Profits down, but Huntington Ingalls eyes future

Hugh Lessig
Contact Reporterhlessig@dailypress.com

Huntington Ingalls Industries on Thursday reported lower first-quarter profits for 2017, but President and CEO Mike Petters said he was satisfied with the company's performance and the recent budget deal in Congress.

The nation's largest military shipbuilder is also angling for brighter days ahead as the Navy and Trump administration pushes for a larger fleet. Huntington Ingalls has rolled out a new ad campaign touting the savings that come from buying multiple aircraft carriers at a time.

The company reported net earnings of $119 million for the quarter, down 12.5 percent from the first three months of 2016.

Earnings per share stood at $2.56, which fell short of Wall Street estimates. Analysts surveyed by Zacks Investment Research estimated earnings at $2.72 per share.

First-quarter operating income was also down from a year ago. It came in at $164 million, compared to $198 million for the same period last year.

The report highlighted the cyclical nature of the shipbuilding business, where workloads rise and fall with the pace of incoming and outgoing jobs. In its previous quarter — the last three months of 2016 — the company recorded a 294-percent profit, capping off a successful year.

The first-quarter numbers for 2017 were partially driven by lower volumes at its shipyards in Newport News and Pascagoula, Miss., the company said in a news release.

At Newport News Shipbuilding, revenues were down 2.2 percent in the first quarter compared to last year at the same time. Ingalls Shipbuilding in Pascagoula, Miss., saw a 6.1 percent revenue drop.

The company's new Technical Solutions division, which combines several non-shipbuilding units, logged an 8.2 percent increase in revenue.

The company expects its Navy business to remain flat for the year with a 9 percent to 10 percent return on sales, said Chris Kastner, vice president of business management and chief financial officer.

On the defense budget front, Petters said he was pleased with the deal struck by Congress that funds the government through September. Now all eyes are 2018.

The company's discussions with the Pentagon and Congress have been "focused on how is the most efficient way to buy the stuff you want to buy," Petters said.

He brought up the example of buying aircraft carriers two at a time as a way to save money over the long term.

"We've done that before," he said. "That creates the rhythm in the business and the spacing in the business that is most efficient for the business and the same thing can be said for all of the other programs."

He mentioned the two-carrier buy later in the same conference call, but the proof will come when President Trump submits his 2018 budget request and Congress begins to debate it.

Trump and the Navy support a dramatic expansion of the fleet that would occur over a number of years; the current fleet is the mid-270s and the goal is to reach 355.

The company is aiming to capitalize on that political momentum with a new ad campaign targeting Northern Virginia and D.C. markets.

Ken Mahler, vice president of Navy programs at Newport News Shipbuilding, discussed that effort in a separate interview Thursday with the Daily Press.

"It just reinforces what we see as a critical opportunity," he said.

The ad shows the silhouettes of three aircraft carriers as part of a mathematical equation, where three ships add up to $1.5 billion in savings.

The bulk-buy approach allows the shipyard to purchase larger quantities of materials and services in advance. That saves money, reduces the chance of work flow interruptions and supports the hundreds of small- to medium-sized businesses that supply the shipyard with parts.

The ads are running in Beltway markets via Politico, Roll Call and The Hill, as well as radio station WTOP.

Lessig can be reached by phone at 757-247-7821.

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