Attached files
| file | filename |
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| EX-99.1 - EXHIBIT 99.1 - HUNTINGTON INGALLS INDUSTRIES, INC. | hii2017q1earningsrelease.htm |
| 8-K - 8-K - HUNTINGTON INGALLS INDUSTRIES, INC. | q12017earningsrelease8-k.htm |
Q1 2017 Earnings Presentation
May 4, 2017
Mike Petters
President and Chief Executive Officer
Chris Kastner
Executive Vice President, Business Management and Chief Financial Officer
2
Forward-Looking Statements
Statements in this presentation, other than statements of historical fact, may
constitute "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve risks and
uncertainties that could cause our actual results to differ materially from those
expressed in these statements. Factors that may cause such differences include:
changes in government and customer priorities and requirements (including
government budgetary constraints, shifts in defense spending, and changes in
customer short-range and long-range plans); our ability to estimate our future contract
costs and perform our contracts effectively; changes in procurement processes and
government regulations and our ability to comply with such requirements; our ability
to deliver our products and services at an affordable life cycle cost and compete
within our markets; natural and environmental disasters and political instability;
adverse economic conditions in the United States and globally; changes in key
estimates and assumptions regarding our pension and retiree health care costs;
security threats, including cyber security threats, and related disruptions; and other
risk factors discussed in our filings with the U.S. Securities and Exchange
Commission. There may be other risks and uncertainties that we are unable to predict
at this time or that we currently do not expect to have a material adverse effect on our
business, and we undertake no obligation to update any forward-looking statements.
You should not place undue reliance on any forward-looking statements that we may
make. This presentation also contains non-GAAP financial measures and includes a
GAAP reconciliation of these financial measures. Non-GAAP financial measures
should not be construed as being more important than comparable GAAP measures.
3
HII’s Q1 2017 Highlights
Revenues were $1.72 billion in the quarter
Diluted EPS was $2.56 in the quarter
Total backlog at the end of the quarter was ~$20 billion; new contract awards in the quarter
totaled $600 million
Hosted President Trump, the Secretary of Defense, and the Chief of Naval Operations on-board
the aircraft carrier Gerald R. Ford (CVN 78)
Ingalls Shipbuilding
o Authenticated keels for Frank E. Petersen Jr. (DDG 121) and Midgett (NSC 8)
o Christened Kimball (NSC 7)
o Launched Tripoli (LHA 7)
Newport News Shipbuilding
o Completed successful builder’s sea trials on CVN 78 and Virginia class submarine
Washington (SSN 787)
o Preparing for sea trials on USS Abraham Lincoln (CVN 72)
4
HII’s Q1 2017 Consolidated Results
$1,763
$1,724
$1,500
$1,550
$1,600
$1,650
$1,700
$1,750
$1,800
Q1 2016 Q1 2017
($
in
m
illi
on
s)
Revenues
$198
$164
$—
$50
$100
$150
200
$250
Q1 2016 Q1 2017
($
in
m
illi
on
s)
Operating Income
11.2%
9.5%
—%
3.0 %
6.0 %
9.0 %
12.0 %
15.0 %
Q1 2016 Q1 2017
Operating Margin
HII’s revenues down 2% YOY due to lower
volumes in the shipbuilding segments, partially
offset by the acquisition of Camber Corp.
HII’s operating income and margin down YOY due
to lower risk retirements in the shipbuilding
segments and the establishment of a $29 million
reserve in the Technical Solutions segment related
to the Westinghouse Electric Company bankruptcy
filing on March 29th.
5
$24 $28
$48
$72
$—
$20
$40
$60
$80
$100
$120
Q1 2016 Q1 2017
($
in
m
illi
on
s)
Shareholder Distributions
Dividends Share Repurchases (at cost)
HII’s Q1 2017 Capital Deployment
*Non-GAAP measure. See appendix for definition and reconciliation.
**Includes $6 million and $4 million for share repurchases not settled as of March 31, 2016 and March 31, 2017, respectively.
Capital expenditures were $58 million or 3.4% of revenues in the quarter
Made cash contributions of $55 million to pension and postretirement benefits plans in the quarter
o $45 million were discretionary contributions to our qualified pension plans
Distributed $100** million to shareholders in the quarter
o Repurchased 358 thousand shares at a cost of $72** million
o Paid dividends of $28 million
Total
$72
Total
$100 **
**
$54
$98
$37
$58
$17
$40
$—
$20
$40
$60
$80
$100
$120
Q1 2016 Q1 2017
($
in
mi
llio
ns
)
Cash Flow Generation
Cash from Operations CAPEX Free Cash Flow*
**
**
6
Ingalls Shipbuilding Q1 2017 Results
*Non-GAAP measure. See appendix for definition and reconciliation.
$586
$550
$—
$100
$200
$300
$400
$500
$600
$700
Q1 2016 Q1 2017
($
in
m
illi
on
s)
Revenues
$82
$66
$—
$20
$40
$60
$80
$100
Q1 2016 Q1 2017
($
in
m
illi
on
s)
Segment Operating Income*
14.0 %
12.0 %
—%
4.0 %
8.0 %
12.0 %
16.0 %
Q1 2016 Q1 2017
Segme t Operating Margin*
Ingalls revenues down 6% YOY due to lower
volumes on the DDG and LPD programs, partially
offset by higher volume on the NSC program.
Ingalls segment operating income and margin
down YOY due to lower risk retirement on the LPD
program, partially offset by higher risk retirement
on the NSC program.
7
Newport News Shipbuilding Q1 2017 Results
*Non-GAAP measure. See appendix for definition and reconciliation.
$993
$971
$500
$600
$700
$800
$900
$1,000
$1,100
Q1 2016 Q1 2017
($
in
m
illi
on
s)
Revenues
$81
$72
$—
$20
$40
$60
$80
$100
Q1 2016 Q1 2017
($
in
m
illi
on
s)
Segment Operating Income*
8.2 %
7.4 %
—%
2.0 %
4.0 %
6.0 %
8.0 %
10.0 %
Q1 2016 Q1 2017
Segme t Operating Margin*
Newport News revenues down 2% YOY due to
lower volume on the VCS program, partially offset
by higher volume on the aircraft carrier program.
Newport News segment operating income and
margin down YOY due to lower volume and risk
retirement on the VCS program.
8
Technical Solutions Q1 2017 Results
*Non-GAAP measure. See appendix for definition and reconciliation.
$208
$225
$—
$50
$100
$150
$200
$250
$300
Q1 2016 Q1 2017
($
in
m
illi
on
s)
Revenues
$3
$(18)
$(30)
$(20)
$(10)
$—
$1
Q1 2016 Q1 2017
($
in
m
illi
on
s)
Segment Operating Income (Loss)*
1.4 %
(8.0)%
(12.0)%
(8.0)%
(4.0)%
—%
4.0 %
Q1 2016 Q1 2017
Segme t Op rating Margin*
Technical Solutions revenues up 8% YOY due to
the acquisition of Camber Corp., which contributed
revenues of ~$80 million in the quarter.
Technical Solutions segment operating loss and
margin were primarily due to a $29 million reserve
booked in the quarter as a result of Westinghouse
bankruptcy filing.
o Technical Solutions’ nuclear and environmental
services business fabricates safety-related lower
shield and air inlet and tension ring structural steel
modules for Westinghouse AP-1000 reactor dry
shield buildings.
9
Appendix
10
Non-GAAP Measures Definitions
We make reference to “segment operating income (loss),” “segment operating margin,” “adjusted net earnings,” “adjusted diluted
earnings per share,” and “free cash flow.”
We internally manage our operations by reference to “segment operating income (loss)” and “segment operating margin,” which are
not recognized measures under GAAP. When analyzing our operating performance, investors should use segment operating
income (loss) and segment operating margin in addition to, and not as alternatives for, operating income and operating margin or
any other performance measure presented in accordance with GAAP. They are measures that we use to evaluate our core
operating performance. We believe that segment operating income (loss) and segment operating margin reflect an additional way of
viewing aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and
trends affecting our business. We believe these measures are used by investors and are a useful indicator to measure our
performance. Because not all companies use identical calculations, our presentation of segment operating income (loss) and
segment operating margin may not be comparable to similarly titled measures of other companies.
Adjusted net earnings and adjusted diluted earnings per share are not measures recognized under GAAP. They should be
considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. We believe these
measures are useful to investors because they exclude items that do not reflect our core operating performance. They may not be
comparable to similarly titled measures of other companies.
Free cash flow is not a measure recognized under GAAP. Free cash flow has limitations as an analytical tool and should not be
considered in isolation from, or as a substitute for, analysis of our results as reported under GAAP. We believe free cash flow is an
important measure for our investors because it provides them insight into our current and period-to-period performance and our
ability to generate cash from continuing operations. We also use free cash flow as a key operating metric in assessing the
performance of our business and as a key performance measure in evaluating management performance and determining incentive
compensation. Free cash flow may not be comparable to similarly titled measures of other companies.
11
Non-GAAP Measures Definitions Cont’d
Segment operating income (loss) is defined as operating income (loss) for the relevant segment(s) before the FAS/CAS
Adjustment and deferred state income taxes.
Segment operating margin is defined as segment operating income (loss) as a percentage of sales and service revenues.
Adjusted net earnings (loss) is defined as net earnings adjusted for the after-tax impact of the FAS/CAS Adjustment.
Adjusted diluted earnings per share is defined as adjusted net earnings divided by the weighted-average diluted common shares
outstanding.
Free cash flow is defined as net cash provided by (used in) operating activities less capital expenditures.
FAS/CAS Adjustment is defined as the difference between our pension and postretirement plan expense under GAAP Financial
Accounting Standards and the same expense under U.S. Cost Accounting Standards (CAS). Our pension and postretirement plan
expense is charged to our contracts under CAS and therefore included in segment operating income.
Non-current state income taxes are defined as deferred state income taxes, which reflect the change in deferred state tax assets
and liabilities and the tax expense or benefit associated with changes in state uncertain tax positions in the relevant period. These
amounts are recorded within operating income. Current period state income tax expense is charged to contract costs and included in
cost of sales and service revenues in segment operating income.
We present financial measures adjusted for the FAS/CAS Adjustment and non-current state income taxes to reflect the company’s
performance based upon the pension costs and state tax expense charged to our contracts under CAS. We use these adjusted
measures as internal measures of operating performance and for performance-based compensation decisions.
12
Non-GAAP Reconciliations – Segment Operating
Income (Loss) & Segment Operating Margin
($ in millions) 2017 2016
Ingalls revenues 550$ 586$
Newport News revenues 971 993
Technical Solutions revenues 225 208
Intersegment eliminations (22) (24)
Sales and Service Revenues 1,724 1,763
Segment Operating Income (Loss)
Ingalls 66 82
As a percentage of Ingalls revenues 12.0 % 14.0 %
Newport News 72 81
As a percentage of Newport News revenues 7.4 % 8.2 %
Technical Solutions (18) 3
As a percentage of Technical Solutions revenues (8.0)% 1.4 %
Segment Operating Income (Loss) 120 166
As a percentage of sales and service revenues 7.0 % 9.4 %
Non-segment factors affecting operating income (loss):
FAS/CAS Adjustment 49 35
Non-current state income taxes (5) (3)
Operating Income (Loss) 164 198
Interest expense (18) (19)
Other, net 1 (2)
Federal and foreign income taxes (28) (41)
Net Earnings (Loss) 119$ 136$
Three Months Ended
March 31
13
Non-GAAP Reconciliations – Adjusted Net Earnings &
Adjusted Diluted EPS
13
($ in millions) 2017 2016
Net Earnings 119$ 136$
After-tax adjustment for FAS/CAS Adjustment (1) (32) (23)
Adjusted Net Earnings 87 113
Diluted earnings per share 2.56$ 2.87$
After-tax FAS/CAS Adjustment per share (1) (0.69) (0.49)
Adjusted Diluted EPS 1.87$ 2.38$
(1) FAS/CAS Adjustment (49)$ (35)$
Tax effect at 35% statutory rate* 17 12
After-tax effect (32)$ (23)$
Weighted-Average Diluted Shares Outstanding 46.4 47.4
Per share impact** (0.69)$ (0.49)$
Three Months Ended
March 31
*The income tax impact is calculated using the tax rate in effect for the relevant non-GAAP adjustment.
**Amounts may not recalculate exactly due to rounding.
14
Non-GAAP Reconciliation – Free Cash Flow
14
($ in millions) 2017 2016
Net cash provided by (used in) operating activities 98$ 54$
Less:
Capital expenditures (58) (37)
Free cash flow 40$ 17$
Three Months Ended
March 31
