HII Reports Third Quarter 2024 Results and Provides Updated Outlook
NEWPORT NEWS, Va., Oct. 31, 2024 (GLOBE NEWSWIRE) -- HII (NYSE:HII) today reported results for the third quarter of fiscal 2024 and provided an update on its outlook.
Highlights
Third quarter revenues were $2.7 billion
Third quarter net earnings were $101 million or $2.56 diluted earnings per share
Third quarter free cash flow1 was $136 million
Company is providing updated fiscal 2024 outlook
Company is withdrawing 5-year free cash flow1 outlook
Third Quarter Results
Third quarter 2024 revenues of $2.7 billion were down 2.4% from the third quarter of 2023, driven by lower volume at Ingalls Shipbuilding and Newport News Shipbuilding, partially offset by growth at Mission Technologies.
Operating income in the third quarter of 2024 was $82 million and operating margin was 3.0%, compared to $172 million and 6.1%, respectively, in the third quarter of 2023. The decreases were primarily driven by lower segment operating income1 compared to the prior year.
Segment operating income1 in the third quarter of 2024 was $97 million and segment operating margin1 was 3.5%, compared to $187 million and 6.6%, respectively, in the third quarter of 2023. The decreases were driven primarily by performance at Newport News Shipbuilding, which included a net unfavorable cumulative adjustment of $78 million, as well as lower performance at Ingalls Shipbuilding.
Net earnings in the quarter were $101 million, compared to $148 million in the third quarter of 2023. Diluted earnings per share in the quarter was $2.56, compared to $3.70 in the third quarter of 2023.
Net cash provided by operating activities in the quarter was $213 million and free cash flow1 was $136 million, compared to net cash provided by operating activities of $335 million and free cash flow1 of $293 million in the third quarter of 2023.
New contract awards in the third quarter of 2024 were $3.6 billion, bringing total backlog to approximately $49.4 billion as of September 30, 2024. Awards in the third quarter of 2024 included approximately $565 million related to the multi-ship amphibious award at Ingalls Shipbuilding.
1Non-GAAP measures. See Exhibit B for definitions and reconciliations.
Commentary on Third Quarter Results
"Two issues have impacted our results and guidance for the year," said Chris Kastner, HII's president and CEO.
"First, based on constructive discussions with our Navy partner, we expected to reach an agreement for Virginia-class Block V and Block VI and Columbia-class submarines in the second half of 2024.
"Starting this fall, some uncertainty emerged about the timing of that agreement. While we are confident an agreement will be reached and discussions continue, we have updated our profitability and cash flow assumptions based on the uncertain timing and structure of the award.
"We continue to pursue innovative contracting approaches that incentivize greater investments in our workforce, facilities and technology. These investments are critical to yield accelerated program schedules that meet the urgent needs of the Navy.
"Second, our assumptions of performance improvement and risk reduction have not been achieved, due to late critical material deliveries from the supply chain and reduced experience levels within our teams, both in production touch labor and supervision. This leads to labor inefficiency, and in some cases to rework, which can affect program schedules.
"It bears repeating that nearly all of the ships currently under construction were negotiated prior to COVID, and since those contracts were signed we have seen a significant loss of shipbuilding experience in our yards. Those ship contracts, which we are still operating under at Newport News, did not anticipate in their cost targets and risk limiting clauses the significant disruption of our workforce and supply chain, or extended periods of heightened cost inflation.
"Let me be clear: delays and cost increases on these ships are unacceptable to me, my team, and all of us at HII. Looking ahead, we continue to take decisive actions to focus on the fundamentals of shipbuilding to ensure that we finish these ships, get them delivered to the Navy, and transition to ships negotiated in the context of our current economic reality.
"To summarize, we remain focused on optimizing our operations, improving our cost structure and shipbuilding performance, and driving higher throughput. We firmly believe the actions we are taking will enable us to stabilize performance as we continue to work through these ship contracts."
HII Financial Outlook1
FY24 shipbuilding revenue2 expected to be approximately $8.8B
FY24 shipbuilding operating margin2 expected to be between 5.0% and 6.0%
Increasing FY24 Mission Technologies expected revenue range to between $2.8B and $2.85B
Increasing FY24 Mission Technologies expected operating margin2 to approximately 3.75%
Capital expenditures expected to be approximately 3.4% of sales
FY24 free cash flow2,3 expected to be between $0M and $100M
Withdrawing previous five-year (2024-2028) free cash flow2 outlook
Prior FY24 Outlook1
Current FY24 Outlook1
Shipbuilding Revenue2
$8.8B - $9.1B
~$8.8B
Shipbuilding Operating Margin2
7.6% - 7.8%
5.0% - 6.0%
Mission Technologies Revenue
$2.75B - $2.8B
$2.8B - $2.85B
Mission Technologies Segment Operating Margin2
3.0% - 3.5%
~3.75%
Mission Technologies EBITDA Margin2
8.0% - 8.5%
8.0% - 8.5%
Operating FAS/CAS Adjustment
($63M)
($61M)
Non-current State Income Tax Benefit/Expense2,4
~$0M
~$0M
Interest Expense
($95M)
($97M)
Non-operating Retirement Benefit
$178M
$180M
Effective Tax Rate
~21%
~17%
Depreciation & Amortization
~$350M
~$350M
Capital Expenditures
~5.3% of Sales
~3.4% of Sales
Free Cash Flow2,3
$600M - $700M
$0M - $100M
1The financial outlook, expectations and other forward-looking statements provided by the company for 2024 and beyond reflect the company's judgment based on the information available at the time of this release.2Non-GAAP measures. See Exhibit B for definitions. In reliance upon Item 10(e)(1)(i)(B) of Regulation S-K, reconciliations of forward–looking GAAP and non–GAAP measures are not provided because of the unreasonable effort associated with providing such reconciliations due to the variability in the occurrence and the amounts of certain components of GAAP and non-GAAP measures. For the same reasons, we are unable to address the significance of the unavailable information, which could be material to future results.3Outlook is based on current tax law and assumes the provisions requiring capitalization of R&D expenditures for tax purposes are not deferred or repealed.4Outlook is based on current tax law. Repeal or deferral of provisions requiring capitalization of R&D expenditures would result in elevated non-current state income tax expense.
Results of Operations
Three Months Ended
Nine Months Ended
September 30
September 30
($ in millions, except per share amounts)
2024
2023
$ Change
% Change
2024
2023
$ Change
% Change
Sales and service revenues
$
2,749
$
2,816
$
(67
)
(2.4
)%
$
8,531
$
8,277
$
254
3.1
%
Operating income
82
172
(90
)
(52.3
)%
425
469
(44
)
(9.4
)%
Operating margin %
3.0
%
6.1
%
(313) bps
5.0
%
5.7
%
(68) bps
Segment operating income1
97
187
(90
)
(48.1
)%
470
512
(42
)
(8.2
)%
Segment operating margin %1
3.5
%
6.6
%
(311) bps
5.5
%
6.2
%
(68) bps
Net earnings
101
148
(47
)
(31.8
)%
427
407
20
4.9
%
Diluted earnings per share
$
2.56
$
3.70
$
(1.14
)
(30.8
)%
$
10.81
$
10.18
$
0.63
6.2
%
1 Non-GAAP measures that exclude non-segment factors affecting operating income. See Exhibit B for definitions and reconciliations.
Segment Operating Results
Ingalls Shipbuilding
Three Months Ended
Nine Months Ended
September 30
September 30
($ in millions)
2024
2023
$ Change
% Change
2024
2023
$ Change
% Change
Revenues
$
664
$
711
$
(47
)
(6.6
)%
$
2,031
$
1,952
$
79
4.0
%
Segment operating income1
49
73
(24
)
(32.9
)%
165
193
(28
)
(14.5
)%
Segment operating margin %1
7.4
%
10.3
%
(289) bps
8.1
%
9.9
%
(176) bps
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.
Ingalls Shipbuilding revenues for the third quarter of 2024 were $664 million, a decrease of $47 million, or 6.6%, from the same period in 2023, primarily driven by lower volumes in amphibious assault ships and the Legend-class National Security Cutter program, partially offset by higher volumes in surface combatants.
Ingalls Shipbuilding segment operating income1 for the third quarter of 2024 was $49 million, a decrease of $24 million from the same period in 2023. Segment operating margin1 in the third quarter of 2024 was 7.4%, compared to 10.3% in the same period last year. The decreases were primarily driven by lower performance on amphibious assault ships and surface combatants.
Key Ingalls Shipbuilding milestones for the quarter:
Awarded a $9.6 billion multi-ship procurement contract for the construction of LPD 33, 34 and 35 and large-deck amphibious ship LHA 10
1Non-GAAP measures. See Exhibit B for definitions and reconciliations.
Newport News Shipbuilding
Three Months Ended
Nine Months Ended
September 30
September 30
($ in millions)
2024
2023
$ Change
% Change
2024
2023
$ Change
% Change
Revenues
$
1,412
$
1,453
$
(41
)
(2.8
)%
$
4,381
$
4,468
$
(87
)
(1.9
)%
Segment operating income1
15
90
(75
)
(83.3
)%
208
269
(61
)
(22.7
)%
Segment operating margin %1
1.1
%
6.2
%
(513) bps
4.7
%
6.0
%
(127) bps
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.
Newport News Shipbuilding revenues for the third quarter of 2024 were $1.4 billion, a decrease of $41 million, or 2.8%, from the same period in 2023. The decrease was driven primarily by lower volumes in naval nuclear support services and unfavorable cumulative adjustments on the Virginia-class submarine program and aircraft carriers, partially offset by higher volumes in the Columbia-class submarine program.
Newport News Shipbuilding segment operating income1 for the third quarter of 2024 was $15 million, a decrease of $75 million from the same period in 2023. Segment operating margin1 in the third quarter of 2024 was 1.1% compared to 6.2% in the same period last year. The decreases were primarily driven by lower performance on the Virginia-class submarine program and aircraft carriers. Newport News Shipbuilding third quarter 2024 results included a net unfavorable cumulative adjustment totaling $78 million, including $34 million on Block IV of the Virginia-class submarine program.
Key Newport News Shipbuilding milestones for the quarter:
Shipped final module of Virginia-class submarine Utah (SSN 801)
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.
Mission Technologies
Three Months Ended
Nine Months Ended
September 30
September 30
($ in millions)
2024
2023
$ Change
% Change
2024
2023
$ Change
% Change
Revenues
$
709
$
685
$
24
3.5
%
$
2,224
$
1,954
$
270
13.8
%
Segment operating income1
33
24
9
37.5
%
97
50
47
94.0
%
Segment operating margin %1
4.7
%
3.5
%
115 bps
4.4
%
2.6
%
180 bps
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.
Mission Technologies revenues for the third quarter of 2024 were $709 million, an increase of $24 million, or 3.5%, from the same period in 2023. The increase was primarily due to higher volumes in cyber, electronic warfare & space.
Mission Technologies segment operating income1 for the third quarter of 2024 was $33 million, compared to $24 million in ...
