Huntington Ingalls Industries' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Huntington Ingalls Industries (HII)

Q1 2012 Earnings Call

May 9, 2012 9:00 a.m. ET

Executives

Andy Green - VP IR

Mike Petters - President and CEO

Barb Niland - Corporate VP and CFO

Analysts

Carter Copeland - Barclays Capital

Doug Harned - Sanford Bernstein

George Shapiro - Shapiro Research

Robert Spinharn - Credit Suisse

Darryl Genovesi - UBS

Sam Pearlstein - Wells Fargo

Brian Ruttenbur - CRT Capital

Jason Gursky - Citigroup

Myles Walton - Deutsche Bank

Matt Vittorioso - Barclays Capital

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the First Quarter 2012 Huntington Ingalls Industries Earnings conference call. My name is Montoya 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. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Mr. Andy Green, Vice President of Investor Relations. Please proceed, sir.

Andy Green

Thanks, Montoya. Good morning and welcome to the Huntington Ingalls Industries first quarter 2012 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 segment operating income, a non-GAAP measure. Reconciliation of this metric to the comparable GAAP measure is 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 www.huntingtoningalls.com 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.

Mike Petters

Thanks, Andy. Morning, everyone, and thanks for joining us on today's call. I am pleased to report Huntington Ingalls Industries results for the first quarter of 2012.

Today, we reported first quarter sales of $1.57 billion, down 6.9% from the same period last and earnings per share of $0.67, down from $0.92 in the first quarter of 2011.

First quarter segment operating margin was 6.4%, a significant improvement from 5.0% last year and we ended the quarter with $551 million of cash on the balance sheet, in line with what we told you on the fourth quarter call.

Total backlog at the end of the quarter was $15.5 billion compared with $17.4 billion last year.

Now, it's only been about six weeks since our last call so not much has changed with respect to our major programs or outlook. That being said, overall it was a good quarter for us and one that reflects the dedication, talent and commitment of our 38,000 shipbuilders.

Newport News continues to execute on major programs such as construction of the Navy's newest aircraft carrier, Ford, construction of Virginia-class submarines and the overhaul of Roosevelt, while preparing for construction of Kennedy, the refueling of Lincoln and the inactivation of Enterprise.

At Ingalls, we continue to make significant progress towards delivering the legacy LPDs and LHA-6 America, while securing new business in amphibious ships, national security cutters and destroyers. With two legacy ship deliveries this year, and the remaining two scheduled for next year, the Ingalls team is closing in on returning margins to normal and sustainable levels.

Overall, we are on track to deliver our goal of 9%-plus total operating margin in 2015 on a flat revenue base. Now, before I get into more detail about our individual programs, I'd like to make a few comments on the defense environment, the budget and how we're proactively managing our business in the face of continued uncertainty.

Remember that because of the long duration of our contracts, the majority of the programs we're working on today and for the next few years are already in backlog having been funded under previous appropriations. So when we look at major program decisions and budgeting, generally speaking this impacts our revenue not this year or next but a few years out.

Now earlier this year the Administration announced a strategic shift to the Pacific and the subsequent budget request reflected the priorities necessary to support the new strategy. As we said on the last call, the budget request was generally supportive of Navy programs including the construction of Kennedy, nine Block 4 submarines, nine DDG-51s and the Lincoln refueling.

As we expected there was less support in amphibious ships with LHA-8 being pushed out a year and LSDX delayed two years, two programs which are critical to the Navy's and Marine Corp's ability to accomplish their missions.

The potential for sequestration, however, clouds the outlook for defense spending although it is difficult to say much about it given it is unclear as to it would be implemented. And despite all the commentary from industry and government about sequestration and the negative affects it could have on the US industrial base and our military's ability to meet its commitments, so far nothing definitive has happened to change the prospects of it occurring.

Now amidst all the external uncertainty around defense spending, internally we are aggressively managing our existing programs, pursuing cost reduction initiatives and looking for innovative ways to improve ship affordability. Every day we work closely with our partners, the US Navy and the US Coast Guard, to ensure that the ships they need to accomplish their missions are more affordable, provide the required capabilities, are of high quality and our delivered on schedule.

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