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HUNTINGTON INGALLS INDUSTRIES, INC. (HII)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered a clean top-line and EPS beat versus consensus, with revenue $3.082B vs $2.933B* and EPS $3.86 vs $3.30*, while operating margin compressed YoY on Newport News performance; backlog reached a record $56.9B and awards were $11.9B .
  • Free cash flow guidance was raised to $500–$600M (from $300–$500M), supported by R&D expensing/tax changes; management reiterated FY25 segment revenue and margin guidance, but flagged Q3 shipbuilding margins near the low end and FCF of approximately -$150M .
  • Segment trends: Newport News margins fell on Virginia-class and carrier construction adjustments; Ingalls margins softened on amphibious incentives; Mission Technologies revenue rose on C5ISR and LVC training; consolidated operating margin stepped down YoY to 5.3% .
  • Strategic catalysts: Block 6 Virginia-class and Columbia Build 2 contract awards later in 2025 could provide upside; AI partnership with C3 AI aims to accelerate shipbuilding throughput and may underpin narrative on efficiency improvements .
  • Near-term stock reaction drivers: beat on EPS/revenue, raised FCF guide, record backlog, and clarity on Q3 cadence (lower margins, negative FCF) set expectations; contract timing and CVN79 schedule update remain watch points .

What Went Well and What Went Wrong

What Went Well

  • Revenue and EPS beats vs Street: revenue $3.082B vs $2.933B* and EPS $3.86 vs $3.30*; awards $11.9B drove backlog to a record $56.9B. CEO: “Second quarter results were largely in line with our expectations… targeted investments are helping to stabilize the workforce and supply chain” .
  • Mission Technologies execution: revenue $791M (+3.4% YoY) with strong C5ISR and LVC training; EBITDA margin 8.1% and commercial UUV demand (REMUS 300) highlighted .
  • FCF inflection: Q2 cash from ops $823M and FCF $730M, supported by incentive timing and tax updates; FY25 FCF guide raised to $500–$600M .

What Went Wrong

  • Margin compression: operating margin 5.3% (vs 6.3% YoY); segment opex margin 5.6% (vs 6.8% YoY), mainly from Newport News (VCS and carrier construction) and negative cumulative adjustments (NNS net -$17M) .
  • Ingalls softness: segment margin 7.5% (vs 7.9% YoY) with lower amphibious performance and incentives; prior-year LPD 29 incentive benefited comps .
  • Q3 setup: management guided shipbuilding margins near low end, Mission Technologies margin ~3.5%, and FCF of ~(-$150M), tempering near-term cadence despite strong Q2 cash generation .

Financial Results

Consolidated Performance vs Prior Periods

MetricQ2 2024Q1 2025Q2 2025
Revenue ($USD Billions)$2.977 $2.734 $3.082
Operating Income ($USD Millions)$189 $161 $163
Operating Margin %6.3% 5.9% 5.3%
Segment Operating Income ($USD Millions)$203 $171 $172
Segment Operating Margin %6.8% 6.3% 5.6%
Net Earnings ($USD Millions)$173 $149 $152
Diluted EPS ($USD)$4.38 $3.79 $3.86

Actual vs Estimates (Wall Street Consensus)

MetricConsensus (Q2 2025)Actual (Q2 2025)Surprise
Revenue ($USD Billions)$2.933*$3.082 +$0.149B (beat)
Primary EPS ($USD)$3.30*$3.86 +$0.56 (beat)
EBITDA ($USD Millions)$229.6*$285.0*+$55.4M (beat)

Values marked with * are retrieved from S&P Global.

Segment Breakdown

Segment MetricQ2 2024Q1 2025Q2 2025
Ingalls Revenue ($USD Millions)$712 $637 $724
Ingalls Segment Operating Income ($USD Millions)$56 $46 $54
Ingalls Segment Operating Margin %7.9% 7.2% 7.5%
Newport News Revenue ($USD Millions)$1,535 $1,396 $1,603
Newport News Segment Operating Income ($USD Millions)$111 $85 $82
Newport News Segment Operating Margin %7.2% 6.1% 5.1%
Mission Tech Revenue ($USD Millions)$765 $735 $791
Mission Tech Segment Operating Income ($USD Millions)$36 $40 $36
Mission Tech Segment Operating Margin %4.7% 5.4% 4.6%

KPIs and Cash Metrics

KPIQ2 2024Q1 2025Q2 2025
New Contract Awards ($USD Billions)—$2.1 $11.9
Backlog ($USD Billions)—~$48.0 $56.9
Net Cash Provided by Operating Activities ($USD Millions)($9) (395) $823
Free Cash Flow ($USD Millions)($99) (462) $730
Cash Balance ($USD Millions)—$167 $343
Liquidity ($USD Billions)——~$2.0
Net Capex ($USD Millions)—$67 $93
Dividends Declared per Share ($USD)$1.30 $1.35 $1.35

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Shipbuilding RevenueFY25$8.9B–$9.1B $8.9B–$9.1B Maintained
Shipbuilding Operating MarginFY255.5%–6.5% 5.5%–6.5% Maintained
Mission Tech RevenueFY25$2.9B–$3.1B $2.9B–$3.1B Maintained
Mission Tech Segment Operating MarginFY254.0%–4.5% 4.0%–4.5% Maintained
Mission Tech EBITDA MarginFY258.0%–8.5% 8.0%–8.5% Maintained
Operating FAS/CAS AdjustmentFY25($43M) ($40M) Lowered (more favorable)
Non-current State Income Tax ExpenseFY25~$0M ($15M) Introduced expense
Interest ExpenseFY25($130M) ($110M) Lowered
Effective Tax RateFY25~21% ~21% Maintained
Depreciation & AmortizationFY25~$340M ~$340M Maintained
Capital ExpendituresFY25~4% of Sales ~4% of Sales Maintained
Free Cash FlowFY25$300M–$500M $500M–$600M Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24, Q1’25)Current Period (Q2’25)Trend
AI / Technology InitiativesEmphasis on operational initiatives, throughput and cost reduction; acquired Charleston assets to boost capacity Strategic AI partnership with C3 AI to accelerate shipbuilding throughput via schedule optimization; scaling from Ingalls to both yards Positive, execution ramping
Supply ChainPre-COVID contract drag and supply chain inefficiencies; NDAA support “Expect continued stability, though risk remains for some major equipment” Stabilizing with residual risk
Labor / Wages / AttritionNeed wage increases and more experienced hires; attrition stubborn ~2,400 hires; wage adjustment at NNS improving attrition; targeting experienced labor Improving workforce mix
Outsourcing / CharlestonPlan to increase outsourcing by 30% and in-source contract labor; acquired W International Outsourcing ~2M hours; Charleston ops ramping; aim 20% throughput uplift Scaling throughput levers
Contract AwardsExpect $50B+ across 2025–26 Block 6 and Columbia Build 2 targeted for 2025; timing could influence H2 cash/margins Dependent on award timing
Regulatory / Tax2025 cash taxes ~$220M outlook R&D expensing change adds ~$150M FCF tailwind; state tax becomes non-current expense of ~$15M FCF tailwind; state tax headwind
Program MilestonesCVN79 planned 2025 delivery; VCS progress CVN79 first sea trials end of year; CVN80 negative adjustment; SSN800 float off; SSN798 delivery plans Active milestones with adjustments
Macro / BudgetFY25 NDAA supportive; industrial base investments Reconciliation bill + FY26 budget supportive; funding for VCS, Columbia, destroyers, amphibious bundle Strong tailwinds

Management Commentary

  • CEO: “Contract awards of $11.9 billion… Free cash flow was $730 million… [We] entered into a strategic partnership with C3 AI… to accelerate shipbuilding throughput” .
  • CEO: “Next year and a half will be challenging as we transition out of ships contracted for pre-COVID… both shipyards increased throughput in the second quarter, and I expect further acceleration on the back half” .
  • CFO: “For the second quarter of 2025, Newport News Shipbuilding's net cumulative adjustment was negative $17 million… Ingalls… net cumulative adjustment… positive $4 million” .
  • CFO: “We are updating 2025 free cash flow guidance to $500M–$600M… majority related to updated cash tax expectations given the recent change in tax law” .
  • CEO: On CVN79 timing shift: “No material financial impact… we are scheduled to go to sea for our first trials toward the end of the year” .

Q&A Highlights

  • Throughput vs revenue growth: Management reconciled 20% throughput target with ~3% shipbuilding revenue growth, citing material timing and back-half ramp; outsourcing to ~2M hours and Charleston ramp underpin targets .
  • Award timing sensitivity: Block 6 and Columbia Build 2 expected in H2; if awards slip, guidance range accounts for tailwinds/headwinds via incentives/advances rather than immediate margin shifts .
  • Tax law impact: R&D expensing change provides ~$150M FCF uplift; state tax becomes $15M non-current expense, ~$10M in Q3 .
  • Q3 preview: Shipbuilding revenue ~$2.2B, margins near low end; Mission Technologies ~$730M revenue and ~3.5% margin; FCF ~(-$150M) due to normal cadence and strong Q2 cash timing .
  • Labor dynamics: Wage increases aimed at improving retention and skill mix; management will book performance improvements when proven, not pre-emptively .
  • CVN79/80: CVN79 sea trials this year; schedule delivery moved to 2027 with capability additions; CVN80 had negative adjustment .

Estimates Context

MetricQ1 2025 ConsensusQ1 2025 ActualQ2 2025 ConsensusQ2 2025 ActualFY 2025 Consensus
Revenue ($USD Billions)$2.787*$2.734 $2.933*$3.082 $12.075*
Primary EPS ($USD)$2.88*$3.79 $3.30*$3.86 $15.17*
EBITDA ($USD Millions)$210.0*$275.0*$229.6*$285.0*$980.1*
Target Price Consensus Mean ($USD)$331.89*—$331.89*—$331.89*
# of Estimates (EPS/Revenue)10 / 9*—10 / 9*—8 / 9*

Values marked with * are retrieved from S&P Global.

Key Takeaways for Investors

  • Strong prints: consolidated revenue and EPS both beat consensus; segment margins mixed with pressure at Newport News—focus on execution risk in Virginia-class and carriers .
  • Cash narrative improved: FY25 FCF guide raised to $500–$600M, aided by R&D tax change, but Q3 FCF expected negative—trade the cadence carefully around incentive/award timing .
  • Near-term setup: management guides Q3 shipbuilding margins near low end; watch H2 for potential upside from Block 6/Columbia awards and throughput acceleration .
  • Structural throughput levers: AI partnership (C3 AI), outsourcing scale, and Charleston facility ramp should drive incremental efficiency in 2H25/2026, supporting medium-term margin recovery .
  • Segment watch: Newport News remains the swing factor; Ingalls stable but amphibious incentives can impact; Mission Tech healthy but Q2 had nonrecurring C5ISR resolution—expect normalization in Q3 .
  • Program milestones vs risk: CVN79 sea trials this year and delivery moved to 2027 with added capabilities; CVN80 adjustments highlight ongoing complexity—monitor cumulative adjustments .
  • Thesis: backlog strength and supportive budgets underpin revenue visibility; transition from pre-COVID contracts and operational initiatives are key to margin expansion—contract timing is the principal catalyst into year-end .

Additional Relevant Press Releases (Q2 2025)

  • HII and C3 AI strategic AI partnership to accelerate shipbuilding throughput; initial deployment at Ingalls showed scheduling improvements and will scale across yards .
  • Internal AI use-case initiative by HII interns highlights continued digital focus (cultural/organizational angle) .