Huntington Ingalls Industries(US:HII)2020-11-06 09:23Financial Data and Key Metrics Changes - Sales for Q3 2020 were $2.3 billion, with diluted EPS at $5.45, reflecting a 4.3% increase in revenue compared to the same period last year [8][22] - Operating income increased by $8 million to $222 million, with an operating margin remaining flat at 9.6% [22] - Net earnings rose to $222 million from $154 million in Q3 2019, driven by lower income taxes and higher operating income [23] Business Segment Data and Key Metrics Changes - Ingalls' revenues were $675 million, up 4.3% due to higher volumes in DDG and NSC programs, with operating income at $62 million and a margin of 9.2% [24] - Newport News revenues increased 6.6% to $1.4 billion, with operating income at $79 million and a margin of 5.8%, down from 9.5% the previous year due to lower risk retirement on the Virginia-class submarine program [25] - Technical Solutions revenue was $320 million, a decline of $6 million, but operating income improved to $21 million with a margin of 6.6% due to successful integration of recent acquisitions [26][27] Market Data and Key Metrics Changes - The company ended the quarter with a cash balance of $744 million and total liquidity of $2.5 billion [28] - Cash from operations was $222 million, with net capital expenditures at $62 million, compared to $363 million and $113 million in Q3 2019 [28] Company Strategy and Development Direction - The company is focused on supporting the Navy's evolving unmanned strategy and has broken ground on a new Unmanned System Center of Excellence [18][20] - The management highlighted a strong backlog of $45 billion, a well-trained workforce, and a strong balance sheet as key attributes for future growth [21] - The company plans to continue investing in unmanned systems and energy business opportunities, particularly with the Department of Energy [93][94] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to manage through the pandemic and emphasized the importance of executing the backlog efficiently [40][44] - The company expects to generate approximately $3 billion in free cash flow cumulatively from 2020 to 2024, with a focus on sales growth and capital reduction [35][98] - Management noted that national security remains a bipartisan issue, and the need for a larger Navy is expected to persist regardless of changes in administration [100][101] Other Important Information - The Board of Directors approved an 11% increase in the quarterly dividend from $1.03 to $1.14 per share [9] - The company is pursuing COVID-19 related labor cost reimbursements from the government [7] Q&A Session Summary Question: What are the factors influencing the multiyear cash flow forecast? - Management indicated that improved comfort with the financial plan and stabilized active case rates allowed for reinstating cash flow targets [40][41] Question: Are there assumptions for COVID cost reimbursements? - Management clarified that they are not relying on customer reimbursements for COVID-related costs, focusing instead on execution [43][46] Question: How is the schedule recovery for Virginia-class submarines progressing? - Management reported steady attendance and resource allocation, supporting the new schedules laid out [51] Question: What is the outlook for unmanned systems and potential acquisitions? - Management expressed optimism about the unmanned systems market and indicated that further investments in this area are likely [110] Question: How does the company view the potential for a third Virginia-class submarine? - Management believes the industrial base can support a third Virginia-class submarine, but it will require investment in capacity and workforce [72][74]