Huntington Ingalls Industries [HII] on Thursday posted a steep drop in net income in the fourth quarter due in part to price drops in the oil and gas market, which impaired results at a new business acquired last spring that provides engineering and project management services to domestic and international energy markets.
Net income tumbled 43 percent to $52 million, $1.05 earnings per share (EPS), from $91 million ($1.82 EPS) a year ago, hampered by the $47 million (75 cents EPS) non-cash good charge at its UniversalPegasus International (UPI) subsidiary acquired last June. In addition to the unstable market conditions, UPI also suffered from some operational challenges, Mike Petters, HII’s president and CEO, said on the company’s earnings call. In addition to that charge, HII’s earnings also suffered $37 million (49 cents EPS) in one-time costs related to the early retirement of debt.
Petters said that changes to the management team at UPI are being made and that workforce cuts and various overhead reductions, including the consolidation of office space, are being performed to “right size our operations for this changing environment.”
Excluding the charges, as well as the benefit of a pension tailwind, adjusted net earnings rose 30 percent to $108 million ($2.19 EPS). Consensus estimates were for $1.89 EPS.
Sales in the quarter remained flat at $1.9 billion. Free cash flow was $328 million.
At the segment level, HII was able to maintain the overall level sales through acquisitions and increases at the Newport News Shipbuilding operations, which offset declines at Ingalls Shipbuilding. Sales at Newport News increased 5 percent to nearly $1.3 billion on the strength of submarine revenue and the acquisition a year ago of S.M. Stoller Corp.
At Ingalls, sales tumbled 17 percent to $608 million due to lower volumes on Navy amphibious assault ships and surface combatants and on the Coast Guard’s National Security Cutter program.
Both segments posted higher operating earnings, which were up 13 percent at Ingalls to $72 million and 11 percent at Newport News to $116 million. Newport News posted higher margins on performance improvements and higher risk retirement on the Virginia-class submarine program while profits at Ingalls benefited from performance improvement and risk retirement on the LPD amphibious transport dock ship program.
For 2014 overall, HII’s sales increased 2 percent to $7 billion and net income jumped 30 percent to $338 million ($6.86 EPS). The company’s adjusted segment operating margins were up nearly a percent and a half for the year to 9.1 percent. Orders totaled $10.1 billion, $500 million of which was awarded in the fourth quarter, and total backlog at the end of the year stood at $21.4 billion.