Huntington Ingalls' Q3 Earnings Plunge: Revenue Drop Sparks Concerns Amid Strategic Shifts

Huntington Ingalls Industries, Inc. (HII) has released its earnings report for the third quarter of 2024, revealing a disappointing performance with earnings per share (EPS) of $2.56. This figure marks a significant 30.8% decline from the $3.70 reported in the same quarter last year and falls well below the Zacks Consensus Estimate of $3.84, reflecting a shortfall of 33.3%.

Total Revenues and Operational Performance

The company's total revenues for the quarter reached $2.75 billion, which is 4.5% lower than the Zacks Consensus Estimate of $2.88 billion. This revenue figure also shows a 2.4% decrease from the $2.82 billion reported in the corresponding quarter last year, driven by reduced sales volumes from both the Ingalls and Newport News segments.

Huntington Ingalls reported a segment operating income of $97 million, a substantial drop from the $187 million achieved in the third quarter of 2023. However, the operating margin improved by 310 basis points from the previous year's figure, reaching 3.5%. The decline in operating income was primarily linked to poor performance at the Newport News Shipbuilding unit, which suffered a net unfavorable cumulative adjustment of $78 million, along with weaker results from the Ingalls Shipbuilding unit.

During the reported quarter, HII secured orders totaling $3.6 billion, bringing its total backlog to $49.4 billion as of September 30, 2024, up from $48.5 billion as of June 30, 2024.

Segmental Performance Breakdown

  • Newport News Shipbuilding: Revenues in this segment amounted to $1.41 billion, reflecting a decline of 2.8% year-over-year. This decrease was driven by reduced volumes in naval nuclear support services and adverse cumulative adjustments related to the Virginia-class submarine program and aircraft carriers. Operating earnings for this segment fell dramatically to $15 million, down 83.3% from the previous year due to underperformance in key programs.
  • Ingalls Shipbuilding: This segment reported revenues of $664 million, a decline of 6.6% year-over-year, primarily due to decreased volumes in amphibious assault ships and the Legend-class National Security Cutter program. Operating income in this segment fell to $49 million, a decrease of 32.9% year-over-year.
  • Mission Technologies: This segment saw revenues rise to $709 million, reflecting a 3.5% year-over-year increase, driven by higher activity in cyber, electronic warfare, and space programs. Operating income increased significantly by 37.5% year-over-year to $33 million, buoyed by higher volumes and enhanced equity income from nuclear and environmental joint ventures.

Financial Update

As of September 30, 2024, Huntington Ingalls reported cash and cash equivalents of $10 million, a sharp decline from $430 million reported on December 31, 2023. The company’s long-term debt stood at $1.71 billion, down from $2.21 billion at the end of 2023. Cash flow from operating activities was recorded at $2 million, a decline from $408 million in the previous year, while HII reported a free cash outflow of $273 million during the first nine months of 2024, contrasting sharply with a free cash inflow of $258 million in the same period last year.

Revised Guidance

Huntington Ingalls has adjusted its guidance for 2024, now projecting shipbuilding revenues to be approximately $8.8 billion, consistent with the previous estimate of $8.8-$9.1 billion. For Mission Technologies, HII anticipates revenues in the range of $2.80-$2.85 billion, an increase from the earlier forecast of $2.75-$2.80 billion. The company has also revised its expectations for free cash flow, estimating it to be between $0-$100 million for 2024, down from the prior projection of $600-$700 million.

Overall, Huntington Ingalls’ third-quarter results indicate a challenging period for the company, with significant declines in earnings and revenues, necessitating a closer examination of its operational strategies moving forward.

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