HII [HII] on Thursday posted solid third quarter results with sales and earnings up 7 percent and the company increased its 2023 outlook for sales and free cash flow.
The company also said delivery of the Gerald R. Ford-class aircraft carrier
USS Enterprise (CVN 80) will be delayed a year due to delays of major components for “the bottom of the ship” by suppliers. The delays stem from post-COVID labor and supply chain impacts, Chris Kastner, HII’s president and CEO, said on the company’s earnings call.
Schedule risk to the CVN 80 had already been factored into HII’s financial planning, so there is not material impact from the delay, Kastner said. Construction of the carrier is 25 percent complete, he said.
The Navy had planned on a 2028 delivery of the ship.
HII is working with the Navy on “innovative build techniques” to minimize the supply chain impacts to the USS Doris Miller (CVN 81), the fourth Ford-class carrier, Kastner said. An earlier bundling and procurement of most of the material for both aircraft carriers have resulted in more than 70 percent of the material for CVN 81 already ordered, resulting in “significant savings of the traditional approach to ordering,” he said.
Net income in the quarter was $148 million, $3.70 earnings per share (EPS), versus $138 million ($3.44 EPS), with the gain driven by strong operating profits in the Mission Technologies and Ingalls Shipbuilding segments, combined with pension tailwind and lower state taxes. The results topped consensus estimates by 28 cents per share.
Sales were a record $2.8 billion versus $2.6 billion a year ago and were higher primarily due to Mission Technologies and Ingalls, with the Newport News Shipbuilding segment up nearly a percent.
At the operating level, Mission Technologies had a banner quarter with sales up 15 percent on C5ISR, cyber, electronic warfare, and space programs. Operating income soared 71 percent on sales in mission-based solutions and improved performance in unmanned systems.
Results at Ingalls were also handsome, with sales up 14 percent on work on amphibious assault ships and surface combatants. Operating income jumped 46 percent on the higher sales and favorable changes in contract estimates.
Newport News Shipbuilding, the aircraft carrier and nuclear submarine business, saw operating income decline 12 percent due to contract incentives accrued a year ago on the Columbia-class ballistic missile submarine that did not repeat in the recent third quarters. Sales edged up on aircraft carrier construction.
Combined shipbuilding operating margin was 7.5 percent, up 10 basis points from a year ago.
For 2023, HII now expects shipbuilding sales between $8.5 billion and $8.6 billion, up $100 million on the low end of prior guidance. The shipbuilding segments have three milestones in the fourth quarter that are key to meeting guidance, including completion of sea trials and deliveries of the amphibious transport dock ship Richard M. McCool Jr. (LPD 29), redelivery of the Virginia-class submarine (VCS) New Jersey (SSN 796), and float-off of the VCS Massachusetts (SSN 798).
“It’s going to be a race to completion on [LPD] 29 but we’re fine with where we are now,” Kastner told investors.
The sales outlook at Mission Technologies was increased $50 million to nearly $2.6 billion.
Free cash flow is now expected to be about $500 million, up from prior guidance of between $400 million to $450 million.
HII on Wednesday said its board has approved a 5 percent increase in the company’s quarterly stock dividend to $1.30 per share from the current $1.24 per share payable on Dec. 8.
Through the first nine months of 2023, HII has hired nearly 5,400 craft personnel, topping the target of 5,000 for the year by 8 percent, Kastner said. Retention is still a challenge and along with workforce development is a focus area for the company, he said.