Huntington Ingalls Industries Reports First Quarter Results; Continues Segment Operating Margin Improvement

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 Sales were $1.57 billion for the first quarter 2012

  Segment operating margin improved to 6.4 percent from 5.0 percent in Q1 2011

  Total operating margin was 5.1 percent, up from 5.0 percent in the same period last year

  Diluted earnings per share was $0.67

  Cash and cash equivalents at the end of the quarter was $551 million

 

NEWPORT NEWS, Va.May 9, 2012  -- Huntington Ingalls Industries (NYSE:HII) reported first quarter 2012 sales of $1.57 billion, down 6.9 percent from the same period last year, and segment operating margin of 6.4 percent, up from 5.0 percent for the same period last year. Total operating margin was 5.1 percent, up 0.1 percent from the first quarter of last year, and first quarter diluted earnings per share was $0.67, compared with $0.92 in the same period of 2011. Cash used in operating activities in the first quarter of 2012 was $329 million, an improvement of $35 million over the same period last year. New business awards for the 2012 first quarter were approximately $0.8 billion, bringing total backlog to $15.5 billion as of March 31, 2012.

"The end of the first quarter marked our one-year anniversary as an independent, publicly-traded company, and we are on track to deliver the performance targets we laid out at the time of the spin," said Mike Petters, HII's president and chief executive officer. "The first quarter was highlighted by our steady performance at Newport News and continued progress toward margin expansion at Ingalls, coupled with new business opportunities outside of shipbuilding such as the start-up of nuclear maintenance services support at Kesselring."

First Quarter Highlights

             Three Months Ended                            
                                                                    March 31,                            
         (In millions, except per share amounts)           2012           2011        $ Change      % Change
                                           Sales      $ 1,568      $ 1,684       $ (116)       (6.9)%
                 Total segment operating income1            101            84             17         20.2%
                     Segment operating margin %1           6.4%           5.0%                      145 bps
                          Total operating income             80            85            (5)       (5.9)%
                              Operating margin %           5.1%           5.0%                        5 bps
                                    Net earnings            33            45           (12)      (26.7)%
                      Diluted earnings per share       $ 0.67       $ 0.92      $ (0.25)      (27.1)%
     Weighted average diluted shares outstanding          49.5          48.8                            
                                                         1Non-GAAP metric. See Exhibit B for reconciliation.

First quarter consolidated sales decreased $116 million from the same period in 2011, driven by lower sales volume following the delivery of NSC-3 USCGC Stratton and LPD-22 San Diego in 2011 and lower sales volume on the CVN-71 USS Theodore Roosevelt refueling and complex overhaul (RCOH) and the SSN-774 Virginia-class submarine construction program, partially offset by higher sales on the advance construction contract for CVN-79 John F. Kennedy and the advance planning contract for the CVN-72 USS Abraham Lincoln RCOH. 

Segment operating income in the quarter was $101 million, up $17 million from the same 2011 period. The increase was primarily due to performance improvements on the SSN-774 Virginia-class submarine construction program and the absence of unfavorable performance adjustments realized in the first quarter of 2011 on the LPD program and CVN-78 Gerald R. Ford. Total operating income was $80 million, down from $85 million in the same period last year. Total operating margin was 5.1 percent for the quarter, up 0.1 percent from the first quarter of 2011. The decrease in operating income was primarily driven by higher FAS/CAS adjustment in 2012.   

Awards

The value of new contract awards during the three months ended March 31, 2012 was approximately $0.8 billion. Significant new awards during this period included contracts for advance procurement for construction of LPD-27 (unnamed) and NSC-6 (unnamed), as well as advance planning efforts for the CVN-72 USS Abraham Lincoln RCOH.

Operating Segment Results

Ingalls Shipbuilding

   Three Months Ended                        
                               March 31,                         
        ($ in millions)      2012      2011     $ Change     % Change
                  Sales     $ 692     $ 761       $ (69)      (9.1)%
       Operating income       20       17           3        17.6%
     Operating margin %      2.9%      2.2%                   66 bps

Ingalls revenues for the first quarter decreased $69 million from the same period in 2011, driven by lower sales in the National Security Cutter (NSC) and Amphibious Assault Ships programs. The decrease in the NSC program sales was primarily the result of the delivery of NSC-3 USCGC Stratton in 2011. The decrease in Amphibious Assault Ships sales was primarily due to lower sales volume on the LPD program following the delivery of LPD-22 San Diego in 2011.

Ingalls operating income for the first quarter was $20 million compared with $17 million in the same period in 2011. The increase was primarily the result of the absence of unfavorable performance adjustments realized in 2011 on LPD-22 San Diego. Ingalls operating margin was 2.9 percent for the quarter, up from 2.2 percent in the same quarter of 2011.   

Key Ingalls program milestones for the quarter:

  LPD-22 San Diego sailed away from Pascagoula en route to her commissioning site in San Diego

  Awarded $70 million additional advance procurement work for LPD-27 (unnamed)

  Awarded $76 million advance procurement contract for NSC-6 (unnamed)

Newport News Shipbuilding

   Three Months Ended                        
                               March 31,                         
        ($ in millions)      2012      2011     $ Change     % Change
                  Sales     $ 895     $ 940       $ (45)      (4.8)%
       Operating income       81       67          14        20.9%
     Operating margin %      9.1%      7.1%                  192 bps

Newport News revenues for the first quarter decreased $45 million, or 4.8 percent, from the first quarter 2011, primarily driven by lower sales volume on the CVN-71 USS Theodore Roosevelt RCOH and the SSN-774 Virginia-class submarine construction program, partially offset by higher sales volume on the advance construction contract for CVN-79 John F. Kennedy and the advance planning contract for the CVN-72 USS Abraham Lincoln RCOH.

Newport News operating income for the first quarter was $81 million compared with $67 million in the same period in 2011. The increase was due primarily to the impact of performance improvements on the SSN-774 Virginia-class submarine construction program in 2012, and the absence of unfavorable performance adjustments realized on CVN-78 Gerald R. Ford in 2011.  Newport News operating margin was 9.1 percent for the quarter, compared with 7.1 percent in the same quarter of 2011. 

Key Newport News program milestones for the quarter:

  Reached 75 percent structural completion of CVN-78 Gerald R. Ford

  Awarded $383 million of planning work for the CVN-72 USS Abraham Lincoln RCOH

  Assumed maintenance responsibilities at Kesselring, the Navy's nuclear propulsion facility in upstate New York

The Company

Huntington Ingalls Industries (HII) designs, builds and maintains nuclear and non-nuclear ships for the U.S. Navy and Coast Guard and provides after-market services for military ships around the globe. For more than a century, HII has built more ships in more ship classes than any other U.S. naval shipbuilder. Employing nearly 38,000 in VirginiaMississippiLouisiana and California, its primary business divisions are Newport News Shipbuilding and Ingalls Shipbuilding. For more information, please visitwww.huntingtoningalls.com.

The Huntington Ingalls Industries, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=9418

Huntington Ingalls Industries will webcast its earnings conference call at 9 a.m. EDT on May 9. A live audio broadcast of the conference call and supplemental presentation will be available on the investor relations page of the company's website:www.huntingtoningalls.com

Statements in this release, other than statements of historical fact, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Factors that may cause such differences include: changes in government and customer priorities and requirements (including government budgetary constraints, shifts in defense spending, and changes in customer short-range and long-range plans); our ability to obtain new contracts, estimate our costs and perform effectively; risks related to our spin-off from Northrop Grumman (including our increased costs and leverage); our ability to realize the expected benefits from consolidation of our Ingalls facilities; natural disasters; adverse economic conditions in the United States and globally; and other risk factors discussed in our filings with the U.S. Securities and Exchange Commission. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business, and we undertake no obligations to update any forward-looking statements.

Exhibit A: Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
                                                                    COMPREHENSIVE INCOME (Unaudited)
                                                                                                  
                                                                                 Three Months Ended
                                                                                           March 31
                               (in millions, except per share amounts)           2012           2011
                                            Sales and service revenues                            
                                                         Product sales      $ 1,353      $ 1,466
                                                      Service revenues           215           218
                                      Total sales and service revenues         1,568         1,684
                                    Cost of sales and service revenues                            
                                                 Cost of product sales         1,152         1,253
                                              Cost of service revenues           186           197
                                   General and administrative expenses           150           149
                                               Operating income (loss)            80            85
                                                Other income (expense)                            
                                                      Interest expense          (30)          (15)
                                   Earnings (loss) before income taxes            50            70
                                                  Federal income taxes            17            25
                                                   Net earnings (loss)         $ 33         $ 45
                                                                                                 
                                       Basic earnings (loss) per share       $ 0.67       $ 0.92
                            Weighted-average common shares outstanding          49.0          48.8
                                     Diluted earnings (loss) per share       $ 0.67       $ 0.92
                           Weighted-average diluted shares outstanding          49.5          48.8
                                                                                                 
                                        Net earnings (loss) from above         $ 33         $ 45
                                     Other comprehensive income (loss)                            
                              Change in unamortized benefit plan costs            24            28
     Tax benefit (expense) on change in unamortized benefit plan costs           (9)          (11)
                         Other comprehensive income (loss), net of tax            15            17
                                           Comprehensive income (loss)         $ 48         $ 62
 
                                                                                                                                   
                                                                             CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
                                                                                                                         (Unaudited)
                                                                                                                                   
                                                                                                           March 31     December 31
                                                                                      ($ in millions)           2012            2011
                                                                                               Assets                             
                                                                                       Current Assets                             
                                                                          Cash and cash equivalents         $ 551         $ 915
                                                                             Accounts receivable, net           954            711
                                                                               Inventoried costs, net           384            380
                                                                                Deferred income taxes           235            232
                                                            Prepaid expenses and other current assets            32             30
                                                                                 Total current assets         2,156          2,268
                                                                Property, plant, and equipment, net          2,005          2,033
                                                                                       Other Assets                              
                                                                                             Goodwill           844            844
     Other purchased intangibles, net of accumulated amortization of $377 in 2012 and $372 in 2011            562            567
                                                                                  Pension plan assets            64             64
                                                                             Debt issuance costs, net            46             48
                                                                         Long-term deferred tax asset            99            128
                                                                           Miscellaneous other assets            48             49
                                                                                   Total other assets         1,663          1,700
                                                                                         Total assets      $ 5,824       $ 6,001
 
                                                                                                                            CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION                             
                                                                                                                                                          (Unaudited) – CONTINUED                             
                                                                                                                                                                                         March 31     December 31
                                                                                                                                              ($ in millions, except share amounts)           2012            2011
                                                                                                                                               Liabilities and Stockholders' Equity                             
                                                                                                                                                                Current Liabilities                             
                                                                                                                                                             Trade accounts payable           293            380
                                                                                                                                                  Current portion of long-term debt            29             29
                                                                                                                               Current portion of workers' compensation liabilities           201            201
                                                                                                                                 Current portion of postretirement plan liabilities           172            172
                                                                                                                                                    Accrued employees' compensation           189            221
                                                                                                                          Advance payments and billings in excess of costs incurred           118            101
                                                                                                                                                      Provision for contract losses            12             19
                                                                                                                                                          Other current liabilities           238            249
                                                                                                                                                          Total current liabilities         1,252          1,372
                                                                                                                                                                     Long-term debt         1,822          1,830
                                                                                                                                              Other postretirement plan liabilities           586            581
                                                                                                                                                           Pension plan liabilities           833            936
                                                                                                                                                  Workers' compensation liabilities           362            361
                                                                                                                                                        Other long-term liabilities            51             49
                                                                                                                                                                  Total liabilities         4,906          5,129
                                                                                                                                                      Commitments and Contingencies            --             --
                                                                                                                                                               Stockholders' Equity                             
     Common stock, $.01 par value; 150,000,000 shares authorized; 49,445,957 issued and outstanding as of March 31, 2012; 48,821,563 issued and outstanding as of December 31, 2011             0              0
                                                                                                                                                         Additional paid-in capital         1,860          1,862
                                                                                                                                                        Retained earnings (deficit)         (108)          (141)
                                                                                                                                      Accumulated other comprehensive income (loss)         (834)          (849)
                                                                                                                                                         Total stockholders' equity           918            872
                                                                                                                                         Total liabilities and stockholders' equity      $ 5,824       $ 6,001
 
                                                                                                              
                                                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                                                                                                              
                                                                                            Three Months Ended
                                                                                                      March 31
                                                                     ($ in millions)         2012          2011
                                                                Operating Activities                         
                                                                 Net earnings (loss)       $ 33        $ 45
     Adjustments to reconcile to net cash provided by (used in) operating activities                         
                                                                        Depreciation          42           40
                                               Amortization of purchased intangibles           5            5
                                                 Amortization of debt issuance costs           2            0
                                                            Stock-based compensation           8            4
                                                                           Change in                         
                                                                 Accounts receivable       (243)        (168)
                                                                   Inventoried costs           5        (110)
                                                   Prepaid expenses and other assets           2         (38)
                                                       Accounts payable and accruals       (125)        (131)
                                                               Deferred income taxes          17         (33)
                                                                    Retiree benefits        (75)           31
                                                    Other non-cash transactions, net           0          (9)
                                 Net cash provided by (used in) operating activities       (329)        (364)
                                                                Investing Activities                         
                                         Additions to property, plant, and equipment        (27)         (63)
                                 Net cash provided by (used in) investing activities        (27)         (63)
                                                                Financing Activities                         
                                            Proceeds from issuance of long-term debt           0        1,775
                                                         Repayment of long-term debt         (8)            0
                                                                 Debt issuance costs           0         (50)
                    Repayment of notes payable to former parent and accrued interest           0        (954)
                               Dividend to former parent in connection with spin-off           0      (1,429)
                                               Net transfers from (to) former parent           0        1,310
                                 Net cash provided by (used in) financing activities         (8)          652
                                                 Change in cash and cash equivalents       (364)          225
                                      Cash and cash equivalents, beginning of period         915            0
                                            Cash and cash equivalents, end of period      $ 551       $ 225
                                                   Supplemental Cash Flow Disclosure                         
                                                          Cash paid for income taxes        $ 4         $ 0
                                                              Cash paid for interest       $ 47         $ 0

Exhibit B: Reconciliations

We make reference to "segment operating income." Segment operating income is defined as operating income before FAS/CAS adjustment and deferred state income taxes.  

Segment operating income is one of the key metrics we use to evaluate operating performance because it excludes items that do not affect segment performance. Therefore, we believe it is appropriate to disclose these measures to help investors analyze our operating performance. However, these measures are not measures of financial performance under GAAP and may not be defined or calculated by other companies in the same manner. 

Reconciliation of Segment Operating Income

             Three Months Ended
                                                                            March 31,
                                           $ in millions           2012           2011
                              Sales and Service Revenues                            
                                                 Ingalls        $ 692        $ 761
                                            Newport News           895        $ 940
                               Intersegment eliminations          (19)          (17)
                        Total sales and service revenues      $ 1,568      $ 1,684
                                 Operating Income (Loss)                            
                                                 Ingalls         $ 20         $ 17
                                As a percentage of sales           2.9%           2.2%
                                            Newport News            81            67
                                As a percentage of sales           9.1%           7.1%
                   Total Segment Operating Income (Loss)           101            84
                                As a percentage of sales           6.4%           5.0%
          Non-segment factors affecting operating income                            
     Net pension and post-retirement benefits adjustment          (17)           (4)
                           Deferred state income taxes            (4)             5
                           Total operating income (loss)         $ 80         $ 85
                                        Interest expense          (30)          (15)
                                    Federal income taxes          (17)          (25)
                               Total net earnings (loss)         $ 33         $ 45
CONTACT: Jerri Fuller Dickseski (Media)
         jerri.dickseski@hii-co.com
         757-380-2341

         Andy Green (Investors)
         andy.green@hii-co.com
         757-688-5572

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