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HUNTINGTON INGALLS INDUSTRIES, INC. (HII)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $3.00B and diluted EPS was $3.15; operating margin compressed to 3.7% as segment margins fell year over year, driven by unfavorable cumulative adjustments at Newport News and the absence of prior-year one-time benefits at Ingalls and Mission Technologies .
  • Management introduced FY25 guidance: shipbuilding revenue $8.9–$9.1B with 5.5–6.5% shipbuilding operating margin; Mission Technologies revenue $2.9–$3.1B with 4.0–4.5% segment margin and 8.0–8.5% EBITDA margin; free cash flow $300–$500M .
  • Strategic plan emphasizes throughput and cost actions: targeting 20% production throughput improvement and $250M annualized cost reductions; outsourcing with trusted partners and integrating W International to add 500 skilled personnel in Charleston, SC .
  • Management expects over $50B of new contract awards over the next 24 months and sees a path to ~$15B annual revenue by 2030; shipbuilding margins are guided to improve as mix transitions off pre-COVID contracts (majority post-COVID by 2027) .
  • Near-term catalysts: resolution and timing of submarine contracts (FY24 Block V, Block VI, Columbia Build 2), CVN-79 capability additions and delivery timing, and Q1 2025 cash usage and margin trajectory updates on throughput/cost initiatives .

What Went Well and What Went Wrong

What Went Well

  • Mission Technologies executed strongly in 2024 with ~$12B in total future contract value, 9% revenue growth, and expanded margins; largest-ever $6.7B U.S. Air Force EW engineering award and $3B national security task order underline demand alignment .
  • Shipbuilding program milestones delivered: SSN 796 New Jersey and LPD 29 Richard M. McCool Jr.; CVN-79 compartments substantially turned over; CVN-80 moved to enable parallel construction; Ingalls authenticated DDG 133 keel and undocked DDG-1000 .
  • Management reaffirmed a mid/long-term growth and margin expansion framework, highlighting a line of sight to ~$15B revenue by decade end and the feasibility of returning shipbuilding margins toward ~9% under new, better-balanced contracts .

What Went Wrong

  • Q4 segment operating margin fell to 3.4% versus 10.4% in Q4 2023, as Newport News posted unfavorable cumulative adjustments on Virginia-class and carriers; prior-year had one-time Ingalls court judgment sale ($70.5M) and Mission Technologies insurance settlement ($49.5M) boosting comps .
  • Newport News margins declined (Q4 segment margin 2.4% vs. 6.6% prior year) on lower Virginia-class and carrier performance, despite Columbia incentives; full-year net cumulative adjustments were negative $126M, including –$154M at Newport News .
  • Cash generation weakened: FY24 free cash flow was $40M (vs. $692M FY23), driven by pre-COVID contract timing, elevated capex, and cash taxes; management guided Q1 2025 FCF to be a use of ($300)–($500)M before milestones and awards improve 2H cadence .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Billions)$2.977 $2.749 $3.004
Diluted EPS ($USD)$4.38 $2.56 $3.15
Operating Income ($USD Millions)$189 $82 $110
Operating Margin %6.3% 3.0% 3.7%
Segment Operating Income ($USD Millions)$203 $97 $103
Segment Operating Margin %6.8% 3.5% 3.4%
Net Earnings ($USD Millions)$173 $101 $123
Free Cash Flow ($USD Millions)($99) $136 $277

Segment breakdown and margins:

SegmentQ2 2024 Revenue ($MM)Q2 2024 Seg. OI ($MM)Q2 2024 Margin %Q3 2024 Revenue ($MM)Q3 2024 Seg. OI ($MM)Q3 2024 Margin %Q4 2024 Revenue ($MM)Q4 2024 Seg. OI ($MM)Q4 2024 Margin %
Ingalls Shipbuilding$712 $56 7.9% $664 $49 7.4% $736 $46 6.3%
Newport News Shipbuilding$1,535 $111 7.2% $1,412 $15 1.1% $1,588 $38 2.4%
Mission Technologies$765 $36 4.7% $709 $33 4.7% $713 $19 2.7%

Key performance indicators:

KPIQ3 2024Q4 2024
Backlog ($USD Billions)$49.4 $48.7
Net Cash Provided by Operating Activities ($MM, Q4)—$391
Free Cash Flow ($MM, Q4)—$277
Cash and Equivalents ($MM, YE)—$831
Liquidity ($USD Billions, YE)—~$2.5
Dividends Declared per Share (Q4)—$1.35
FY Share Repurchases ($MM)—$162

Notes:

  • Segment operating income/margin and “shipbuilding operating margin” are non-GAAP; definitions and reconciliations provided in the 8-K .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Shipbuilding Revenue ($B)FY25N/A$8.9–$9.1 New
Shipbuilding Operating Margin %FY25N/A5.5%–6.5% New
Mission Technologies Revenue ($B)FY25N/A$2.9–$3.1 New
Mission Technologies Segment Operating Margin %FY25N/A4.0%–4.5% New
Mission Technologies EBITDA Margin %FY25N/A8.0%–8.5% New
Free Cash Flow ($MM)FY25N/A$300–$500 New
Operating FAS/CAS Adjustment ($MM)FY25N/A($43) New
Interest Expense ($MM)FY25N/A($130) New
Non-operating Retirement Benefit ($MM)FY25N/A$191 New
Effective Tax Rate %FY25N/A~21% New
Depreciation & Amortization ($MM)FY25N/A~$340 New
Capital Expenditures (% of Sales)FY25N/A~4% New
Shipbuilding Revenue ($B)Q1 2025N/A~$2.1 New
Shipbuilding Operating Margin %Q1 2025N/A~5.5% New
Mission Technologies Revenue ($MM)Q1 2025N/A~$680 New
Mission Technologies Segment Operating Margin %Q1 2025N/A~3.0% New
Free Cash Flow ($MM)Q1 2025N/A($300)–($500) New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
AI/Tech initiatives (Mission Technologies)Raised Mission Tech revenue guidance; strong CEW&S/C5ISR growth . Q3: ~$6.7B USAF EW contract, $3B national security task order; funded book-to-bill 2.2x in Q3 .~$12B 2024 awards, 9% YoY growth, margin expansion; confidence in ongoing success .Strengthening demand alignment .
Supply chain & laborQ2: Focus on milestones and delivery; limited constraint commentary . Q3: late critical material deliveries; reduced experience levels impacting efficiency .Target 20% throughput improvement; wage investment; 6,000+ craft hires; acquired W International (+~500 skilled) in SC; expand outsourcing 30% .Constraints acknowledged; active remediation .
Tariffs/Macro/PolicyQ3: uncertainty on timing/structure of multi-sub awards; outlook updated .FY25 NDAA supports shipbuilding programs; CR anomalies for nuclear vessel programs; negotiations for FY24 Block V and subsequent blocks .Policy support improving award visibility .
Product performance & milestonesQ2 deliveries: SSN 796, LPD 29 . Q3: SSN 801 module shipped .CVN-79 capability additions and delivery in 2025; CVN-80 parallel construction; Ingalls DDG/Zumwalt progress .Continued execution with selective schedule/capability changes .
Contracting approach & marginsQ3: withdrawal of 5-year FCF outlook; reset shipbuilding margin outlook .Over $50B awards expected; balanced risk and inflation protection; path to ~9% shipbuilding margins over time .Transition to post-COVID contract mix by 2027 .

Management Commentary

  • “Over the next 24 months, we expect to secure over $50 billion of contract awards… expected to have a more balanced risk equation… opportunity to achieve margins more consistent with historical norms.” — Chris Kastner .
  • “We expect shipbuilding revenues between $8.9 and $9.1 billion and shipbuilding margins in the range of 5.5% to 6.5%… Mission Technologies revenues between $2.9 and $3.1 billion… EBITDA margins between 8% and 8.5%.” — Chris Kastner .
  • “As a result of these workforce strategies, we expect to achieve a 20% year-over-year improvement in shipbuilding production throughput… annualized enterprise-wide cost reduction target of approximately $250 million per year.” — Chris Kastner .
  • “I absolutely believe that 9% is possible… The customer has been very receptive… we will get inflation protection in those new contracts.” — Chris Kastner .
  • “By 2027, the majority of pre-COVID contracts will be behind us… we expect a ramp in profitability as we work ourselves through the decade.” — Tom Stiehle .

Q&A Highlights

  • Margin trajectory: Management reiterated feasibility of ~9% shipbuilding margins longer-term under balanced contracts; near-term margins guided at 5.5–6.5%, with improvements as post-COVID work becomes majority by 2027 .
  • Contracting & cash: Guidance assumes FY24 Block V (2 boats) and negotiations for Block VI and Columbia Build 2; cash inflows on contract execution are risk-adjusted and timing remains uncertain; Q1 2025 FCF guided to ($300)–($500)M due to milestone timing .
  • CVN-79: Capability additions likely to drive an equitable contract change; delivery remains a 2025 event, with timing under discussion; modest negative EAC adjustment recorded .
  • Outsourcing quality: Increased outsourcing leverages existing trusted partners with pilots and strict quality/cost controls; W International acquired to in-source critical capacity with Newport News leadership .
  • EACs & program mix: Negative EACs impacted Virginia-class across Blocks IV and V; Block V was negotiated in 2019, pre-pandemic; management expects stabilization and improvement as new awards roll in .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 EPS and revenue was unavailable at the time of this report due to system limits, preventing beat/miss quantification [GetEstimates errors].
  • Implication: Use company-reported actuals and trend analysis versus prior periods; monitor upcoming estimate revisions post-guide and contract award timing.

Key Takeaways for Investors

  • Near-term margin pressure persists at Newport News due to unfavorable cumulative adjustments and pre-COVID contract mix, but FY25 shipbuilding margin is guided to 5.5–6.5% with targeted throughput and cost actions .
  • Mission Technologies continues to be a bright spot with ~$12B awards and 8.0–8.5% FY25 EBITDA margin guidance, supporting consolidated stability amid shipbuilding variability .
  • Contracting is the core catalyst: resolution of FY24 Block V boats early in 2025 and progress on Block VI/Columbia Build 2 should improve visibility and potentially unlock milestone-related cash .
  • Cash flow cadence remains lumpy; Q1 2025 FCF is guided negative ($300)–($500)M before improving with milestones and awards—position sizing should consider interim cash burn .
  • Strategic capacity additions (Charleston) and outsourcing are designed to accelerate build rates and reduce risk on current programs—watch hiring/retention and supply chain stabilization metrics for execution confirmation .
  • Long-term thesis intact: Management targets ~$15B annual revenue by 2030 and margin expansion as contract mix normalizes—stock narrative hinges on delivering throughput, cost reductions, and balanced awards .
  • Monitor CVN-79 capability changes and delivery timing, and shipbuilding margin trend by quarter to gauge trajectory toward medium-term targets .

Appendix: Additional Detail Cross-References

  • Q4 consolidated and segment results, non-GAAP reconciliations and YE balance sheet/cash flow are in the 8-K Exhibits .
  • Q3 results and outlook reset provide context on negative adjustments and margin guide trajectory .
  • Q2 results highlight milestone deliveries and earlier Mission Technologies guidance raise .