, including as an integrated subcontractor for Triad National Security, manager of the Los Alamos National Laboratory in New Mexico, and a partner in site legacy cleanup contractor N3B.
Huntington Ingalls has also acknowledged that it lead the bidding team that is now protesting its loss in the procurement for a $4 billion support services contract at the Hanford Site in Washington state.
Sales at the Ingalls Shipbuilding segment were flat and operating income slid on lower risk retirements on amphibious ships and gains a year ago on a favorable settlement. HII’s Technical Solutions segment swung to a loss on the impairment charge while sales jumped on previous acquisitions and increased work for fleet support and the oil and gas industry.
The pending deal for Hydroid Inc., combined with previous acquisitions that strengthened capabilities in cybersecurity and C5ISR, and the pending divestiture of the oil and gas division, “create a sharpened focus in the Technical Solutions business and positions the team to capture growth opportunities in unmanned systems, defense and federal solutions, and nuclear and environmental services,” Mike Petters, HII’s president and CEO, said on the company’s analyst call.
Orders in the quarter were $9.7 billion, helping total backlog grow to a record $46.5 billion, just over double a year ago due to huge contract awards in the past year for submarines.
For 2019, sales increased 9% to a record $8.9 billion from $8.2 billion in 2018 and net income tumbled 34 percent to $549 million ($13.06 EPS) from $836 million ($19.09 EPS). Excluding the charge, 2019 earnings were $14.01 EPS. Free cash flow for 2019 was $460 million.
HII provided general guidance for 2020, with shipbuilding sales expected to be up between 3% and 5% and shipbuilding margins at 9%.
Technical Solutions is expected to generate about $1 billion in sales, down from $1.3 billion in 2019 due to the pending sale of the oil and gas business and the company’s ship repair yard in San Diego. The outlook for margin is between 5 and 7 percent.
Free cash flow in 2019 was about $50 to $60 million less than the company expected due to the timing of receipts, Christopher Kastner, HII’s chief financial officer, said on the analyst call.
This story first appeared in Nuclear Security & Deterrence Monitor affiliate publication Defense Daily.
