Huntington Ingalls Industries (HII) Q4 2011 earnings summary

Executive summary

• First year as an independent public entity followed the March 31, 2011 spin-off; annual revenue was $6.575B and total backlog was $16.3B at year-end.

• Delivered three ships and one submarine in 2011, with the submarine delivered eight months early; total new contract awards were $5.6B.

Financial highlights

• FY2011 sales and service revenues were $6.575B, down 2% from $6.723B in 2010; lower Surface Combatants, Aircraft Carriers and Fleet Support revenue drove the decline.

• Operating income was $110M vs. $248M; net loss was $94M vs. net earnings of $135M, and diluted EPS was -$1.93 vs. $2.77.

• A $290M non-cash goodwill impairment was recorded in Ingalls; excluding the impairment, the effective tax rate on earnings from operations was 33.8%.

• Operating cash flow was $528M vs. $359M; free cash flow was $331M vs. $168M, with 2011 capital expenditures of $197M.

Outlook and guidance

• Margin improvement was expected from 2013 with delivery of Somerset and America; margin expansion was expected to accelerate thereafter, targeting 9% returns in 2015.

• Existing contracts and work under negotiation were expected to limit significant defense-budget effects over the next three to five years; 2012 operating cash was expected to cover debt service, contracts and capital expenditures.

• Approximately 33% of the $16.3B year-end backlog was expected to convert to sales in 2012.