Huntington Ingalls Industries (HII) Q4 2020 earnings summary

Executive summary

• FY20 sales and service revenue reached a record $9.361B, up 5% YoY; operating income was $799M and net earnings were $696M.

• COVID-19 disruption eased over the year, with workforce attendance back to standard rates by Dec. 31; estimated pandemic-related margin impact was $61M.

• Backlog stood at $46.0B at year-end, with 17% expected to convert to revenue in 2021.

Financial highlights

• Q4 revenue was $2.757B vs. $2.412B in Q4 2019; operating income was $305M vs. $186M, and net earnings were $249M vs. $149M.

• FY20 operating income increased 9% to $799M; net earnings rose 27% to $696M, while interest expense increased to $114M from $70M.

• FY20 diluted EPS was $17.14 vs. $13.26; adjusted diluted EPS was $10.67 vs. $11.43, excluding specified FAS/CAS, impairment, debt-extinguishment and other items.

• Operating cash flow rose to $1.093B from $896M; free cash flow increased to $757M from $460M, aided by working capital timing and lower capital expenditures.

Outlook and guidance

• Expected to convert 17% of year-end backlog to sales in 2021; cumulative expected conversion was 47% through 2023.

• 2021 maintenance and sustainment capex was forecast at ~1.0% of revenue, with discretionary capex at 2.0%–3.0% of revenue.

• 2021 qualified pension contributions were expected to be $60M, all discretionary; other postretirement contributions were expected to be ~$33M.

• 2021 Operating FAS/CAS Adjustment was forecast as a $163M net expense; the overall FAS/CAS Adjustment was forecast as an $18M net benefit.

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