Attached files
| file | filename |
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| EX-99.1 - EXHIBIT 99.1 - HUNTINGTON INGALLS INDUSTRIES, INC. | hii2017q2earningsrelease.htm |
| 8-K - 8-K - HUNTINGTON INGALLS INDUSTRIES, INC. | q22017earningsrelease8-k.htm |
Q2 2017 Earnings Presentation
August 3, 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 Q2 2017 Highlights
Revenues were $1.86 billion in the quarter
Diluted EPS was $3.21 in the quarter
Total backlog at the end of the quarter was ~$21.1 billion; new contract awards in the quarter totaled $3.4 billion
Ingalls Shipbuilding
o Launched Tripoli (LHA 7) and completed Builder’s Trials on Portland (LPD 27)
o Awarded Bougainville (LHA 8) construction contract, LPD 29 advanced procurement and DDG 125 Jack H. Lucas
contract modification (first Flight III ship for the Navy)
Newport News Shipbuilding
o Delivered USS Gerald R. Ford (CVN 78) and Virginia class submarine Washington (SSN 787), and redelivered USS
Abraham Lincoln (CVN 72)
o Achieved 50% structural completion on Kennedy (CVN 79) and launched Indiana (SSN 789)
Technical Solutions
o Part of joint venture awarded contract to provide management and operation services at Nevada National Security Site
o Awarded Special Selected Restricted Availability on USS Chosin (CG 65)
o Teaming with Boeing to pursue design and production of the Navy’s Extra Large Unmanned Undersea Vehicle
4
HII’s Q2 2017 Consolidated Results
HII’s revenues up 9.3% YOY due to the acquisition
of Camber Corp., which contributed $85M in the
quarter, and higher volume at Ingalls.
HII’s operating income up YOY due to FAS/CAS
adjustment; operating margin similar YOY.
$1,700
$1,858
$1,500
$1,550
$1,600
$1,650
$1,700
$1,750
$1,800
$1,850
$1,900
Q2 2016 Q2 2017
($
in
mi
llio
ns)
Revenues
$217
$237
$205
$210
$215
$220
$225
230
235
240
Q2 2016 Q2 2017
($
in m
illio
ns)
Operating Income
12.8% 12.8%
—%
3.0 %
6.0 %
9.0 %
12.0 %
15.0 %
Q2 2016 Q2 2017
Operating Margin
5
$24 $27
$36
$138
$—
$20
$40
$60
$80
$100
$120
$140
$160
$180
Q2 2016 Q2 2017
($
in
m
illi
on
s)
Shareholder Distributions
Dividends Share Repurchases (at cost)
HII’s Q2 2017 Capital Deployment
*Non-GAAP measure. See appendix for definition and reconciliation.
**Includes $3 million for share repurchases not settled as of June 30, 2017
Capital expenditures were $79 million or 4.3% of revenues in the quarter
o YTD capital expenditures were $137 million or 3.8% of YTD revenues
Made cash contributions of $56 million to pension and postretirement benefits plans in the quarter
o YTD, contributed $91 million to qualified pension plans
o Balance of 2017 discretionary contributions expected to be funded in third quarter
Distributed $165** million to shareholders in the quarter
o Repurchased 708 thousand shares at a cost of $138 million in the quarter; Bringing the balance remaining on the
share repurchase program to $306 million
o Paid dividends of $27 million in the second quarter
o YTD shareholder distributions of $265 million** represent 180% of YTD free cash flow
Total
$60
Total
$165
**
$169
$186
$48
$79
$121
$107
$—
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
Q2 2016 Q2 2017
($
in
mi
llio
ns
)
Cash Flow Generation and Capex
Cash from Operations CAPEX Free Cash Flow*
6
Ingalls Shipbuilding Q2 2017 Results
*Non-GAAP measure. See appendix for definition and reconciliation.
Ingalls revenues up 9.2% YOY due to higher
volumes on the LHA and NSC programs, partially
offset by lower volume on the LPD program.
Ingalls segment operating income and margin up
YOY due to higher risk retirement on the LHA and
NSC programs, partially offset by lower risk
retirement on the LPD program.
$585
$639
$—
$100
$200
$300
$400
$500
$600
$700
Q2 2016 Q2 2017
($
in
m
illi
on
s)
Revenues
$88
$98
$80
$90
$100
Q2 2016 Q2 2017
($
in m
illion
s)
Segment Operating Income*
15.0 % 15.3 %
—%
4.0 %
8.0 %
12.0 %
16.0 %
Q2 2016 Q2 2017
Segment Operating Margin*
7
Newport News Shipbuilding Q2 2017 Results
*Non-GAAP measure. See appendix for definition and reconciliation.
Newport News revenues similar YOY.
Newport News segment operating income and
margin down YOY due to lower risk retirement on
the VCS program.
$999 $1,001
$500
$600
$700
$800
$900
$1,000
$1,100
Q2 2016 Q2 2017
($
in
mi
llio
ns
)
Revenues
$98
$80
$—
$20
$40
$60
80
$100
$120
Q2 2016 Q2 2017
($
in
mi
llio
ns
)
Segment Operating Income*
9.8 %
8.0 %
—%
2.0 %
4.0 %
6.0 %
8.0 %
10.0 %
12.0 %
Q2 2016 Q2 2017
Segment Operating Margin*
8
Technical Solutions Q2 2017 Results
*Non-GAAP measure. See appendix for definition and reconciliation.
Technical Solutions revenues up 70.6% YOY due
to the 4Q16 acquisition of Camber Corp.
Technical Solutions segment operating income
and margin up YOY due to improved performance
in oil and gas services and the acquisition of
Camber Corp.
$143
$244
$—
$50
$100
$150
$200
$250
$300
Q2 2016 Q2 2017
($
in
mi
llio
ns
)
Revenues
$(2)
$9
$(30)
$(20)
$(10)
$—
$10
Q2 2016 Q2 2017
($
in m
illio
ns)
Segment Operating Income (Loss)*
(1.4)%
3.7 %
(4.0)%
—%
4.0 %
Q2 2016 Q2 2017
Segment Operating Margin*
9
Appendix
10
Non-GAAP Measures Definitions
We make reference to “segment operating income (loss),” “segment operating margin,” “adjusted net earnings (loss),” “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 (loss) 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 non-current 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 (loss) 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 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 2017 2016
Ingalls revenues 639$ 585$ 1,189$ 1,171$
Newport News revenues 1,001 999 1,972 1,992
Technical Solutions revenues 244 143 469 351
Intersegment eliminations (26) (27) (48) (51)
Sales and Service Revenues 1,858 1,700 3,582 3,463
Segment Operating Income (Loss)
Ingalls 98 88 164 170
As a percentage of Ingalls revenues 15.3 % 15.0 % 13.8 % 14.5 %
Newport News 80 98 152 179
As a percentage of Newport News revenues 8.0 % 9.8 % 7.7 % 9.0 %
Technical Solutions 9 (2) (9) 1
As a percentage of Technical Solutions revenues 3.7 % (1.4)% (1.9)% 0.3 %
Segment Operating Income (Loss) 187 184 307 350
As a percentage of sales and service revenues 10.1 % 10.8 % 8.6 % 10.1 %
Non-segment factors affecting operating income (loss):
FAS/CAS Adjustment 49 35 98 70
No -current state income taxes 1 (2) (4) (5)
Operating Income (Loss) 237 217 401 415
Interest expense (17) (18) (35) (37)
Other, net (2) — (1) (2)
Federal and foreign income taxes (71) (66) (99) (107)
Net Earnings (Loss) 147$ 133$ 266$ 269$
Three Months Ended
June 30
Six Months Ended
June 30
13
Non-GAAP Reconciliations – Adjusted Net Earnings &
Adjusted Diluted EPS
13 *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.
($ in millions) 2017 2016 2017 2016
Net Earnings 147$ 133$ 266$ 269$
After-tax adjustment for FAS/CAS Adjustment (1) (32) (23) (64) (45)
Adjusted Net Earnings 115 110 202 224
Diluted earnings per share 3.21$ 2.80$ 5.77$ 5.68$
After-tax FAS/CAS Adjustment per share (1) (0.70) (0.48) (1.39) (0.95)
Adjusted Diluted EPS 2.51$ 2.32$ 4.38$ 4.73$
(1) FAS/CAS Adjustment (49)$ (35)$ (98)$ (70)$
Tax effect at 35% statutory rate* 17 12 34 25
After-tax effect (32)$ (23)$ (64)$ (45)$
Weighted-Average Diluted Shares Outstanding 45.8 47.5 46.1 47.4
After-tax per share impact** (0.70)$ (0.48)$ (1.39)$ (0.95)$
Three Months Ended
June 30
Six Months Ended
June 30
14
Non-GAAP Reconciliation – Free Cash Flow
14
($ in millions) 2017 2016 2017 2016
Net cash provided by (used in) operating activities 186 169 284 223
Less:
Capital expenditures (79) (48) (137) (85)
Free cash flow 107 121 147 138
Three Months Ended
June 30
Six Months Ended
June 30
