Huntington Ingalls Industries(HII) - 2025 Q2 - Quarterly Results

markdown [Financial Highlights](index=1&type=section&id=Financial%20Highlights) HII reported second quarter 2025 revenues of $3.1 billion, a 3.5% increase year-over-year, driven by growth across all segments, though net earnings declined to $152 million, or $3.86 per diluted share, while achieving a record backlog of $56.9 billion and reaffirming full-year 2025 financial guidance Key Financial Highlights | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | **Revenues** | $3.1 billion | $2.98 billion | +3.5% | | **Net Earnings** | $152 million | $173 million | -12.1% | | **Diluted EPS** | $3.86 | $4.38 | -11.9% | | **New Contract Awards** | $11.9 billion | N/A | N/A | | **Total Backlog** | $56.9 billion | N/A | N/A | - Entered into a strategic partnership with C3 AI to expand the use of digital technologies and apply artificial intelligence to accelerate shipbuilding throughput[3](index=3&type=chunk) - Reaffirmed its fiscal year 2025 guidance for segment revenue and operating margin[3](index=3&type=chunk) - Generated strong free cash flow of **$730 million**, a significant improvement from a negative **$99 million** in Q2 2024[5](index=5&type=chunk) [Consolidated Results of Operations](index=1&type=section&id=Consolidated%20Results%20of%20Operations) For the second quarter of 2025, consolidated revenues grew 3.5% to $3.1 billion, but operating income fell 13.8% to $163 million, with operating margin compressing by 106 basis points to 5.3%, primarily due to less favorable results at Newport News Shipbuilding, leading to a 12.1% decrease in net earnings to $152 million Consolidated Performance Summary | ($ in millions, except per share) | Q2 2025 | Q2 2024 | % Change | Six Months 2025 | Six Months 2024 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Sales and service revenues** | $3,082 | $2,977 | 3.5% | $5,816 | $5,782 | 0.6% | | **Operating income** | $163 | $189 | (13.8)% | $324 | $343 | (5.5)% | | **Operating margin %** | 5.3% | 6.3% | (106) bps | 5.6% | 5.9% | (36) bps | | **Net earnings** | $152 | $173 | (12.1)% | $301 | $326 | (7.7)% | | **Diluted earnings per share** | $3.86 | $4.38 | (11.9)% | $7.66 | $8.25 | (7.2)% | [Segment Operating Results](index=2&type=section&id=Segment%20Operating%20Results) In Q2 2025, all three segments reported revenue growth, with Newport News Shipbuilding leading at 4.4%, followed by Mission Technologies at 3.4% and Ingalls Shipbuilding at 1.7%, though profitability varied, with Newport News experiencing a significant drop in operating margin, while Ingalls saw a smaller decline and Mission Technologies remained relatively stable [Ingalls Shipbuilding](index=2&type=section&id=Ingalls%20Shipbuilding) Ingalls Shipbuilding's Q2 revenue increased by 1.7% to $724 million, driven by higher volumes in surface combatants, while segment operating income decreased slightly to $54 million, and the operating margin contracted to 7.5% due to lower performance and the absence of a prior-year delivery incentive on amphibious assault ships Ingalls Shipbuilding Performance | ($ in millions) | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | **Revenues** | $724 | $712 | 1.7% | | **Segment operating income** | $54 | $56 | (3.6)% | | **Segment operating margin %** | 7.5% | 7.9% | (41) bps | - Revenue growth was driven by higher volumes in surface combatants, partially offset by lower volumes in amphibious assault ships[9](index=9&type=chunk) - Key milestones included the christening of guided missile destroyer Jeremiah Denton (DDG 129) and signing an MOU with HD Hyundai Heavy Industries to collaborate on accelerating ship production[11](index=11&type=chunk) [Newport News Shipbuilding](index=4&type=section&id=Newport%20News%20Shipbuilding) Newport News Shipbuilding's Q2 revenue grew 4.4% to $1.6 billion, primarily from higher volumes in the Columbia-class and Virginia-class submarine programs, yet segment operating income fell sharply by 26.1% to $82 million, and the operating margin decreased significantly to 5.1% from 7.2% a year ago, attributed to lower performance in the Virginia-class submarine and aircraft carrier construction programs Newport News Shipbuilding Performance | ($ in millions) | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | **Revenues** | $1,603 | $1,535 | 4.4% | | **Segment operating income** | $82 | $111 | (26.1)% | | **Segment operating margin %** | 5.1% | 7.2% | (212) bps | - Margin decreases were driven by lower performance in the Virginia-class submarine program and aircraft carrier construction[14](index=14&type=chunk) - Key milestones included a contract modification for two additional Block V Virginia-class submarines and the launch of the Virginia-class submarine Arkansas (SSN 800)[19](index=19&type=chunk) [Mission Technologies](index=4&type=section&id=Mission%20Technologies) Mission Technologies' Q2 revenue increased 3.4% to $791 million, due to higher volumes in C5ISR and live, virtual, and constructive training solutions, with segment operating income flat at $36 million and the operating margin slightly down at 4.6% as changes in contract mix offset the benefit of higher volumes, resulting in an EBITDA margin of 8.1% for the quarter Mission Technologies Performance | ($ in millions) | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | **Revenues** | $791 | $765 | 3.4% | | **Segment operating income** | $36 | $36 | 0.0% | | **Segment operating margin %** | 4.6% | 4.7% | (15) bps | - Key milestones included delivering initial Lionfish small uncrewed undersea vehicles (SUUVs) to the U.S. Navy and an order for over a dozen REMUS 300 SUUVs by Hitachi[20](index=20&type=chunk) - EBITDA margin was **8.1%** in Q2 2025, compared to **8.5%** in Q2 2024[19](index=19&type=chunk) [HII Financial Outlook](index=8&type=section&id=HII%20Financial%20Outlook) HII reaffirmed its full-year 2025 guidance for segment revenues and operating margins, anticipating Shipbuilding revenue between $8.9 and $9.1 billion with an operating margin of 5.5% to 6.5%, and Mission Technologies revenue projected between $2.9 and $3.1 billion, while notably increasing its FY25 free cash flow guidance to a range of $500 to $600 million FY25 Financial Outlook | FY25 Outlook | Value | | :--- | :--- | | **Shipbuilding Revenue** | $8.9B - $9.1B | | **Shipbuilding Operating Margin** | 5.5% - 6.5% | | **Mission Technologies Revenue** | $2.9B - $3.1B | | **Mission Technologies Segment Operating Margin** | 4.0% - 4.5% | | **Free Cash Flow** | $500M - $600M | - The company increased its FY25 free cash flow guidance to between **$500** and **$600 million**[25](index=25&type=chunk) [Exhibit A: Financial Statements](index=10&type=section&id=Exhibit%20A%3A%20Financial%20Statements) The financial statements detail HII's performance, with the income statement showing a year-over-year decline in net earnings for the first six months, the balance sheet indicating a stable asset base and a reduction in total liabilities leading to an increase in stockholders' equity, and the cash flow statement highlighting a significant improvement in cash from operations, driving positive free cash flow [Condensed Consolidated Statements of Operations](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the six months ended June 30, 2025, HII's revenues were $5.82 billion, a marginal increase from $5.78 billion in the prior year, while net earnings decreased to $301 million from $326 million in 2024, resulting in a diluted EPS of $7.66 compared to $8.25, and dividends declared per share increased to $1.35 for the quarter Condensed Consolidated Statements of Operations | ($ in millions, except per share) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | **Sales and service revenues** | $5,816 | $5,782 | | **Operating income** | $324 | $343 | | **Net earnings** | $301 | $326 | | **Diluted earnings per share** | $7.66 | $8.25 | | **Dividends declared per share** | $2.70 | $2.60 | [Condensed Consolidated Statements of Financial Position](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Financial%20Position) As of June 30, 2025, HII's total assets stood at $12.1 billion, nearly flat compared to year-end 2024, with total liabilities decreasing to $7.2 billion from $7.5 billion mainly due to a reduction in short-term debt, which resulted in an increase in total stockholders' equity to $4.88 billion from $4.67 billion Condensed Consolidated Statements of Financial Position | ($ in millions) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Cash and cash equivalents** | $343 | $831 | | **Total current assets** | $2,973 | $3,228 | | **Total assets** | $12,098 | $12,141 | | **Total current liabilities** | $2,750 | $2,991 | | **Total liabilities** | $7,216 | $7,475 | | **Total stockholders' equity** | $4,882 | $4,666 | [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the first six months of 2025, net cash provided by operating activities was $428 million, a significant turnaround from a $211 million use of cash in the same period of 2024, with net cash used in investing activities at $291 million and financing activities using $625 million, largely due to a $500 million repayment of long-term debt, ending the period with cash and cash equivalents of $343 million Condensed Consolidated Statements of Cash Flows | ($ in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | $428 | ($211) | | **Net cash used in investing activities** | ($291) | ($162) | | **Net cash used in financing activities** | ($625) | ($46) | | **Change in cash and cash equivalents** | ($488) | ($419) | | **Cash and cash equivalents, end of period** | $343 | $11 | [Exhibit B: Non-GAAP Measures Definitions & Reconciliations](index=13&type=section&id=Exhibit%20B%3A%20Non-GAAP%20Measures%20Definitions%20%26%20Reconciliations) This section defines and reconciles non-GAAP financial measures used by HII management, including Segment Operating Income, Segment Operating Margin, and Free Cash Flow, which are utilized to evaluate core operating performance by excluding certain items like the FAS/CAS adjustment and non-current state income taxes, or by adjusting for capital expenditures - Segment operating income is defined as operating income before the Operating FAS/CAS Adjustment and non-current state income taxes[34](index=34&type=chunk) - Free cash flow is defined as net cash provided by (used in) operating activities less capital expenditures net of related grant proceeds[40](index=40&type=chunk) [Reconciliation of Segment Operating Income and Segment Operating Margin](index=14&type=section&id=Reconciliation%20of%20Segment%20Operating%20Income%20and%20Segment%20Operating%20Margin) For Q2 2025, HII's GAAP operating income of $163 million was reconciled to a non-GAAP segment operating income of $172 million, primarily accounting for a $6 million Operating FAS/CAS Adjustment and $3 million in non-current state income taxes, resulting in a segment operating margin of 5.6% Segment Operating Income and Margin Reconciliation | ($ in millions) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | **Operating Income (GAAP)** | $163 | $189 | | Operating FAS/CAS Adjustment | $6 | $15 | | Non-current state income taxes | $3 | ($1) | | **Segment Operating Income (Non-GAAP)** | $172 | $203 | [Reconciliation of Free Cash Flow](index=14&type=section&id=Reconciliation%20of%20Free%20Cash%20Flow) HII generated $730 million of free cash flow in Q2 2025, a substantial improvement from a negative $99 million in Q2 2024, calculated by taking net cash from operating activities of $823 million and subtracting net capital expenditures of $93 million Free Cash Flow Reconciliation | ($ in millions) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | $823 | ($9) | | Less: Capital expenditures (net) | ($93) | ($90) | | **Free cash flow (Non-GAAP)** | $730 | ($99) | [Reconciliation of Mission Technologies EBITDA and EBITDA Margin](index=16&type=section&id=Reconciliation%20of%20Mission%20Technologies%20EBITDA%20and%20EBITDA%20Margin) For Q2 2025, Mission Technologies' segment operating income of $36 million was reconciled to an EBITDA of $64 million by adding back $3 million in depreciation, $23 million in amortization, and $2 million in state tax expense, resulting in an EBITDA margin of 8.1% Mission Technologies EBITDA Reconciliation | ($ in millions) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | **Mission Technologies segment operating income** | $36 | $36 | | Add: Depreciation & Amortization | $26 | $27 | | Add: State tax expense | $2 | $2 | | **Mission Technologies EBITDA** | $64 | $65 | | **Mission Technologies EBITDA margin** | 8.1% | 8.5% |