Yahoo Finance Huntington Ingalls Industries, Inc. (NYSE:HII) Q1 2024 Earnings Call Transcript
Huntington Ingalls Industries, Inc. (NYSE:HII) Q1 2024 Earnings Call Transcript May 2, 2024
Huntington Ingalls Industries, Inc. beats earnings expectations. Reported EPS is $3.87, expectations were $3.53. Huntington Ingalls Industries, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2024 HII Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to the Vice President of Investor Relations, Christie Thomas. Ms. Thomas, please go ahead.
Christie Thomas: Thank you, operator and good morning. I’d like to welcome everyone to the HII first quarter 2024 earnings conference call. Joining me today on the call are Chris Kastner, our President and CEO; and Tom Stiehle, Executive Vice President and CFO. As a reminder, statements made today that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results to be materially different from future results expressed or implied by these forward-looking statements. Please see our SEC filings for important factors that could cause our actual results to differ materially from expected results.
Also, in their remarks today, Chris and Tom will refer to certain non-GAAP measures. For reconciliations of these metrics to the comparable GAAP measures, please see the slides that accompany this webcast, which are available on our website’s Investor Relations page at ir.hii.com. With that, I would like to turn the call over to our President and CEO, Chris Kastner. Chris?
Chris Kastner: Thanks, Christie and good morning everyone. Today, we released quarterly results that were characterized by steady performance in shipbuilding and strong growth of Mission Technologies. We saw record first quarter revenues, reflecting the continued strong demand from our customers for our products. As we discussed at our Investor Day in March, we remain focused on delivering the advantage to all our stakeholders, our customers, employees, shareholders, suppliers and communities. Now, let’s turn to our results. Record first quarter revenue was $2.8 billion and diluted earnings per share was $3.87 for the quarter, up from $3.23 in the first quarter of 2023. New contract awards during the quarter were $3.1 billion, which resulted in backlog of $48.4 billion at the end of the quarter, of which $27 billion is currently funded.
Turning to an update on our shipbuilding milestones. In the first quarter, at Ingalls, we completed builders and acceptance trials on LPD 29 Richard M. McCool Jr. which led to delivery of the ship last month. At Newport News, we delivered the first Columbia class Stern, floated off SSN 798 Massachusetts and completed acceptance trials for SSN 796 New Jersey, which also delivered in April. We were also awarded the advanced planning contract for CVN 75 USS Harry S. Truman’s RCOH and undocked CVN 74 USS John C. Stennis as part of its RCOH in April. In addition, last month, we announced the first integration of an Australian company into the Newport News shipbuilding supply chain with the purchase of steel from Australian manufacturer, Bisalloy Steel.
The steel will be used for training and testing to enable us to begin the qualification process for the incremental steel volume required for AUKUS. This is a critical first step toward an integrated U.S., UK, Australian supply chain under AUKUS. At Mission Technologies, we saw record first quarter revenue with sales of $750 million, 20% over the first quarter of 2023. In addition to very strong sales growth, Mission Technologies won strategic competitions in the quarter, including a $305 million contract to protect U.S. regional interest in the Republic of Korea, a $74 million contract to research, analyze and develop enhanced capabilities for vertical launching systems onboard U.S. Navy surface ships and in order to build a REMUS 620 unmanned underwater vehicle for an international customer.
Now, shifting to activities in Washington for a moment, we were pleased that the fiscal year 2024 budget cycle ultimately concluded in March. We saw continued bipartisan support for our programs reflected in the final Defense Appropriations Act, including funding for 2 Arleigh Burke-class destroyers, 2 Virginia-class attack submarines, and 1 Columbia-class ballistic submarine. Additionally, the appropriations measure provided $500 million for advanced procurement funding for LPD 33. The final appropriations bill also provided funding for the submarine industrial base and large surface combatant shipyard infrastructure and authorized the Navy to enter into a multiyear procurement contract for Virginia class submarines. Also in March, the President submitted the fiscal year 2025 budget request now under consideration by Congress.
The proposed budget reflects continued investment in our shipbuilding programs, requesting funding for 2 Arleigh Burke-class surface combatants, 1 San Antonio-class amphibious warship and a lead Block VI Virginia-class submarine. Additionally, the budget request funds the first year of the 3-year refueling and complex overhaul of CVN 75 USS Harry S. Truman. The budget request also continues funding for investment in the submarine industrial base and research and development efforts for the next-generation large surface combatants, DDG(X) and nuclear submarines, SSN(X). From an operational standpoint, to access the skilled manufacturing labor coupled with our supply chain experiencing the same labor challenges continue to impact our programs.
In that regard, we hired over 1,700 craft personnel in the first quarter, which puts us on track to achieve our full year plan of approximately 6,000. Also in the first quarter, both of our shipyards held apprentice graduations celebrating over 230 graduates across HII who are and will become the leaders in their crafts. We continue to maintain our focus on workforce retention and development and are working closely with our customers and state and local governments to solve this challenging issue. We continue to use over time, contract labor and outsourcing to mitigate risk and strengthen the opportunity for progress and schedule stabilization. In summary, we remain focused on meeting our commitments to our customers and we will continue to invest in our people and our facilities to ensure we meet the demand we forecast for our products and services.
And now, I will turn the call over to Tom for some remarks on our financial results. Tom?
Tom Stiehle: Thanks, Chris and good morning. Today, I will briefly review our first quarter results. For more detail on the segment results, please refer to the earnings release issued this morning and posted to our website. Beginning with our consolidated results on Slide 3 of the presentation, our first quarter revenues of $2.8 billion increased 4.9% compared to the same period of last year and represent a record first quarter result for HII. This increased revenue was attributable to growth at Mission Technologies in Ingalls. Operating income for the quarter of $154 million increased by $13 million or 9.2% from the first quarter of 2023 and an operating margin of 5.5% compared to operating margin of 5.3% in the same period last year.
Net earnings in the quarter were $153 million compared to $129 million in the first quarter of 2023. Diluted earnings per share in the quarter, was $3.87 compared to $3.23 in the first quarter of the previous year and backlog increased to end the quarter at $48.4 billion. Moving to Slide 5, Ingalls revenues of $655 million in the quarter increased $78 million or 14% from the same period last year, driven primarily by higher volumes and surface combatants and amphibious assault ships. Ingalls operating income of $60 million increased 9% from last year and operating margin was 9.2% in the quarter, primarily due to the higher volumes I just mentioned. At Newport News, revenues of $1.4 billion, decreased $72 million or 5% from the same period last year, primarily driven by lower volumes in aircraft carriers and the Virginia-class submarine program.
Newport News operating income for Q1 was $82 million and operating margin of 5.7% were relatively flat with the prior year. Shipbuilding operating margin in the first quarter was 6.8%, slightly behind the outlook we provided for the quarter. Our shipbuilding revenue and operating margin outlook for the full year remains unchanged. And as we have previously noted, our expected shipbuilding milestones for 2024 are concentrated largely in the second half of the year. At Mission Technologies, revenues of $750 million increased $126 million or 20% compared to the first quarter of 2023, primarily due to higher volumes in C5ISR in cyber electronic warfare and space. Mission Technologies operating income of $28 million compares to operating income of $17 million in the first quarter of last year.
The increase in operating income was driven primarily by higher volumes I just mentioned. First quarter results for Mission Technologies included approximately $25 million of amortization of purchased intangible assets. Mission Technologies EBITDA margin in the first quarter was 7.7%. Turning to Slide 6. Cash used in operations was $202 million in the quarter. Net capital expenditures were $72 million or 2.6% of revenues. Free cash flow in the quarter was negative $274 million. This compares to cash used in operations of $9 million, net capital expenditures of $40 million, or 1.5% of revenues and free cash flow of negative $49 million in the first quarter of 2023. The use of cash in the first quarter was expected and was due to timing of collections.
We reaffirm our free cash flow outlook for 2024 of $600 million to $700 million and our 5-year free cash flow outlook of $3.6 billion. Cash contributions to our pension and other post-retirement benefit plans were $10 million in the quarter. I would also like to note that we made the remaining $145 million debt payment on our term loan associated with the Align acquisition in Q1. Also during the quarter, we paid dividends of $1.30 per share or $51 million in aggregate. We also repurchased approximately 223,000 shares during the quarter at a cost of approximately $62 million. To summarize, we delivered strong year-over-year revenue growth in the first quarter driven by Mission Technologies in Ingalls and expect Newport News volumes to ramp up throughout the remainder of the year.
In addition to its very strong sales, Mission Technologies continued to win new contracts and has a robust opportunity pipeline that has grown now to $80 billion. We are off to a solid start for the year in revenues and operating income. And as typical, we expect free cash flow to ramp up throughout the year. Looking forward, we are confident in reaffirming our 2024 outlook and our 5-year free cash flow outlook of $3.6 billion. Before I end my remarks, I’d like to thank you again for attending and for watching the webcast of our Investor Day on March 20. Chris and I and the HII leadership team appreciated the opportunity to showcase the details of our strategy, investment thesis and financial plans. With that, I’ll turn the call back over to Christie to manage Q&A.
A - Christie Thomas: Thanks Tom. [Operator Instructions] Operator, I will turn it over to you to manage the Q&A.
Operator: Thank you, Christie. [Operator Instructions] Our first question comes from Scott Deuschle from Deutsche Bank.
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