Huntington Ingalls Industries (HII) Q4 2019 earnings summary

Executive summary

• FY19 revenue reached a record $8.899B, up 9% YoY; operating income fell 23% to $736M and net earnings fell 34% to $549M.

• Backlog more than doubled to a record $46.5B at Dec. 31, 2019, from $23.0B a year earlier; 17% was expected to convert to sales in 2020.

• Delivered USS Paul Ignatius, Midgett and Delaware; christened John F. Kennedy and redelivered USS Gerald R. Ford after post-shakedown availability.

Financial highlights

• Q4 2019 revenue was $2.412B, operating income $186M, net earnings $149M and diluted EPS $3.61.

• FY19 service revenue rose 22% to $2.634B, while product sales increased 4% to $6.265B.

• Operating cash flow was $896M; free cash flow was $460M, down from $512M in 2018, primarily on working-capital changes and higher capital spending.

Outlook and guidance

• Expected 2020 backlog conversion was 17%; an additional 25% of remaining performance obligations was expected to be recognized through 2022.

• 2020 maintenance and sustainment capital spending was expected at ~1.0% of annual revenue, with discretionary capex at 3.0%–4.0%.

• Expected 2020 operating FAS/CAS adjustment was a net benefit of ~$247M; this estimate was subject to change after updated actuarial data.

• Expected 2020 cash contributions: $205M to qualified pension plans, all discretionary, and ~$33M to other postretirement plans.

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