Huntington Ingalls Industries(US:HII)2022-08-04 14:37Financial Performance - Sales and service revenues for Q2 2022 were $2,662 million, a 19% increase from $2,231 million in Q2 2021[98] - Operating income for the first half of 2022 was $329 million, up 20% from $275 million in the same period of 2021[98] - Net earnings for the first half of 2022 reached $318 million, a 15% increase from $277 million in the first half of 2021[98] - Operating income for the three months ended June 30, 2022, was $191 million, a 49% increase from $128 million in the same period in 2021[119] - Segment operating income for the three months ended June 30, 2022, was $225 million, reflecting a 33% increase from $169 million in the same period in 2021[119] - For the first half of 2022, segment operating income increased to $401 million, an 11% rise from $360 million in the same period of 2021[121] - Total sales and service revenues for the three months ended June 30, 2022, were $2,662 million, a 19% increase from $2,231 million in the same period of 2021[101] - Product sales for the three months ended June 30, 2022, increased by $66 million, or 4%, compared to the same period in 2021, while service revenues increased by $365 million, or 78%[102][103] Cost and Expenses - The cost of product sales and service revenues increased to $2,272 million in Q2 2022, reflecting a 19% rise compared to $1,909 million in Q2 2021[98] - General and administrative expenses rose to $227 million in Q2 2022, an 11% increase from $204 million in Q2 2021[98] - Cost of product sales for the three months ended June 30, 2022, was $1,526 million, a 2% increase from $1,495 million in the same period in 2021, with the cost as a percentage of product sales decreasing from 84.8% to 83.4%[104][106] - Cost of service revenues for the three months ended June 30, 2022, increased by $332 million, or 80%, compared to the same period in 2021, with the cost as a percentage of service revenues increasing from 88.5% to 89.6%[107][110] - General and administrative expenses for the three months ended June 30, 2022, increased by $23 million, or 11%, compared to the same period in 2021, primarily due to higher overhead costs[115] Risks and Challenges - The company faces long-term uncertainty regarding U.S. Government defense spending, which may lead to fewer contract awards and lower revenues[84] - Inflationary pressures have resulted in increased costs for various commodities, impacting contract cost assumptions[87] - The ongoing geopolitical tensions, including the conflict in Ukraine, have caused disruptions in global economies and heightened cybersecurity risks[86] - The company is closely monitoring potential cost impacts related to COVID-19 and supply chain challenges[88] - The federal budget environment poses a significant long-term risk, potentially affecting the viability of suppliers and subcontractors[84] Revenue Segments - Mission Technologies segment saw a significant revenue increase of 153%, from $237 million in Q2 2021 to $600 million in Q2 2022[134] - Ingalls revenues for the three months ended June 30, 2022, decreased by $12 million, or 2%, primarily due to lower revenues in surface combatants[143] - Newport News revenues for the three months ended June 30, 2022, increased by $70 million, or 5%, driven by higher revenues in aircraft carriers[149] - Mission Technologies revenues for the three months ended June 30, 2022, increased by $363 million, or 153%, primarily due to higher volumes in DFS attributable to the acquisition of Alion[154] Backlog and Contracts - Total backlog as of June 30, 2022, was approximately $47.2 billion, down from $48.5 billion as of December 31, 2021[158] - The value of new contract awards during the six months ended June 30, 2022, was approximately $4 billion[160] Cash Flow and Financing - Net cash provided by operating activities for the six months ended June 30, 2022, was $184 million, compared to $139 million for the same period in 2021[164] - Cash used in investing activities for the six months ended June 30, 2022, was $101 million, down from $134 million for the same period in 2021[166] - For the six months ended June 30, 2022, free cash flow increased by $75 million to $82 million, compared to $7 million in the same period in 2021, primarily due to higher earnings and lower capital expenditures[170] - Cash used in financing activities for the six months ended June 30, 2022, was $335 million, an increase from $169 million in the same period in 2021, mainly due to a $200 million increase in long-term debt repayment[168] Capital Expenditures and Debt - Capital expenditures for maintenance and sustainment are expected to be approximately 1.0% of annual revenues, while discretionary capital expenditures are projected to be around 1.5% to 2.0% of annual revenues for 2022[167] - The company has a $650 million Term Loan, a $1.5 billion Revolving Credit Facility, and a $1 billion commercial paper program[184] - As of June 30, 2022, the company had $425 million outstanding on the Term Loan, with no indebtedness under the Revolving Credit Facility or commercial paper program[184] - A 1% increase in interest rates would raise the annual interest expense on the Term Loan by approximately $4 million[184] Operational Developments - The company is involved in the construction of the Columbia class submarines, with contracts awarded for integrated product and process development and construction of the first two boats[178] - The company delivered Fort Lauderdale (LPD 28) in 2022 and is currently constructing Richard M. McCool Jr. (LPD 29) and Harrisburg (LPD 30)[181] - The company has contracts to construct multiple Arleigh Burke class destroyers, with recent deliveries including USS Paul Ignatius (DDG 117) and USS Delbert D. Black (DDG 119)[178] - The company is actively engaged in developing unmanned maritime solutions for defense and commercial applications, serving customers in over 30 countries[181] - The company is positioned to serve the growing commercial nuclear power plant decommissioning market through various joint ventures and contracts with the Department of Energy[179] Tax and Interest - Non-current state income tax benefit for Q2 2022 was $1 million, compared to an expense of $4 million in Q2 2021, marking a 125% improvement[127] - Interest expense increased by $8 million for Q2 2022 compared to Q2 2021, primarily due to new senior notes and borrowing[128] - The effective income tax rate for Q2 2022 was 19.8%, slightly down from 19.9% in Q2 2021[131] - The Operating FAS/CAS Adjustment was a net expense of $35 million for Q2 2022, a 5% improvement from $37 million in Q2 2021[124] - Cumulative favorable margin adjustments for Q2 2022 totaled $68 million, compared to $35 million in Q2 2021[138] - The company reported a favorable change in non-operating retirement benefits of $23 million for Q2 2022, driven by higher returns on plan assets[129]