Huntington Ingalls Industries (HII) Q4 2016 earnings summary

Executive summary

• FY16 sales and service revenue rose 1% to $7.068B; operating income increased 12% to $858M and net earnings rose 42% to $573M.

• Backlog was $21B at year-end, with ~30% expected to convert to sales in 2017; results remain heavily tied to U.S. Government shipbuilding demand.

Financial highlights

• Product sales fell 1% to $5.631B, while service revenue increased 6% to $1.437B; total revenue increased 1% YoY.

• Operating income was $858M vs. $769M; net earnings were $573M vs. $404M, and diluted EPS was $12.14 vs. $8.36.

• Interest expense declined 46% to $74M, primarily following refinancing and prior-year debt repayment and early-extinguishment costs.

• Adjusted for the 2015 Aon settlement, which added $136M net to operating income, the comparison benefited from prior-year Technical Solutions impairments of $102M.

Outlook and guidance

• ~30% of the $21B year-end backlog was expected to convert to 2017 sales; operating cash, cash on hand, and credit facilities were expected to cover obligations and capex for at least 12 months.

• 2017 maintenance and sustainment capex forecast at 2.0%-2.5% of revenue; discretionary capex forecast at 2.5%-3.0%.

• 2017 FAS/CAS adjustment was forecast as a $198M net benefit; qualified defined-benefit pension contributions forecast at $290M, all discretionary, plus ~$37M for other postretirement plans.

• The 2017 Shipbuilding Plan anticipated 308 ships; a separate Navy force assessment outlined an objective fleet of 355 ships, subject to resource and budget decisions.