• Revenue: $11.5 billion for 2024, a 1% increase from 2023.
• Earnings Per Share (EPS): $13.96 for 2024.
• Net Earnings: $550 million for 2024, down from $681 million in 2023.
• Free Cash Flow: $40 million for 2024.
• Backlog: $49 billion at year-end 2024, with $27 billion funded.
• Mission Technologies Revenue Growth: 9% year-over-year for 2024.
• Mission Technologies Book-to-Bill Ratio: 1.33% for 2024.
• Shipbuilding Revenue: $8.9 billion to $9.1 billion expected for 2025.
• Shipbuilding Margins: 5.5% to 6.5% expected for 2025.
• Mission Technologies Revenue: $2.9 billion to $3.1 billion expected for 2025.
• Mission Technologies Margins: 4% to 4.5% expected for 2025.
• EBITDA Margins for Mission Technologies: 8% to 8.5% expected for 2025.
• Capital Expenditures: $353 million in 2024, 3.1% of sales.
• Cash and Cash Equivalents: $831 million at the end of 2024.
• Liquidity: Approximately $2.5 billion at the end of 2024.

• Warning! GuruFocus has detected 5 Warning Signs with HII.

Release Date: February 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Huntington Ingalls Industries Inc (NYSE:HII) expects to secure over $50 billion in contract awards over the next 24 months, which are anticipated to have a balanced risk equation and provide opportunities for margin improvement.
• The company achieved significant milestones in 2024, including $12 billion in awards and a year-end backlog of $49 billion, with $27 billion funded.
• Mission Technologies division reported a strong year with a 9% revenue growth and a book-to-bill ratio of 1.33%, securing major contracts including a $6.7 billion deal with the US Air Force.
• HII is focusing on operational improvements, including a 20% year-over-year improvement in shipbuilding production throughput and a $250 million annualized cost reduction target.
• The company anticipates growing to $15 billion in annual revenue by 2030, with associated margin expansion and free cash flow growth.

Negative Points

• Fourth-quarter revenues decreased by approximately 5% year-over-year, driven by lower volumes across all three segments.
• Segment operating income and margin significantly declined compared to the previous year, impacted by non-recurring favorable items in 2023.
• The company continues to face challenges from pre-COVID contracts, which are expected to impact financial performance until 2027.
• Attrition remains high despite exceeding hiring goals, and there are ongoing challenges related to labor, productivity, and supply chain issues.
• Free cash flow for 2024 was only $40 million, reflecting ongoing challenges with contract performance and elevated capital expenditures.

Q & A Highlights

Q: How much of the margin gap would you attribute to inflation versus other operational challenges? A: Chris Kastner, President and CEO, explained that while some contracts have inflation protection, the impact of inflation is broader and more complex. It affects the cost structure in various ways, not just through direct wage increases, and also impacts supply chain efficiency.

Q: Is it still possible to achieve 9% to 10% margin levels in the current economic environment? A: Chris Kastner, President and CEO, believes achieving a 9% margin is possible. He mentioned that new contracts are being negotiated with inflation protection, and there is recognition from Congress and the Navy that shipbuilders need to earn fair margins.

Q: What contract awards are assumed in the guidance for 2025? A: Chris Kastner, President and CEO, stated that the guidance assumes the negotiation of FY24 Block 5 submarine contracts and Columbia Bill 2 contracts. He expressed high confidence in securing these contracts, supported by the new administration's prioritization of shipbuilding.

Q: What lessons from past challenges can be applied today to improve shipbuilding margins? A: Chris Kastner, President and CEO, emphasized the importance of transparency and realistic cost and schedule estimates in negotiations. Tom Steely, EVP and CFO, added that achieving balanced contracts and maintaining consistent performance are key to improving margins.

Q: How should we think about the progression of shipbuilding margins through the decade? A: Tom Steely, EVP and CFO, indicated that margins are expected to gradually improve as pre-COVID contracts run off and new contracts are executed. By 2027, most work will be post-COVID, leading to potential profitability improvements.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.