Improved performance on submarine and amphibious transport ships drove first quarter profits up at Huntington Ingalls Industries [HII] despite flat sales, the company said yesterday.
Net income increased 33 percent to $44 million, 87 cents earnings per share (EPS), from $33 million (67 cents EPS), nipping consensus estimates by a penny. Operating margin was up a percent to 6.1 percent and sales were level at $1.6 billion.
The income gain was driven by risk retirement on the SSN-774 Virginia-class attack submarine program, the favorable resolution of outstanding contract changes on the attack submarine program, and the lack of unfavorable adjustments on the LPD-17 San Antonio-class amphibious transport dock ship program.
On the sales line, higher sales for repair work on some Navy ship programs at the Newport News Shipbuilding segment and construction of the Coast Guard’s National Security Cutters at the Ingalls Shipbuilding segment were offset by a decrease in revenues on amphibious assault ship programs and two aircraft carrier programs.
Despite the constrained defense spending environment, HII is well positioned in the current budget and in the FY ’14 budget request, Mike Petters, the company’s president and CEO, said on yesterday’s earnings call.
“From HII’s perspective, all of our 2013 priorities were supported by the 2013 appropriations act,” Petters said.
Petters said that for 2013 shipbuilding is “more insulated” from the effects of sequestration than most defense programs but there is higher risk to the company’s base of 5,000 suppliers. Longer-term, however, he said the sequestration could “thin” the supply chain if procurement schedules are stretched out.
At the segment level both Ingalls and Newport News boosted their operating income while higher sales at Newport News were offset by a decline at Ingalls. HII’s programs are performing well, Petters said, noting though that the LHA-6 assault ship program is experiencing “typical first in class issues that put pressure on the delivery schedule.” That ship is slated for delivery for later this year.
Orders in the quarter totaled $3.2 billion and backlog stood at $17.2 billion, up from $15.5 billion at the end of 2012.