Huntington Ingalls Industries Inc. (HII)
Q4 2011 Earnings Call
March 28, 2012 9:00 am ET
Mike Petters – President, Chief Executive Officer
Barb Niland – Corporate Vice President, Chief Financial Officer
Andy Green – Vice President, Investor Relations
Jason Gursky – Citigroup
Robert Spingarn – Credit Suisse
Dough Harned – Sanford Bernstein
Sam Pearlstein – Wells Fargo
Carter Copeland – Barclays
George Shapiro – Shapiro Research
Brian Ruttenbur – Morgan Keegan
Myles Walton – Deutsche Bank
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Good morning ladies and gentlemen and welcome to the Fourth Quarter 2011 Huntington Ingalls Industries Earnings conference call. My name is Keisha and I’ll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question and answer session towards the end of this conference. If at any time during the call you require assistance, please press star, zero and an operator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes.
I would now like to hand the conference over to Mr. Andy Green, Vice President, Investor Relations. Please proceed, sir.
Thanks Keisha. Good morning and welcome to the Huntington Ingalls Industries Fourth Quarter and Year-End 2011 Earnings conference call. With us today are Mike Petters, President and Chief Executive Officer, and Barb Niland, Corporate Vice President, Business Management and Chief Financial Officer.
As a reminder, statements made in today’s call that are not historical fact are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law. Actual results may differ. Please refer to our SEC filings for a description of some of the factors that may cause actual results to vary materially from anticipated results.
Also in their remarks today, Mike and Barb will refer to certain non-GAAP measures, including free cash flow, segment operating income, adjusted segment operating income, adjusted segment operating margin, adjusted operating income, adjusted operating margin, and adjusted diluted EPS in the fourth quarter and full-year 2011. Full-year 2011 adjusted figures exclude the $290 million non-cash goodwill impairment charge. Fourth quarter 2011 adjusted figures exclude a $10 million reversal of a portion of the impairment charge taken in the third quarter 2011. Reconciliations of these metrics to the comparable GAAP measures are included in the appendix of our earnings presentation that is posted on our website.
We plan to address the posted presentation slides during the call to supplement our comments. Please access our website at
and click on the Investor Relations link to view the presentation as well as our earnings release.
With that, I’d like to turn the call over to Mike.
Thanks, Andy. Good morning everyone and thanks for joining us on today’s call. I am pleased to report Huntington Ingalls Industries’ results for the fourth quarter and full-year 2011. Today we reported fourth quarter sales of $1.74 billion, flat over the same period last year, and full-year sales of $6.6 billion, down about 2% from last year. If you recall, in the third quarter we booked an estimated $300 million goodwill impairment charge that was driven by adverse equity market conditions. After completing the appropriate goodwill impairment test, the final impairment charge was $290 million. Because of the change in the goodwill impairment, reported fourth quarter EPS was $1.39 and reported full-year EPS was a loss of $1.93. Barb will have more detail on the goodwill impairment during her remarks.
Now excluding the impact of the impairment, fourth quarter total operating margin was 6.6%, up from 6.0% last year, and diluted earnings per share was $1.19 for the quarter, down from $1.29 in 2010. For the full year, again excluding the impact of the impairment, operating margin was 6.1% compared with 3.7% last year, and diluted earnings per share was $3.97 for the year, up from $2.77 in 2010. Total backlog at the end of the quarter was $16.3 billion compared with $17.3 billion last year.
Free cash flow for the fourth quarter and the full year came in very strong. During the fourth quarter, we generated just under $400 million in free cash flow and we ended the year with $915 million of cash.
Now I’d like to walk through some of the highlights of our individual ship programs, starting with Ingalls. For the DDG 51’s, we began fabrication work on DDG 113 and will soon begin construction of DDG 114, the second ship in the DDG 51 restart. We expect the next block buy of DDG 51’s later this year, a contract that could be for as many as nine ships split between us and General Dynamics. We are aggressively preparing for the next round of awards and are confident that we will be competitive.
On the LPD program, we delivered LPD 22
in December and our customer, the U.S. Navy, said this ship was the best LPD delivered to date. We expect LPD’s 23 and 24 to go to sea trials later this summer and delivery of the two ships by the end of the year. LPD 25 is progressing well and should launch later this year, although significant risk remains since it is the last ship to be completed at Avondale. We’ve also begun construction of LDP 26 and we are working under a long-lead material contract for LPD 27, and expect to finalize a construction contract for LPD 27 in the near future.