Huntington Ingalls Industries Reports Third Quarter 2016 Results

  • Revenues were $1.68 billion
  • Total operating margin was 10.4%
  • Segment operating margin was 8.3%
  • Diluted earnings per share was $2.27
  • Cash and cash equivalents at the end of the quarter were $957 million

NEWPORT NEWS, Va., Nov. 03, 2016 (GLOBE NEWSWIRE) -- Huntington Ingalls Industries (NYSE:HII) reported third quarter 2016 revenues of $1.68 billion, down 6.5 percent from the same period last year. Diluted earnings per share in the quarter was $2.27, compared to $2.29 in the same period of 2015.

Operating income in the quarter was $175 million, compared to $200 million in the same period last year. Operating margin in the quarter was 10.4 percent, compared to 11.1 percent in the same period last year. These decreases were driven by lower volumes and lower risk retirements in shipbuilding, partially offset by the favorable FAS/CAS Adjustment.

New business awards for the quarter were approximately $1.2 billion, bringing total backlog to $20.0 billion as of Sept. 30, 2016.

"Our third quarter financial results reflect solid overall operating performance, driven by program execution at Ingalls," said Mike Petters, HII's president and CEO. "Given our strong year-to-date performance, and despite challenges at Newport News, we expect 2016 revenues and operating margin to be relatively similar to 2015."

Results of Operations
  Three Months Ended     Nine Months Ended  
  September 30     September 30  
(in millions, except per share amounts) 2016 2015 % Change   2016 2015 % Change
Sales and service revenues $ 1,683   $ 1,800   (6.5 )%   $ 5,146   $ 5,115   0.6 %
Operating income 175   200   (12.5 )%   590   625   (5.6 )%
Operating margin % 10.4 % 11.1 % (71) bps     11.5 % 12.2 % (75) bps  
Segment operating income 1 140   172   (18.6 )%   490   543   (9.8 )%
Segment operating margin % 1 8.3 % 9.6 % (124) bps     9.5 % 10.6 % (109) bps  
Net earnings 107   111   (3.6 )%   376   354   6.2 %
Diluted earnings per share $ 2.27   $ 2.29   (0.9 )%   $ 7.93   $ 7.28   8.9 %
               
Weighted-average diluted shares outstanding 47.2   48.4       47.4   48.6    
                                   
                                   
Adjusted sales and service revenues 2 $ 1,683   $ 1,800   (6.5 )%   $ 5,146   $ 5,128   0.4 %
Adjusted operating income 2,3 175   200   (12.5 )%   590   548   7.7 %
Adjusted operating margin % 2,3 10.4 % 11.1 % (71) bps     11.5 % 10.7 % 78 bps  
Adjusted segment operating income 1,2,3 140   172   (18.6 )%   490   466   5.2 %
Adjusted segment operating margin % 1,2,3 8.3 % 9.6 % (124) bps     9.5 % 9.1 % 43 bps  
Adjusted net earnings 4 83   96   (13.5 )%   306   263   16.3 %
Adjusted diluted earnings per share 4 $ 1.76   $ 1.98   (11.1 )%   $ 6.45   $ 5.41   19.2 %
1 Non-GAAP measures that exclude non-segment factors affecting operating income.  See Exhibit B for reconciliations.
2 Non-GAAP measures that exclude the impact of an insurance litigation settlement at the Ingalls segment in second quarter 2015.  See Exhibit B for reconciliations.
3 Non-GAAP measures that exclude the impact of a goodwill impairment charge at the Other segment in second quarter 2015.  See Exhibit B for reconciliations.
4 Non-GAAP measures that exclude the after-tax impact of the FAS/CAS Adjustment in 2016 and 2015, the after-tax impact of the insurance litigation settlement at the Ingalls segment and the goodwill impairment charge at the Other segment, each in second quarter 2015, and the after-tax impact of the loss on the early extinguishment of debt in the third quarter of 2015.  See Exhibit B for reconciliations.
 

Segment Operating Results

Ingalls Shipbuilding
  Three Months Ended     Nine Months Ended  
  September 30     September 30  
($ in millions) 2016 2015 % Change   2016 2015 % Change
Revenues $ 577   $ 593   (2.7 )%   $ 1,748   $ 1,608   8.7 %
Segment operating income 1 66   77   (14.3 )%   236   320   (26.3 )%
Segment operating margin % 1 11.4 % 13.0 % (155) bps     13.5 % 19.9 % (640) bps  
Adjusted revenues 1,2 577   593   (2.7 )%   1,748   1,621   7.8 %
Adjusted segment operating income 1,2 66   77   (14.3 )%   236   184   28.3 %
Adjusted segment operating margin % 1,2 11.4 % 13.0 % (155) bps     13.5 % 11.4 % 215 bps  
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.
2 Non-GAAP measures that exclude the impact of the insurance litigation settlement in second quarter 2015. See Exhibit B for reconciliations.
 

Ingalls revenues for the third quarter decreased $16 million, or 2.7 percent, from the same period in 2015, due to lower revenues in Amphibious Assault Ships and the Legend-class National Security Cutter (NSC) program, partially offset by higher revenues in Surface Combatants. Lower Amphibious Assault Ships revenues were due to the delivery of LPD-26 USS John P. Murtha in the second quarter of 2016 and decreased volume on LPD-27 Portland, partially offset by increased volume on LPD-28 Fort Lauderdale. Lower NSC program revenues were due to the delivery of NSC-5 USCGC James in 2015 and decreased volume on NSC-6 Munro. Higher Surface Combatant revenues were primarily due to increased volumes on DDG-121 Frank E. Petersen Jr. and DDG-123 Lenah H. Sutcliffe Higbee, partially offset by decreased volume on DDG-113 John Finn.

Ingalls segment operating income for the third quarter was $66 million, a decrease of $11 million from the same period last year. Segment operating margin in the quarter was 11.4 percent, compared to 13.0 percent in the same period last year. These decreases were primarily due to lower risk retirement on the LHA-6 America-class program.

Key Ingalls milestones for the quarter:
  • Awarded an $88.2 million contract to purchase long-lead material for a ninth NSC
  • Awarded two contracts totaling $32.8 million for design work on the amphibious warfare ship replacement known as LX(R)
  • Awarded a $14 million contract to overhaul DDG-61 USS Ramage
  • Completed builder's sea trials for NSC-6 Munro

Newport News Shipbuilding
  Three Months Ended     Nine Months Ended  
  September 30     September 30  
($ in millions) 2016 2015 % Change   2016 2015 % Change
Revenues $ 1,072   $ 1,177     (8.9 )%   $ 3,315   $ 3,404     (2.6 )%
Segment operating income 1 79   100     (21.0 )%   270   302     (10.6 )%
Segment operating margin % 1 7.4 % 8.5 %   (113) bps     8.1 % 8.9 %   (73) bps  
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.
 

Newport News revenues for the third quarter decreased $105 million, or 8.9 percent, from the same period in 2015, primarily driven by lower revenues in Aircraft Carriers and Submarines. Lower Aircraft Carriers revenues were due to decreased volumes on the construction contract for CVN-78 Gerald R. Ford and the execution contract for the CVN-72 USS Abraham Lincoln refueling and complex overhaul (RCOH), partially offset by increased volumes on the construction contract for CVN-79 John F. Kennedy and the advance planning contract for the CVN-73 USS George Washington RCOH. Lower Submarines revenues related to the SSN-774 Virginia-class submarine (VCS) program were due to decreased volumes on Block III boats, partially offset by increased volumes on Block IV boats.

Newport News segment operating income for the third quarter was $79 million, a decrease of $21 million from the same period last year. Segment operating margin was 7.4 percent for the quarter, compared to 8.5 percent in the same period last year. These decreases were due to lower risk retirement on the VCS program, as well as the resolution of outstanding contract changes on the CVN-71 USS Theodore Roosevelt RCOH in the third quarter of 2015.

Key Newport News milestones for the quarter:
  • Awarded a contract with a potential value of $400 million over the next five years to perform repair work on in-service nuclear-powered submarines, special mission submersibles, moored training ships and submarine support facilities
  • Awarded a $195 million contract modification to continue advance planning for the RCOH of CVN-73 USS George Washington
  • Awarded a $109 million contract to provide engineering, design, logistics and other support for the U.S. Navy's Los Angeles-class, Seawolf-class, Virginia-class and Ohio-class submarines
  • Awarded a $52 million contract for repair and modernization work on CVN-75 USS Harry S. Truman
  • Awarded a $17.7 million contract for planning and maintenance work on SSN-725 USS Helena
  • Redelivered SSN-785 USS John Warner to the U.S. Navy following its post-shakedown availability (PSA), the first PSA for a Virginia-class submarine conducted by Newport News

Other
  Three Months Ended     Nine Months Ended  
  September 30     September 30  
($ in millions) 2016 2015 % Change   2016 2015 % Change
Revenues $ 33   $ 30   10.0 %   $ 84   $ 105   (20.0 )%
Segment operating (loss) 1 (5 ) (5 ) %   (16 ) (79 ) (79.7 )%
Segment operating margin % 1 (15.2 )% (16.7 )% 152 bps     (19.0 )% (75.2 )% NM 3  
Adjusted segment operating (loss) 1,2 (5 ) (5 ) %   (16 ) (20 ) (20.0 )%
Adjusted segment operating margin % 1,2 (15.2 )% (16.7 )% 152 bps     (19.0 )% (19.0 )% 0 bps  
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.
2 Non-GAAP measures that exclude the impact of a goodwill impairment charge in second quarter 2015.  See Exhibit B for reconciliation.
3 NM means the % change is "not meaningful".
 

Revenues in the Other segment for the third quarter increased $3 million, or 10.0 percent, from the same period last year, due to higher volumes in oil and gas services. Segment operating loss for the quarter was $5 million, which was consistent with third quarter 2015.

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