HII [HII] on Thursday reported strong top and bottom-line results for the fourth quarter of 2023, driven by a legal matter and an insurance settlement, and gains across its operating segments.
Net income in the quarter soared 123 percent to $274 million, $6.90 earnings per share (EPS), from $123 million ($3.07 EPS) a year ago, beating consensus estimates by $2.59 EPS.
The bottom-line benefitted from $95 million in after-tax income from two non-operating matters. One, a $70.5 million pre-tax recovery related to a Venezuelan frigate repair effort in the late 1990s, and the second a $49.5 million pre-tax settlement of an insurance claim related to the acquisition in 2020 of unmanned underwater vehicle company Hydroid.
All three of HII’s operating segments reported higher profits on higher sales.
The company’s overall sales grew 13 percent in the quarter to a record $3.2 billion from $2.8 billion a year ago, led by strong double-digit increases in the Mission Technologies and Ingalls Shipbuilding segments. Mission Technologies was up on C5ISR work, and Ingalls higher on destroyers and amphibious assault ships.
Sales at Newport News Shipbuilding were solid, up 5 percent on aircraft carrier and submarine work.
For all of 2023, sales increased 7 percent to a record $11.5 billion from $10.7 billion a year ago due to growth across the segments. Net income increased 17 percent to $681 million ($17.07 EPS) from $579 million ($14.44 EPS) as operating profits were also higher across the segments.
Shipbuilding sales were nearly $8.9 billion in 2023, ahead of HII’s most recent guidance of between $8.5 billion and $8.6 billion provided last November. The earlier guidance assumed delivery of the amphibious transport dock ship Richard M. McCool Jr. (LPD 29) during the fourth quarter but now the ship is not expected to be delivered to the Navy until March or April.
Chris Kastner, HII’s president and CEO, said during the company’s earnings call that there had been an issue with the ship during testing that required fixing. The
McCool went to sea this week and “performed well,” he said, leading to confidence in the upcoming delivery.
HII handily met its employee hiring target of 5,000 craft workers in 2023, onboarding over 6,900 new personnel, Kastner said. This year the company is targeting the hiring of 6,000 craft personnel in its shipyards, he said.
“The competition for skilled labor in shipbuilding and the larger manufacturing sector continues to impact our shipyards and our supply base,” Kastner told investors. “With our Navy partner, we will continue to invest in our team to improve worker retention and proficiency, both within our shipyard and in the supply chain, to ensure we fulfill our contractual commitments and meet our financial objectives.”
In 2024, HII expects sales to be between $11.5 billion to $11.9 billion, flat to 3 percent higher than 2023. Revenue from shipbuilding is forecast in the range of $8.8 billion to $9.1 billion, and Mission Technologies between $2.7 billion and $2.8 billion.
The outlook for operating margin in the shipbuilding segments is between 7.6 percent and 7.8 percent versus 8.3 percent in 2023. Mission Technologies is expected to deliver operating margin in the 3 to 3.5 percent range this year versus 3.7 percent in 2023.
Looking out to through 2028, HII expects annual sales growth above 4 percent with Mission Technologies growing about 5 percent and shipbuilding 4 percent.
Free cash flow in 2024 is projected to be between $600 million and $700 million versus $692 million in 2023. Over the next five years, the company expects to generate $3.6 billion in total free cash flow.
Orders in 2023 totaled 12.5 billion, representing a book-to-bill ratio of nearly 1.1 times sales. Backlog at the end of 2023 stood at $48.1 billion, up 2 percent from $47.1 billion at the end of 2022.
HII has been forecasting long-term capital expenditures of about 1.5 to 2 percent but over the next three years the rate will be about 5 percent as part of efforts to expand capacity and increase throughput for submarines, Tom Stiehle, the chief financial officer, said on the earnings call. The Navy is helping with the majority of the investments, he said, so the outlook for free cash flow is unchanged.
The company’s capital deployment priorities remain paying down debt, investing in its shipyards, growing the dividend, and lastly acquisition and share repurchases.