Huntington Ingalls Industries (HII) Q4 2012 earnings summary

Executive summary

• 2012 revenue rose 2% YoY to $6.708B; reported operating income was $358M and net earnings were $146M, versus $100M operating income and a $100M net loss in 2011.

• Adjusted total operating income was $438M, adjusted operating margin 6.5%, and adjusted diluted EPS $3.95, excluding goodwill impairment and the FAS/CAS adjustment.

• Management reported progress retiring risk on Ingalls contracts and targeted operating margins above 9% by 2015.

Financial highlights

• Sales and service revenues were $6.708B, up $133M YoY; product sales increased 1% and service revenues increased 6%.

• Reported operating income was $358M, up from $100M; net earnings were $146M, versus a $100M net loss in 2011.

• Adjusted segment operating income was $457M versus $412M; adjusted diluted EPS was $3.95 versus $4.15 in 2011.

• Net cash from operating activities was $332M versus $528M; free cash flow was $170M versus $331M.

Outlook and guidance

• Targeting operating margins above 9% by 2015; 2013 cash from operations was expected to cover debt service, contract obligations and capital expenditures.

• 2013 capital expenditures were projected at 2%–3% of annual revenue; qualified pension contributions were forecast at $270M–$330M, all discretionary.

• 2013 plans included Somerset and America deliveries, Theodore Roosevelt RCOH redelivery, Enterprise inactivation, Abraham Lincoln RCOH planning and a planned John F. Kennedy construction contract.

• Expected 2013 FAS/CAS adjustment was a net expense of $70M–$100M; pension harmonization was expected to increase contract-allocable pension costs, with greater effects phasing in from 2014.