Huntington Ingalls Industries (HII) Q4 2015 earnings summary

Executive summary

• FY2015 revenue was $7.02B, operating income $769M, net earnings $404M and diluted EPS $8.36; results included a net $136M Aon settlement benefit and $102M in goodwill and intangible impairments.

• Backlog reached $22.1B at year-end, with 29% expected to convert to sales in 2016; 2015 awards totaled $7.6B.

Financial highlights

• FY2015 sales and service revenues rose to $7.02B from $6.96B; product sales were $5.67B and service revenues $1.36B.

• Operating income increased to $769M from $655M; net earnings rose to $404M from $338M, and diluted EPS was $8.36 versus $6.86.

• Q4 revenue was $1.905B, operating income $144M, net earnings $50M and diluted EPS $1.06; the quarter included $16M goodwill and $27M intangible impairments.

• Operating cash flow was $828M and free cash flow $640M; both benefited from the Aon settlement and retiree-benefit funding changes.

• The $150M Aon settlement, less a $14M government credit, contributed a net $136M to operating income; impairment charges totaled $102M, including $75M goodwill and $27M intangible assets.

Outlook and guidance

• Approximately 29% of year-end backlog is expected to convert into 2016 sales; operating cash, cash on hand and credit facilities were expected to cover debt service, contractual obligations and capital spending for at least 12 months.

• 2016 maintenance and sustainment capital expenditures, excluding discretionary projects, were expected at 2%–3% of annual revenues.

• Expected 2016 FAS/CAS adjustment was a net benefit of $137M, subject to change with updated actuarial estimates and census data.

• Expected 2016 cash contributions were $167M to qualified pension plans, all discretionary, and ~$37M to other postretirement benefit plans.

• Long-term defense budget and sequestration uncertainty could reduce, delay or cancel ship programs; the 2016 appropriations act funded several shipbuilding priorities, including carriers, submarines, destroyers and cutters.