Huntington Ingalls Industries(HII)2023-05-04 16:59Financial Data and Key Metrics - Net earnings for Q1 2023 were $129 million, down from $140 million in Q1 2022 [3] - Diluted earnings per share (EPS) for Q1 2023 was $3.23, compared to $3.50 in Q1 2022 [3] - Revenue grew 3.8% YoY to a record $2.7 billion in Q1 2023 [14] - Backlog at the end of Q1 2023 was approximately $47 billion, with $26 billion currently funded [14] - Free cash flow in Q1 2023 was negative $49 million, an improvement from negative $126 million in Q1 2022 [51][57] Business Segment Performance Shipbuilding - Newport News Shipbuilding revenue increased 8.3% YoY to $1.5 billion, driven by growth in aircraft carrier and submarine revenues [24] - Ingalls Shipbuilding revenue decreased 8.6% YoY to $577 million, primarily due to lower revenues on LPD, LHA, and NSC programs [22] - Shipbuilding operating margin was 6.7% in Q1 2023, slightly below the 7% outlook [25] Mission Technologies - Mission Technologies revenue grew 5.8% YoY to $624 million, driven by higher volumes in mission-based solutions and fleet sustainment [40] - Operating income for Mission Technologies was $17 million, up from $9 million in Q1 2022 [41] - EBITDA margin for Mission Technologies was 8% in Q1 2023, compared to 7.3% in Q1 2022 [41] Market and Strategic Developments - The company secured new contract awards of approximately $2.6 billion in Q1 2023, including a $1.3 billion contract for LPD 32 and a $567 million contract for Columbia-class submarines [15] - The fiscal year 2024 budget request includes continued investment in shipbuilding programs, such as Columbia-class submarines, Virginia-class attack submarines, and Arleigh Burke-class destroyers [17] - The company is working with the Navy to optimize the CVN 79 schedule, which is expected to be margin- and cash-neutral [10][66] Management Commentary on Operating Environment and Future Outlook - The company remains focused on executing its $47 billion backlog and growing its Mission Technologies business [11] - Supply chain lead times have stabilized but remain above pre-COVID levels, requiring adjustments in future contracting activities [20] - The company reaffirmed its full-year 2023 guidance, with milestones expected to drive performance in the second half of the year [34] Other Important Information - The company successfully hired over 1,500 craftsmen and women in Q1 2023, representing 30% of its full-year hiring plan [46] - The company paid dividends of $1.24 per share, totaling $49 million, and repurchased approximately 39,000 shares at an aggregate cost of $9 million in Q1 2023 [29] Q&A Session Summary Question: Growth trajectory at Newport News Shipbuilding - Management expects Newport News to provide the majority of shipbuilding growth, with potential for growth above 3% as Columbia-class and aircraft carrier programs ramp up [26][27] Question: Margin trajectory and milestones - Management expects margin improvement in the second half of 2023, driven by milestones and production efficiency [53][54] - The company anticipates incremental margin expansion in 2024, supported by labor and program plans [87] Question: CVN 79 schedule optimization - The optimization of CVN 79 is expected to be margin- and cash-neutral, with no material impact on financial results [66][67] Question: Labor and attrition trends - Hiring and attrition trends are positive, with over 1,500 new hires in Q1 2023 and attrition showing improvement in key disciplines [46][72] Question: Free cash flow outlook - Free cash flow is expected to improve significantly in 2024, driven by revenue growth, margin expansion, and working capital improvements [120][121] Question: Supply chain issues - Supply chain lead times have stabilized but remain above pre-COVID levels, with costs incorporated into EACs [130][131] Question: Long-term margin potential - Management remains confident in achieving 9%+ shipbuilding margins over the long term, supported by labor stability and production efficiency [114][132]