November 3, 2022
NEWPORT NEWS, Va. (Nov. 3, 2022) - HII (NYSE: HII) reported third quarter 2022 revenues of $2.6 billion, up 12.3% from the third quarter of 2021, primarily driven by revenue attributable to the acquisition of Alion Science and Technology (Alion) in the third quarter of 2021, as well as revenue growth at Newport News Shipbuilding.
Operating income in the third quarter of 2022 was $131 million and operating margin was 5.0%, compared to $118 million and 5.0%, respectively, in the third quarter of 2021. The increase in operating income was primarily driven by favorable changes to non-current state income taxes and operating FAS/CAS adjustment compared to the prior year, as well as higher segment operating income1.
Segment operating income1 in the third quarter of 2022 was $166 million and segment operating margin1 was 6.3%, compared to $163 million and 7.0%, respectively, in the third quarter of 2021. The increase in segment operating income1 was driven primarily by improved results at Newport News Shipbuilding.
Net earnings in the quarter were $138 million, compared to $147 million in the third quarter of 2021. Diluted earnings per share in the quarter was $3.44, compared to $3.65 in the third quarter of 2021. The decrease in diluted earnings per share was driven by a significant tax benefit in the prior year, as well as negative impacts related to equity investments in the current quarter, partially offset by a more favorable non-operating retirement benefit in the current quarter.
Net cash used in operating activities in the quarter was $19 million and free cash flow1 was negative $96 million, compared to cash provided by operating activities of $350 million and free cash flow1 of $277 million in the third quarter of 2021.
New contract awards in the third quarter of 2022 were approximately $2.1 billion, bringing total backlog to approximately $46.7 billion as of September 30, 2022.
“Notwithstanding a continued challenging economic environment, we remain focused on consistent shipbuilding program execution and capturing contract awards at our Mission Technologies division,” said Chris Kastner, HII’s president and CEO. "We are confident in the positioning of the business for long-term value creation given the tremendous volume of shipbuilding work we have secured in backlog and a Mission Technologies division that is poised for growth in markets of critical importance to our customers."
1Non-GAAP measures. See Exhibit B for definitions and reconciliations.
Results of Operations
Three Months Ended
September 30
Nine Months Ended
September 30
($ in millions, except per share amounts)
2022
2021
$ Change
% Change
2022
2021
$ Change
% Change
Sales and service revenues
$ 2,626
$ 2,338
$ 288
12.3 %
$ 7,864
$ 6,847
$ 1,017
14.9 %
Operating income
131
118
13
11.0 %
460
393
67
17.0 %
Operating margin %
5.0 %
5.0 %
(6) bps
5.8 %
5.7 %
11 bps
Segment operating income1
166
163
3
1.8 %
567
523
44
8.4 %
Segment operating margin %1
6.3 %
7.0 %
(65) bps
7.2 %
7.6 %
(43) bps
Net earnings
138
147
(9)
(6.1)%
456
424
32
7.5 %
Diluted earnings per share
$ 3.44
$ 3.65
$ (0.21)
(5.8)%
$ 11.37
$ 10.52
$ 0.85
8.1 %
1 Non-GAAP measures that exclude non-segment factors affecting operating income. See Exhibit B for definitions and reconciliations.
Segment Operating Results
Ingalls Shipbuilding
Three Months Ended
September 30
Nine Months Ended
September 30
($ in millions)
2022
2021
$ Change
% Change
2022
2021
$ Change
% Change
Revenues
$ 623
$ 628
$ (5)
(0.8)%
$ 1,912
$ 1,947
$ (35)
(1.8)%
Segment operating income1
50
62
(12)
(19.4)%
242
233
9
3.9 %
Segment operating margin %1
8.0 %
9.9 %
(185) bps
12.7 %
12.0 %
69 bps
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.
Ingalls Shipbuilding revenues for the third quarter of 2022 were $623 million, a decrease of $5 million, or 0.8%, from the same period in 2021, primarily driven by lower revenues in the Legend-class National Security Cutter (NSC) program and amphibious assault ships, partially offset by higher revenues in surface combatants. Revenues on the NSC program decreased due to lower volumes on Friedman (NSC 11) and Calhoun (NSC 10). Revenues on amphibious assault ships decreased due to lower volumes on USS Fort Lauderdale (LPD 28), partially offset by higher volumes on LHA 9 (unnamed). Revenues on surface combatants increased due to higher volumes on Thad Cochran (DDG 135) and Telesforo Trinidad (DDG 139), partially offset by lower volumes on Frank E. Petersen Jr. (DDG 121), Jeremiah Denton (DDG 129) and Ted Stevens (DDG 128).
Ingalls Shipbuilding segment operating income1 for the third quarter of 2022 was $50 million, a decrease of $12 million from the same period in 2021. Segment operating margin1 in the third quarter of 2022 was 8.0%, compared to 9.9% in the same period last year. The decreases were primarily driven by lower risk retirement on Ted Stevens (DDG 128) and USS Delbert D. Black (DDG 119) related to a capital expenditure incentive received in the third quarter of 2021, partially offset by higher risk retirement on USS Portland (LPD 27).
Key Ingalls Shipbuilding milestones for the quarter:
Awarded a design engineering contract for the next-generation guided-missile destroyer - DDG(X)
Authenticated the keel of guided-missile destroyer Jeremiah Denton (DDG 129)
Awarded a contract to begin combat systems availability for the Zumwalt-class destroyer, Lyndon B. Johnson (DDG 1002)
Began fabrication of amphibious transport dock Pittsburgh (LPD 31)
1Non-GAAP measures. See Exhibit B for definitions and reconciliations.
Newport News Shipbuilding
Three Months Ended
September 30
Nine Months Ended
September 30
($ in millions)
2022
2021
$ Change
% Change
2022
2021
$ Change
% Change
Revenues
$ 1,445
$ 1,354
$ 91
6.7 %
$ 4,268
$ 4,124
$ 144
3.5 %
Segment operating income1
102
88
14
15.9 %
277
257
20
7.8 %
Segment operating margin %1
7.1 %
6.5 %
56 bps
6.5 %
6.2 %
26 bps
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.
Newport News Shipbuilding revenues for the third quarter of 2022 were $1.4 billion, an increase of $91 million, or 6.7%, from the same period in 2021, primarily driven by higher revenues in naval nuclear support services, submarines and aircraft carriers. Naval nuclear support services revenues increased primarily as a result of higher volumes in submarine and carrier fleet support services. Submarine revenues increased due to higher volumes on the Columbia-class submarine program and Block V boats of the Virginia-class submarine (VCS) program, partially offset by lower volumes on submarine services and Block IV boats of the VCS program. Aircraft carrier revenues increased primarily as a result of higher volumes on the refueling and complex overhaul (RCOH) of USS John C. Stennis (CVN 74), partially offset by lower volumes on the RCOH of USS George Washington (CVN 73).
Newport News Shipbuilding segment operating income1 for the third quarter of 2022 was $102 million, an increase of $14 million from the same period in 2021. Segment operating margin1 in the third quarter of 2022 was 7.1%, compared to 6.5% in the same period last year. The increases were primarily due to contract incentives on the Columbia-class submarine program, partially offset by lower risk retirement on the VCS program.
Key Newport News Shipbuilding milestones for the quarter:
Achieved pressure hull complete on Virginia-class submarine Massachusetts (SSN 798)
Celebrated the ceremonial keel laying of aircraft carrier Enterprise (CVN 80)
Reached approximate 98% completion of the RCOH of USS George Washington (CVN 73)
Reached approximate 87% completion of John F. Kennedy (CVN 79)
Turned over the 1,000th compartment of 2,615 total spaces to the crew of John F. Kennedy (CVN 79)
Mission Technologies
Three Months Ended
September 30
Nine Months Ended
September 30
($ in millions)
2022
2021
$ Change
% Change
2022
2021
$ Change
% Change
Revenues
$ 595
$ 394
$ 201
51.0 %
$ 1,785
$ 890
$895
100.6 %
Segment operating income1
14
13
1
7.7 %
48
33
15
45.5 %
Segment operating margin %1
2.4 %
3.3 %
(95) bps
2.7 %
3.7 %
(102) bps
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.
Mission Technologies revenues for the third quarter of 2022 were $595 million, an increase of $201 million from the same period in 2021. The increase was primarily due to higher volumes in Defense & Federal Solutions (DFS) attributable to the acquisition of Alion, which was completed on August 19, 2021.
Mission Technologies segment operating income1 for the third quarter of 2022 was $14 million, compared to $13 million in the third quarter of 2021. Segment operating margin1 in the third quarter of 2022 was 2.4%, compared to 3.3% in the same period last year. The increase in segment operating income1 was primarily driven by the acquisition of Alion in the third quarter of 2021 and higher equity income, partially offset by higher amortization of purchased intangible assets in 2022.
The decrease in segment operating margin1 was primarily driven by approximately $24 million of amortization of Alion related purchased intangible assets in the third quarter of 2022, compared to approximately $8 million in the same period last year. Mission Technologies EBITDA margin1 in the third quarter of 2022 was 8.4%.
Key Mission Technologies milestones for the quarter:
Awarded a task order to provide spectrum assessments across technical, policy and strategy areas for the U.S. DoD Chief Information Officer
Awarded an $826 million task order to provide Decisive Mission Actions and Technology Services (DMATS) to U.S. DoD
Awarded a $127 million task order to support the Defense Security Cooperation Agency (DSCA) to perform research, development, test and evaluation of emerging technologies
2022 Financial Outlook1
Expect FY22 revenue at lower end of previous guidance ranges given challenging labor environment and timing of material delivery
Expect FY22 shipbuilding revenue2 between $8.2 and $8.3 billion, shipbuilding operating margin2 between 8.0% and 8.1%
Expect FY22 Mission Technologies revenue of approximately $2.4 billion, segment operating margin2 of approximately 2.3%; and Mission Technologies EBITDA margin2 of approximately 8.3%
Expect FY22 free cash flow2 of approximately $350 million4 based on current tax law
Expect cumulative FY20-FY24 free cash flow2 of approximately $2.9 billion4
Prior Outlook
Current Outlook
Shipbuilding Revenue2
$8.2B - $8.5B
$8.2B - $8.3B
Shipbuilding Operating Margin2 8.0% - 8.1%
8.0% - 8.1%
Mission Technologies Revenue
$2.4B - $2.6B
~$2.4B
Mission Technologies Segment Operating Margin2
~2.5%
~2.3%
Mission Technologies EBITDA Margin2
8.0% - 8.5%
~8.3%
Operating FAS/CAS Adjustment
($143M)
($143M)
Non-current State Income Tax Expense3
($5M)
($5M)
Interest Expense
($102M)
($106M)
Non-operating Retirement Benefit
$273M
$276M
Effective Tax Rate
~21%
~19%
Depreciation & Amortization
$365M
$365M
Capital Expenditures
2.5% - 3.0%
of Sales
2.5% - 3.0%
of Sales
Free Cash Flow2 based on current tax law4
$200M - $250M
~$350M
HII is a global, all-domain defense provider. HII's mission is to deliver the world's most powerful ships and all-domain solutions in service of the nation, creating the advantage for our customers to protect peace and freedom around the world.
As the nation's largest military shipbuilder, and with a more than 135-year history of advancing U.S. national security, HII delivers critical capabilities extending from ships to unmanned systems, cyber, ISR, AI/ML and synthetic training. Headquartered in Virginia, HII's workforce is 44,000 strong.
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