Sign in

    Huntington Ingalls Industries Inc (HII)

    New Share Buyback Program

    You might also like

    Business Description

    Huntington Ingalls Industries, Inc. (HII) is a global defense partner specializing in the construction and delivery of naval ships and advanced technologies . The company is organized into three main segments: Ingalls Shipbuilding, Newport News Shipbuilding, and Mission Technologies, each focusing on different aspects of shipbuilding and technology solutions . HII's primary customers are the U.S. Government and the U.S. Navy, with a significant portion of its revenue derived from these sources . The company's offerings include a range of naval vessels and integrated technology solutions, catering to both nuclear and non-nuclear needs .

    1. Ingalls Shipbuilding - Focuses on the design, construction, repair, and maintenance of non-nuclear ships, including amphibious assault ships and surface combatants .
    2. Newport News Shipbuilding - Specializes in the design, construction, overhaul, refueling, and maintenance of nuclear ships, such as aircraft carriers and submarines .
    3. Mission Technologies - Develops integrated technology solutions, including C5ISR systems, AI and machine learning applications, cyberspace strategies, electronic warfare, unmanned systems, and fleet sustainment .

    Q2 2024 Summary

    Initial Price$291.97April 1, 2024
    Final Price$246.79July 1, 2024
    Price Change$-45.18
    % Change-15.47%

    What went well

    • Mission Technologies division has achieved a trailing 12-month book-to-bill ratio of 1.15 and has a new business opportunity pipeline of over $83 billion, indicating strong potential for growth beyond the current 5% guidance.
    • The company is investing in improving labor productivity in its shipyards, expecting enhancements that will boost performance and profitability.
    • HII has strong visibility into its portfolio and anticipates robust free cash flow in the fourth quarter, reinforcing its financial stability.

    What went wrong

    • Labor productivity is still below pre-pandemic levels, due to the less experienced workforce, which may impact operational efficiency and timelines .
    • Projected free cash flow for Q4 is significantly higher than historical levels, raising concerns about the achievability of these projections and potential risks if milestones slip .
    • Decline in operating margins at Ingalls shipyard, with margins dipping for the first time in years, suggests potential challenges in executing certain programs, possibly affecting profitability .

    Q&A Summary

    1. Q4 Free Cash Flow Outlook
      Q: Can you discuss the visibility into generating $1 billion free cash flow in Q4?
      A: Management acknowledges that cash flow is back-end loaded this year, expecting significant cash generation in Q4 driven by milestones, contract incentives, and improved working capital. They are confident in meeting the $600-$700 million free cash flow guidance for the year, with line of sight to key milestones and program performance. The ramp includes unwinding working capital from 9% to 2-3% by year-end.

    2. Labor Challenges Impacting Production
      Q: How are labor and attrition issues affecting milestones and productivity?
      A: While hiring goals are being met at both shipyards, attrition is not materially improving. Attendance and overtime have recovered, and outsourcing programs are executing well. Labor challenges have impacted milestones on programs like LHA 8 and DDG-129, but management is taking a holistic approach, including salary adjustments, flexible recruiting, and establishing manufacturing footprints in new areas to attract labor. Productivity is expected to improve as the workforce stabilizes.

    3. Ingalls Margin and Recovery
      Q: What caused the dip in Ingalls margin this quarter, and can we expect recovery?
      A: The dip in Ingalls margin was due to milestone shifts, with costs moving alongside schedule changes, and less risk retirement on LPD 29 at delivery than usual. Management expects Ingalls to recover quickly, as this was just a quiet quarter, and they continue to execute well on their programs.

    4. Virginia-Class Submarine Progress
      Q: Can you update us on Virginia-class Blocks IV, V, and negotiations for Block VI?
      A: Block IV is 95% complete, with delivery of SSN 798 expected early next year and progress on SSN 800 maintaining schedule. Block V is over 20% complete and now generates higher revenue than Block IV. Negotiations for Block VI are ongoing and expected to conclude this year, aiming for a fair deal that accounts for macroeconomic factors like inflation and supply chain risks.

    5. Mission Technologies Growth Prospects
      Q: How is Mission Technologies performing, and what are the growth expectations?
      A: Mission Technologies has a trailing twelve-month book-to-bill ratio of 1.15 and an $83 billion pipeline. While maintaining a conservative 5% growth guidance, strong performance in areas like C5ISR and CEWS could drive growth beyond current expectations. The division is also involved in innovative projects like deploying REMUS vehicles autonomously from Virginia-class submarines, demonstrating value to customers.

    6. Capital Allocation and M&A Strategy
      Q: What is your current appetite for acquisitions and capital allocation priorities?
      A: The company remains focused on maintaining investment-grade status, investing in shipyards, and returning excess cash to shareholders through dividends. They will evaluate M&A opportunities that make strategic and financial sense but there is no change in capital allocation philosophy at this time.

    7. Shipyard Labor Productivity
      Q: Is labor productivity in shipyards improving compared to pre-pandemic levels?
      A: Productivity is currently below pre-pandemic levels due to the less experienced workforce. However, investments are being made in workforce proficiency and infrastructure, supported by Navy investments, to improve productivity over time as the workforce stabilizes. Management expects productivity to improve as these efforts continue.

    8. Working Capital Guidance
      Q: Can you provide guidance on working capital levels for this year and next?
      A: Working capital is expected to decrease from 9% to 2-3% by year-end due to capital incentives and milestone achievements. Specific targets for 2025 were not provided, but management indicated they are on plan relative to the five-year free cash flow guidance and will update targets in February.

    9. Capital Expenditures and Navy Incentives
      Q: Can you discuss the uptick in CapEx and any offset from Navy incentives?
      A: CapEx increased sequentially, with spending at 2.6% of sales in Q1 and 3% in Q2, guided to 5.3% for the year and 5% over the next three years. Investments are made in partnership with the Navy, aiming to add value and generate returns on capital projects, though specifics on incentives are not disclosed.

    10. Impact of Deloitte Winning Navy Contract
      Q: Do you have any insight into the Navy contract awarded to Deloitte instead of Mission Technologies?
      A: Management was not involved in that contracting process and believes Deloitte is supporting the Navy in identifying and allocating investments.

    Key Metrics

    View all financials →

    Executive Team

    NamePositionStart DateShort Bio
    Christopher D. KastnerPresident and Chief Executive OfficerMarch 1, 2022Christopher D. Kastner was elected as the President and CEO of HII effective March 1, 2022. He previously served as Executive Vice President and COO from February 2021 and as CFO from March 2016 to February 2021. He holds a B.A. in Political Science from the University of California at Santa Barbara and an M.B.A. from Pepperdine University .
    Todd R. BorkeyExecutive Vice President and Chief Technology OfficerSeptember 26, 2022Todd R. Borkey was elected as the Executive Vice President and CTO of HII effective September 26, 2022. He previously served as CTO at Alion Science and Technology and held positions at Thales Defense and Security and DRS Defense Solutions. He holds a Master's Degree in engineering management from Stevens Institute of Technology and an undergraduate degree in Applied Mathematics from the University of Albuquerque .
    Chad N. BoudreauxExecutive Vice President and Chief Legal OfficerApril 1, 2020Chad N. Boudreaux serves as the Executive Vice President and Chief Legal Officer at HII. He joined HII in 2011 and has held various legal positions. He holds a B.A. from Baylor University and a J.D. from the University of Memphis School of Law .
    Jennifer R. BoykinExecutive Vice President and President, Newport News ShipbuildingJuly 2017Jennifer R. Boykin has served as Executive Vice President and President, Newport News Shipbuilding since July 2017. She joined Newport News Shipbuilding in 1987 and has held various roles, including Vice President of Engineering and Design. She holds a B.S. in Marine Engineering from the U.S. Merchant Marine Academy and a Master's Degree in Engineering Management from The George Washington University .
    Eric D. ChewningExecutive Vice President, Strategy and DevelopmentJanuary 30, 2023Eric D. Chewning was elected as the Executive Vice President, Strategy and Development at HII effective January 30, 2023. He previously co-led McKinsey & Company's Aerospace & Defense practice in the Americas and served as Chief of Staff to the U.S. Secretary of Defense. He holds a B.A. and an M.A. in international relations from the University of Chicago and an M.B.A. from the Darden School of Business at the University of Virginia .
    Edgar A. Green IIIExecutive Vice President and President, Mission TechnologiesDecember 2016Edgar A. Green III has served as the Executive Vice President and President, Mission Technologies at HII since December 2016. He previously held positions at Celanese Corp and Wells Fargo Securities. He holds a B.S. in Systems Engineering from the U.S. Naval Academy and an M.B.A. from Duke University .
    Paul C. HarrisExecutive Vice President and Chief Sustainability and Compliance OfficerMarch 14, 2022Paul C. Harris was appointed as Executive Vice President and Chief Sustainability and Compliance Officer at HII effective March 14, 2022. He previously served as Corporate Vice President, Chief Compliance and Privacy Officer at HII. He holds a Bachelor of Arts degree from Hampton University and a Juris Doctor degree from The George Washington University Law School .
    Brooke A. HartExecutive Vice President, CommunicationsSeptember 27, 2021Brooke A. Hart was appointed as the Executive Vice President, Communications at HII effective September 27, 2021. She previously served as Vice President of Communications and Brand at Sierra Nevada Corporation. She holds a B.A. from Stanford University and an M.A. from Georgetown University .
    Stewart H. HolmesExecutive Vice President, Government and Customer RelationsSeptember 27, 2021Stewart H. Holmes was appointed as the Executive Vice President, Government and Customer Relations at HII effective September 27, 2021. He previously served as Senior Vice President of Washington Operations for Textron Inc. He is a graduate of The Citadel and the Naval Postgraduate School .
    Edmond E. HughesExecutive Vice President and Chief Human Resources OfficerApril 1, 2022Edmond E. Hughes was appointed as the Executive Vice President and Chief Human Resources Officer at HII effective April 1, 2022. He previously served as Vice President of Human Resources and Administration for Ingalls Shipbuilding. He holds a B.S. from Tougaloo College and an M.B.A. from Indiana University .
    Nicolas G. SchuckCorporate Vice President, Controller and Chief Accounting OfficerAugust 2015Nicolas G. Schuck was appointed as Corporate Vice President, Controller and Chief Accounting Officer at HII effective August 2015. He previously served as Assistant Controller at HII's Newport News Shipbuilding division. He holds a Bachelor's Degree and a Master's Degree in Accounting and Finance and is a certified public accountant .
    Christopher W. SoongExecutive Vice President and Chief Information OfficerApril 2023Christopher W. Soong was elected as the Executive Vice President and Chief Information Officer of HII in April 2023. He previously served as CIO for HII's Mission Technologies business segment. He holds a bachelor's degree in civil engineering from Virginia Tech .
    Thomas E. StiehleExecutive Vice President and Chief Financial OfficerFebruary 12, 2021Thomas E. Stiehle serves as the Executive Vice President and Chief Financial Officer at HII. He was elected to this position effective February 12, 2021. He previously worked for Northrop Grumman's Aerospace Sector for 24 years. He holds a B.S. in Mechanical Engineering from Hofstra University and an M.B.A. from Adelphi University .
    Kara R. WilkinsonExecutive Vice President and President, Ingalls ShipbuildingApril 1, 2021Kara R. Wilkinson has served as Executive Vice President and President, Ingalls Shipbuilding since April 1, 2021. She began her career at Ingalls Shipbuilding in 1996 as a naval architect. She holds a B.S. in Naval Architecture and Marine Engineering from the University of Michigan and an M.B.A. from Temple University .
    D. R. WyattCorporate Vice President and TreasurerMarch 2011D. R. Wyatt has been serving as the Corporate Vice President and Treasurer at HII since March 2011. He previously was the Director of Business Management at NGSB. He holds a B.S. in Economics from Hampden-Sydney College and an M.B.A. from Old Dominion University .
    Kari R. WilkinsonExecutive Vice President and President, Newport News ShipbuildingJanuary 1, 2025Kari R. Wilkinson was elected to serve as Executive Vice President and President of Newport News Shipbuilding, effective January 1, 2025. She previously served as Executive Vice President and President of Ingalls Shipbuilding since April 1, 2021. She holds a B.S. in Naval Architecture and Marine Engineering from the University of Michigan and an M.B.A. from Temple University .
    Brian BlanchetteExecutive Vice President and President, Ingalls ShipbuildingJanuary 1, 2025Brian Blanchette was elected to serve as Executive Vice President and President of Ingalls Shipbuilding, effective January 1, 2025. He previously served as Vice President of Quality and Engineering at Ingalls Shipbuilding. He joined Ingalls in 1996 and has held various roles in technical and design engineering .

    Questions to Ask Management

    1. Labor productivity in your shipyards remains below pre-pandemic levels due to the inexperience of the workforce . When do you expect productivity to return to pre-pandemic levels, and what specific measures are you implementing to accelerate this improvement?
    2. Ingalls Shipbuilding's margins dipped this quarter due to factors like lower risk retirement on surface combatant programs and schedule adjustments for milestones such as DDG 129 . How do these developments affect your profitability outlook, and what steps are you taking to restore margins at Ingalls?
    3. You have adjusted delivery schedules for ships like SSN 798 Massachusetts, shifting delivery from late 2024 to early 2025 due to equipment replacement during testing . How will these schedule changes impact your financial commitments and confidence in meeting future milestones?
    4. Despite a strong trailing 12-month book-to-bill ratio of 1.15 and an $83 billion pipeline in Mission Technologies , you are maintaining a 5% growth guidance . What are the constraints preventing higher growth, and how might successful execution on your pipeline influence future growth rates?
    5. With Deloitte winning a $2.4 billion Navy shipbuilding contract that HII was not involved in , can you explain why Mission Technologies did not participate in this opportunity and how you are positioning the division to compete more effectively in such contracts?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateNovember 2012
    End Date/DurationDecember 31, 2028
    Total additional amount$3.8 billion
    Remaining authorization amount$1,352.3 million
    DetailsAuthorization increased in January 2024

    Past Guidance

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024 and FY 2024
    • Guidance:
      • Mission Technologies Revenue: Raised by $50 million for the year.
      • Shipbuilding Revenue and Margin: Q3 shipbuilding revenue expected to be approximately $2.2 billion with a margin of 7.8%.
      • Mission Technologies Q3 Revenue and Operating Margin: Expected revenues of approximately $650 million and an operating margin of 2.5%.
      • Interest Expense: Updated to $95 million.
      • Free Cash Flow: Reiterated at $600 million to $700 million for 2024, with Q3 expected to be near 0.
      • Five-Year Free Cash Flow Outlook: $3.6 billion.
      • Capital Expenditures: 5.3% of revenues for the year, with a 5% CapEx over the next three years .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      • Shipbuilding Margin: 7% for Q2 2024, with expectations for higher margins in the latter half of the year.
      • Capital Expenditures (CapEx): 5.3% of sales for the year.
      • Free Cash Flow: Between $600 million to $700 million for 2024, with a five-year outlook of $3.6 billion.
      • Revenue and Operating Income: Newport News volumes expected to ramp up.
      • Mission Technologies Revenue: $2.7 billion to $2.75 billion for the year.
      • Share Buyback: Target of $300 million by year-end .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      • Free Cash Flow: Between $600 million and $700 million.
      • Revenue Growth:
        • Overall: 4-plus percent mid- to long-term.
        • Shipbuilding: Increased to approximately 4%.
        • Mission Technologies: Approximately 5%.
      • Revenue:
        • Shipbuilding: $8.8 billion to $9.1 billion.
        • Mission Technologies: $2.7 billion to $2.75 billion.
      • Operating Margins:
        • Shipbuilding: 7.6% to 7.8%.
        • Mission Technologies: 3% to 3.5%.
        • Mission Technologies EBITDA Margins: 8% to 8.5%.
      • Amortization of Purchased Intangible Assets: Approximately $109 million, with $99 million for Mission Technologies.
      • First Quarter 2024 Revenues:
        • Shipbuilding: Approximately $2.2 billion.
        • Mission Technologies: Approximately $650 million.
      • First Quarter 2024 Operating Margins:
        • Shipbuilding: Near 7%.
        • Mission Technologies: Near 2.5%.
      • Capital Expenditures: Approximately 5.3% of sales in 2024, with a long-term rate of 1.5% to 2% for general sustainment .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Not available
    • Guidance: Not available

    The documents do not provide information from the Q3 2024 earnings call, so the guidance and guided period for that call are not available.

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • L3 Harris, Amentum, ManTech, Leidos: Competitors in the Mission Technologies segment, competing domestically and internationally across business capabilities .
    • Small businesses serving the intelligence community: Increasing competition in the Mission Technologies segment .
    • Lockheed Martin, General Dynamics, Northrop Grumman, Raytheon, Boeing: Compete on certain contracts with major prime A&D contractors .
    • Another large defense contractor: Competes for contracts to build surface combatants, submarines, and large deck amphibious ships .
    • Smaller shipyards: Entered the market for surface combatants .

    Latest news

    Recent developments and announcements about HII.

    Financial Actions

      New Share Buyback Program

      ·
      Nov 18, 2024, 12:00 AM

      HII has announced a new buyback program involving the issuance of two new series of senior notes. The 5.353% Senior Notes due 2030 and the 5.749% Senior Notes due 2035 will be issued in aggregate principal amounts of $500,000,000 each. The 2030 Notes will mature on January 15, 2030, and the 2035 Notes will mature on January 15, 2035. Interest on these notes will be payable semi-annually on January 15 and July 15 each year, starting from July 15, 2025. The notes are subject to optional redemption and may be repurchased under certain conditions .