Huntington Ingalls Industries (HII) Q4 2018 earnings summary

Executive summary

• Record 2018 sales and service revenues of $8.176B, up 10% YoY; operating income was $951M and net earnings were $836M.

• New awards were ~$9.8B, lifting backlog to $23B at year-end; ~$920M was returned to shareholders through dividends and repurchases.

• Progress continued on shipyard modernization and expansion of Technical Solutions, including the G2 cybersecurity acquisition and long-term nuclear and environmental awards.

Financial highlights

• Sales and service revenues rose to $8.176B from $7.441B; product sales increased 8% and service revenues increased 15%.

• Operating income increased 8% to $951M; net earnings rose 75% to $836M, while diluted EPS was $19.09 versus $10.46 in 2017.

• Cash from operations was $914M versus $814M; free cash flow was $512M versus $453M in 2017.

• 2018 adjusted diluted EPS was $19.09; adjusted segment operating income was $663M and adjusted segment operating margin was 8.1%.

Outlook and guidance

• Approximately 30% of the $23B backlog at Dec. 31, 2018, was expected to convert to sales in 2019.

• 2019 maintenance and sustainment capex was expected at 1.5%–2.0% of annual revenues; discretionary capex at 3.5%–4.0%.

• 2019 qualified pension contributions were expected to be $21M, all discretionary; other postretirement contributions were expected to be ~$33M.

• Cash, operating cash generation, and existing credit facilities were expected to cover debt service, retiree plans, contractual commitments, and capex for at least 12 months.

• The 2019 FAS/CAS adjustment was forecast as a net benefit of ~$159M; the operating FAS/CAS adjustment was forecast as a net benefit of ~$147M.