Huntington Ingalls Industries, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Key Milestones: In 2024, generated sales of $11.5 billion and earnings per share of $13.96. 2024 awards totaled $12 billion, and year-end backlog was $49 billion, of which $27 billion is funded. Mission Technologies won significant contracts, Ingalls and Newport News had shipbuilding milestones.
• Operational Initiatives: Focus on increasing throughput and cost reductions. In 2025, doubling down on operation improvement actions, including addressing labor, productivity, and supply chain challenges. Acquired W International to increase workforce. Plan to increase outsourcing by 30% and insource contract labor. Annualized enterprise-wide cost reduction target of approximately $250 million per year.
• Outlook: Over the next 24 months, expect to secure over $50 billion of contract awards. Aim to grow to $15 billion of annual revenue by 2030 with margin expansion and free cash flow growth

Segment Performance

• Mission Technologies: In 2024, achieved awards of over $12 billion in potential total contract value, a 2024 book-to-bill of 1.33, and 9% revenue growth year over year. 2024 revenues were $2.9 billion, an increase of $138 million or 8.8% from 2023, driven by higher volumes in cyber, electronic warfare, and space, as well as C5ISR contracts.
• Ingalls Shipbuilding: In 2024, was awarded a $9.6 billion multi-ship procurement contract. Delivered OPD 29 USS Richard M. McCool Junior and launched LPD 30 Harrisburg, and made progress on the DDG program. 2024 revenues were $2.8 billion, an increase of $15 million or 0.5% from 2023, driven by higher volumes in surface combatants, largely offset by lower amphibious assault ship and NSC program revenues.
• Newport News Shipbuilding: In 2024, had activities in the Virginia class submarine program and aircraft carriers. 2024 revenues were $6 billion, a decrease of $164 million or 2.7% from 2023, primarily due to unfavorable Virginia class cumulative adjustments as well as lower volumes in aircraft carriers and nuclear support services, partially offset by higher volume on the Columbia program

Guidance

• 2025 shipbuilding revenues are expected to be between $8.9 and $9.1 billion, and shipbuilding margins in the range of 5.5% to 6.5%.
• Mission Technologies expects revenues between $2.9 billion and $3.1 billion and margins between 4% and 4.5%, with EBITDA margins between 8% and 8.5%.
• Free cash flow outlook for 2025 is between $300 million and $500 million. Expect transition from pre-COVID contracts to new contracts leading to margin expansion over mid to long term

Risks

• Impact of pre-COVID contracts on financial performance, as they have been a drag on results.
• Labor attrition remains stubbornly high, affecting throughput.
• Supply chain challenges and inflation affecting cost and schedule predictability for contracts

Question and Answer

Q: About margin gap and inflation impact, how much attributed to inflation versus other operational challenges?

A: Chris Kastner states it's a broader question than just inflation impact, as inflation seeps into various elements of cost structure, not just paying people more, and supply chain performance is also affected due to inflation Q: About guidance and contract awards, what contract awards are assumed in the guidance?

A: Chris Kastner states the guidance assumes FY24 two boats and negotiation of Block 5 contracts and Columbia Bill 2 contract Q: About shipbuilding margin and EACs, when will see EACs flip from unfavorable to favorable?

A: Tom Stiehle says they are transitioning out of pre-COVID contracts, and as they transition, there should be an uplift in profitability, but no specific date given