Huntington Ingalls Industries (HII) Q4 2017 earnings summary

Executive summary

• FY17 revenue rose 5.3% YoY to $7.441B; operating income was $865M and net earnings were $479M. Adjusted diluted EPS was $12.14, matching FY16.

• Shipbuilding divisions delivered four ships in four classes and completed two major ship redeliveries; year-end backlog was $21.4B.

• Technical Solutions expanded following the Camber acquisition and secured major government-services awards, including the $1.4B Los Alamos cleanup contract.

Financial highlights

• Revenue increased 5% YoY to $7,441M; operating income rose 1% to $865M, while operating margin eased to 11.6% from 12.1%.

• Net earnings declined 16% to $479M; diluted EPS was $10.46 versus $12.14, while adjusted diluted EPS was $12.14 in both years.

• Service revenue grew 30% to $1,868M; product sales decreased 1% to $5,573M.

• Q4 revenue was $1,996M, operating income $227M, net earnings $64M and diluted EPS $1.41; the quarter included a $56M Tax Act expense.

• Operating cash flow was $814M and free cash flow was $453M, compared with $822M and $537M in FY16.

Outlook and guidance

• Approximately 31% of the $21.4B year-end backlog was expected to convert to sales in 2018.

• 2018 capital expenditures were forecast at 2.0%-2.5% of annual revenue for maintenance and sustainment, plus 3.0%-3.5% for discretionary projects.

• 2018 FAS/CAS adjustment was projected as a net benefit of ~$369M, subject to actuarial updates during the year.

• Expected 2018 qualified pension contributions were $508M, all discretionary; other postretirement contributions were forecast at ~$35M.

• The lower federal tax rate was expected to benefit after-tax earnings in future periods.