Huntington Ingalls CEO: Shipbuilder Gains Prime Contract Opportunities Through Camber Purchase

gerald-ford-aircraft-carrierHuntington Ingalls Industries (NYSE: HII) believes its pending $380 million acquisition of Camber Corp. gives the military shipbuilder increased opportunities through prime contract vehicle positions in government services for work previously only available as a subcontractor, HII CEO Mike Petters told investors Thursday.

Camber posted $364 million in revenue and holds prime positions on five government-wide professional and information technology services contracts run by the General Services Administration along with additional similar vehicles at agencies such as the Army, Navy, Air Force, Postal Service and U.S. Courts.

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Huntsville, Alabama-based Camber also brings to Huntington Ingalls a presence in the intelligence community and teams with HII’s AMSEC on technology services work for the Navy.

“In a broader sense these two businesses together have an opportunity to pursue new customers neither could pursue on their own, ” Petters said in Newport News, Virginia-based HII’s third quarter earnings call.

Petters also said the purchase of Huntsville, Alabama-based Camber fulfills one component of its “Path to 2020” strategy to grow in a quicker-paced government services as a complement to its flatter, longer-cycle ship construction business.

As covered here Wednesday, Camber will form part of a new $1 billion technical solutions business segment at Huntington Ingalls along with six other subsidiaries such as AMSEC and the parent company forecasts sales growth in the low-single digits for 2017 and 5-7 percent by 2020.

“We now have the scale to focus on that business in a way that allows for the pace to keep up with what is required in services. We think it’s a reasonable approach to expand our customer set and create access for capabilities on the high-end of services in a way that makes sense for us, ” Petters said.

Chris Kastner, HII’s chief financial officer, told analysts the company will fund the purchase with current on the balance sheet and said the transaction will not change its strategy of full free cash flow deployment to shareholders through repurchases and dividends.

“We see more cash being distributed to shareholders, ” Kastner said.

Phebe Novakovic, CEO of HII’s nearest-rival shipbuilder General Dynamics (NYSE: GD), said in the defense contractor’s Oct. 26 third quarter earnings call she views its information systems and technology group as a solid contributor to cash generation in its “short-term, highly-transactional” nature within a shareholder value-focused company.

Huntington Ingalls raised its quarterly cash dividend 20 percent to $0.60 per share Wednesday and aims to raise the shareholder payment by at least 10 percent each year through 2020 and told investors in November 2015 it intends to deploy “nearly all” cash flow set aside for dividends and repurchases over five years.

In a similar vein, General Dynamics has increased its dividend 35.71 percent to the most recent $0.76 over Novakovic’s nearly four years as CEO and intends to use its full free cash flow this year for stock repurchases and dividends.

Shares in Huntington Ingalls traded down 3.98 percent as of 12:30 p.m. Eastern time

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