Huntington Ingalls Industries (HII) Q4 2013 earnings summary

Executive summary

• FY13 revenue rose 2% to $6.82B; operating income increased 43% to $512M and net earnings rose to $261M from $146M.

• Q4 revenue was $1.938B, operating income $174M, net earnings $91M and diluted EPS $1.82, versus $1.823B, $106M, $50M and $0.98 in Q4 2012.

Financial highlights

• FY13 diluted EPS was $5.18 versus $2.91; reported net earnings increased 79% to $261M.

• Hurricane-related insurance recoveries and customer direction contributed a net $64M favorable operating-income impact in 2013.

• Cost of product sales fell 3% to $4.695B; product-cost ratio improved to 80.9% from 83.9%, reflecting recoveries and program performance.

• Operating cash flow was $236M and free cash flow $97M, down from $332M and $170M in 2012; higher tax payments and pension funding weighed on cash flow.

Outlook and guidance

• Approximately 32% of the $18B year-end backlog was expected to convert to sales in 2014; cash, operating cash generation and credit facilities were expected to cover near-term obligations and capex.

• 2014 capex was expected to be approximately 3% of annual revenue; planned qualified pension contributions were $123M and other postretirement contributions approximately $35M.

• The 2014 FAS/CAS adjustment was forecast as a net $92M benefit, driven by higher FAS discount rates, plan amendments and the initial 25% phase-in of pension-cost harmonization.

• Avondale closure remained the baseline, with $256M estimated restructuring and asset write-down costs; alternative facility uses could lower the estimate, while recovery and environmental costs remained uncertain.