HUNTINGTON INGALLS INDUSTRIES (HII)·Q4 2025 Earnings Summary
HII Beats on Revenue and EPS, But Stock Tanks on Weak Q1 Cash Flow Guidance
February 5, 2026 · by Fintool AI Agent
Huntington Ingalls Industries delivered a strong Q4 2025, beating revenue estimates by 12.2% and EPS by 5.0%, driven by higher volumes across all three segments and improved execution on the Virginia-class submarine program. However, the stock plunged nearly 10% as investors focused on management's warning that Q1 2026 free cash flow would swing to negative $600 million due to timing of cash receipts pulled forward into Q4.
Did HII Beat Earnings in Q4 2025?
Yes — HII beat on both revenue and EPS.
*Values retrieved from S&P Global
Full Year 2025 also exceeded expectations:
*Values retrieved from S&P Global
The beat was driven by higher volumes across all segments — submarines and aircraft carriers at Newport News, amphibious assault ships and surface combatants at Ingalls, and Warfare Systems and Unmanned Systems at Mission Technologies.
Ask Fintool AI AgentHow Did the Stock React?
HII stock tanked despite the beat. The market focused on weak Q1 2026 cash flow guidance rather than the strong quarter.
The after-hours selloff accelerated after management disclosed that Q1 2026 free cash flow will be approximately ($600M) — a $1.1 billion swing from Q4's $516M inflow — because Q4 benefited from timing of customer payments that were "pulled forward."
What Did Management Guide?
Management provided detailed FY 2026 guidance that landed mixed reviews:
Q1 2026 Look-Ahead (the real concern):
The FY 2026 FCF guidance of $500-600M represents a decline from FY 2025's $800M, which management attributes to normalization after Q4 2025's timing benefit.
Medium-Term Outlook:
- HII revenue CAGR of ~6% over next 3-5 years
- Target enterprise revenue of $16B+ by 2030
- Shipbuilding medium-term revenue growth of ~6%
- Mission Technologies medium-term revenue growth of ~5%
What Changed From Last Quarter?
Key improvements vs. Q3 2025:
What improved:
- Virginia-class submarine performance — Lower unfavorable cumulative catch-up adjustments plus favorable contract adjustments drove Newport News improvement YoY
- Throughput — Achieved ~14% improvement in 2025, targeting ~15% in 2026
- Outsourcing — Doubled outsourced hours in 2025
- Mission Technologies EBITDA margin — Expanded to 9.4% in Q4 (8.6% FY) from 7.9% in FY24
How Did Each Segment Perform?
Ingalls Shipbuilding
Key milestones in 2025:
- Delivered DDG-128 Ted Stevens (second Flight 3 destroyer)
- Launched DDG-129 Jeremiah Denton and authenticated keel of DDG-135 Thad Cochran
- Christened LPD-30 Harrisburg and began fabrication of LPD-32 Philadelphia
- Selected by U.S. Navy for frigate program leveraging Legend-class design
- Signed MOA with HD Hyundai Heavy Industries for strategic collaboration
Newport News Shipbuilding
Key milestones in 2025:
- Delivered SSN-798 Massachusetts and launched SSN-800 Arkansas
- Laid keel of SSN-804 Barb; undocked SSN-796 New Jersey for redelivery prep
- Delivered bow of first Columbia-class submarine (SSBN-826 District of Columbia)
- CVN-79 Kennedy completing first sea trial evolution; CVN-80 now 50% erected in dry dock
- CVN-81 keel units in fabrication with major material components being received
Mission Technologies
Key highlights:
- Delivered 750th REMUS autonomous underwater vehicle
- Delivered Lionfish small unmanned underwater vehicles to U.S. Navy
- Developing U.S. Army's high-energy laser weapon system
- Unveiled Romulus family of unmanned surface vessels powered by Odyssey autonomy software
- Debuted GRIM Spectrum Dominance EW solution
- Lower purchased intangible amortization ($89M vs $99M in 2024)
Ask Fintool AI AgentKey Management Quotes
CEO Chris Kastner on operational progress:
"The solid results we posted this morning are the outcome of a measurable increase in shipbuilding throughput, a key indicator for scheduled performance. During 2025, in partnership with our government customers, we've taken steps to increase our hiring, improve our retention, and strengthen proficiency levels within our workforce."
On mission urgency:
"The global security environment demands that we operate with a sense of urgency and purpose that matches the seriousness of the threats our nation faces."
On CVN 79 Kennedy sea trials (closing remarks):
"Hey, I want to give a shout-out to the CVN 79 team, both the sailors and the shipbuilders. You had a really great trial this week. It was an excellent week to be a shipbuilder. I'm proud of the team."
CFO Tom Stiehle on revenue momentum:
"Both Q3 and Q4 saw HII have quarters of 16% growth. We finished out the year this year in 2025 at 8.2% growth from 2025/2024. We saw shipbuilding at 9.7% for the year... I'm inspired by several quarters now in a row of seeing double-digit growth in shipbuilding."
Q&A Highlights: What Analysts Focused On
Path to 9-10% Shipbuilding Margins
Analysts pressed on when margins would improve meaningfully. CFO Tom Stiehle explained the path involves working off legacy pre-COVID contracts:
"When we look at Newport News, the EACs are stable... As those continue to evolve out, we talk about the portfolio in 2027 becoming more post than pre-COVID. That's going to assist in that lift."
CEO Kastner noted investments are pressuring near-term margins: "There is investment required that we're making in outsourcing and overtime to prioritize schedules on these ships, which is impacting our profitability, there's no doubt. We think that makes sense."
Virginia-Class Throughput Improvement
When asked about the 14% productivity gain, Kastner confirmed improvements were broad-based across programs: "The Virginia-class program actually did very well in 2025. Remember, those schedules were reset post-COVID, so there's an incremental walkup in throughput required to get to the two Virginia-class per year. But they had a very good year last year."
Critical Submarine Contract Timing
The Virginia Block 6 and Columbia Build 2 contracts remain unsigned. Kastner emphasized urgency: "We need it before the end of the first half of the year in order to maintain our production schedules... One thing I know for sure, the Navy's going to buy submarines."
CVN 80/81 Profitability Concerns
When asked if HII would make money on CVN 80 and 81 given negative EACs, CFO Stiehle was definitive: "Yes. We do. We think we're booked accordingly right now. We've described what transpired on those ships upfront. We've been impacted by some material that goes deep into the ship. That risk is behind us."
New Frigate and Battleship Programs
On the new frigate win: "We're very confident we're going to build the first two boats or first two ships in that class... We're fortunate on that program that we still have a lot of material from NSC 11, which is really a lot of the upfront cost on a ship."
On the battleship: "We're still engaged with the Navy on understanding how that design's going to unfold with us, the Navy, and BIW. So there'll be modest revenue this year, and then it'll ramp from there."
Labor Competition from Data Centers
When asked about competition from Virginia data center construction for electricians and pipe fitters, Kastner said no impact so far: "We haven't seen the impact. The applicants and the hiring in Newport News was very, very strong over the back half of the year."
Unmanned Systems Opportunity
On the Mission Technologies unmanned portfolio, Kastner was bullish: "We're right in the middle of [the hybrid fleet] with, obviously, a very keen understanding of large-capital ships, but then also being the largest provider of unmanned undersea vehicles and then having unmanned surface vehicles, all predicated upon an autonomy software that's really world-class."
Ask Fintool AI AgentInvestment Thesis Update
Management reiterated their core investment thesis:
- Largest U.S. military seapower provider with leading all-domain defense technologies
- Margin expansion opportunity driven by operational execution and new post-COVID contracts
- Free cash flow growth enabling disciplined capital allocation
- Working through challenged pre-COVID contracts — focused on delivery and cost reduction
- Significant contract awards expected with margins more consistent with historical norms
2026 Operational Priorities:
- Throughput improvement target: +15% YoY
- Continue expanding Charleston facility
- Grow outsourced hours by +30%
- Capital investment: $500-600M
Upcoming Shipbuilding Milestones
2026 Deliveries:
- SSN-800 Arkansas — Virginia-class submarine delivery (year-end)
- LPD-30 Harrisburg — Accelerated from 2027 into 2026
- CVN-79 Kennedy — Preliminary acceptance (sea trials completing)
Note on LHA-8: Management adjusted LHA-8 Bougainville delivery to 2027 to "avoid any potential conflicts, people, or equipment, and establishes clear and consistent priorities for the joint Ingalls and Navy teams."
2027:
- Deliver CVN-79 Kennedy
- Deliver DDG-129 Jeremiah Denton
- Deliver LHA-8 Bougainville
- Redeliver CVN-74
- Launch LPD-31
Balance Sheet & Capital Allocation
Management paid down $500M of debt during FY 2025 and paused share repurchases to prioritize deleveraging and capital investment.
Beat/Miss History
HII has beaten EPS estimates in 7 of the last 8 quarters:
*Values retrieved from S&P Global
Forward Catalysts & Risks
Catalysts:
- CVN 79 Kennedy delivery — Currently completing sea trials, "excellent week to be a shipbuilder" per CEO
- Virginia Block 6 and Columbia Build 2 contracts — Expected H1 2026, will include new incentives
- Golden Fleet programs — Trump-class battleship and frigate announced in December; frigate leverages proven Legend-class National Security Cutter design
- Romulus unmanned surface vessels — New USV family powered by Odyssey autonomy software; first prototype under construction on Gulf Coast
- HD Hyundai partnership — MOA signed to explore future partnership opportunities and expand U.S. shipbuilding industrial base
- Margin expansion — Portfolio shifts to more post-COVID contracts by 2027; path to 9-10% target remains intact
Risks:
- Cash flow volatility — Q1 2026 warning of ($600M) outflow highlights timing lumpiness; CEO noted "cash can be pretty lumpy"
- Submarine contract timing — Virginia Block 6 needed by end of H1 2026 to maintain production schedules
- CVN 80/81 execution — Working LHA-8 "out of sequence" with deck over team focused on getting back on track
- Elevated capex — 4-5% of sales vs historical levels; CFO expects capex to remain elevated going forward
- Government budget risk — Dependent on defense appropriations
Ask Fintool AI AgentThe Bottom Line
HII delivered a strong Q4 and full-year 2025, beating on both revenue and EPS while generating $800M in free cash flow (up from $40M in FY24). The operational turnaround is real — throughput improved 14% broadly across programs, Virginia-class submarine execution improved materially, and Mission Technologies EBITDA margins expanded to 8.6%.
However, the stock's 10% plunge reflects investor concern about cash flow durability. The warning that Q1 2026 will see ($600M) in FCF outflow — a $1.1B swing from Q4 — raised questions about whether FY 2025's strong cash generation was pulled forward rather than earned. Management was candid on the call: "cash can be pretty lumpy" in shipbuilding.
Key takeaways from the call:
- Margin path intact — Portfolio shifts to more post-COVID contracts by 2027; 9-10% target remains aspirational but achievable
- Submarine contracts critical — Virginia Block 6 needed by H1 2026 to avoid production schedule risk
- CVN 79 momentum — Sea trials this week described as "excellent week to be a shipbuilder"
- New programs upside — Frigate and battleship programs not yet in 6% growth guidance
For long-term investors, the medium-term story remains intact: ~6% revenue CAGR with upside from new programs, margin expansion as challenged contracts roll off, and significant backlog support from FY26 NDAA and appropriations. Near-term, expect volatility as Q1 2026 cash flow confirms management's warning.
Analysis based on HII's Q4 2025 earnings release, investor presentation, and earnings call transcript filed February 5, 2026.