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Huntington Ingalls (HII) Up 1.2% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Huntington Ingalls (HII). Shares have added about 1.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Huntington Ingalls due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Huntington Ingalls Q3 Earnings Beat, Revenues Up Y/Y

Huntington Ingalls’ third-quarter 2019 earnings of $3.74 per share surpassed the Zacks Consensus Estimate of $3.63 by 3%. However, the bottom line decreased 29.3% from the $5.29 registered in the prior-year quarter.

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This year-over-year decline resulted from lower operating income, an unfavorable change in the non-operating retirement benefit and a lower non-operating retirement benefit compared with the prior year.

Total Revenues

Total revenues came in at $2,219 million, outpacing the Zacks Consensus Estimate of $2,197 million by 1%. The top line also increased 6.5% from the year-ago quarter’s $2,083 million. Higher volume in the Newport News Shipbuilding division and growth in the Technical Solutions division, on account of the recent acquisitions, led to the upside.

Segment Details

Newport News Shipbuilding: Revenues totaled $1,264 million in this segment, up 7.2% year over year, backed by higher revenues from aircraft carriers and submarines.

Meanwhile, operating income declined 8.4% to $109 million due to a workers’ compensation benefit of $43 million recorded in the year-ago quarter.

Ingalls Shipbuilding: This segment’s top-line figure slipped 6.8% to $647 million on account of lower revenues from the Legend-class National Security Cutter (NSC) program and amphibious assault ships.

Also, operating income declined 25.6% to $61 million, primarily due to lower risk retirement on the LPD program.

Technical Solutions: Revenues in this segment summed $347 million, up 41.6% year over year. The upswing was driven by the acquisitions of G2, Inc. and Fulcrum IT Services, as well as organic growth in fleet support, and oil and gas service revenues.

This segment recorded an operating income of $21 million compared with the operating income of $16 million reported in the year-ago quarter.

Backlog

Huntington Ingalls received new orders worth $2.1 billion in the third quarter. As a result, the company’s total backlog reached $39.2 billion as of Sep 30, 2019, compared with $41 billion as of Mar 31, 2019.

Financial Update

Cash and cash equivalents as of Sep 30, 2019, were $32 million, significantly down from $240 million as of Dec 31, 2018.

Long-term debt, as of Sep 30, 2019, was $1,549 million compared with the 2018-end level of $1,283 million.

Cash inflow from operating activities, at the end of third-quarter 2019, grossed $330 million compared with the cash inflow of $266 million recorded at the end of third-quarter 2018.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Huntington Ingalls has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Huntington Ingalls has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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