Huntington Ingalls Industries (NYSE: HII) believes its pending $380 million acquisition of Camber Corp. gives the military shipbuilder increased opportunities throughÂ prime contract vehicle positions in government services for work previously only available as aÂ subcontractor, HII CEO Mike Petters told investors Thursday.
Camber postedÂ $364 million in revenue andÂ holds prime positionsÂ onÂ five government-wide professional and information technology services contractsÂ run by the General Services AdministrationÂ along with additional similar vehicles at agencies such as the Army, Navy, Air Force, Postal Service andÂ U.S. Courts.
Huntsville, Alabama-based Camber also brings to Huntington Ingalls a presence in the intelligence communityÂ and teams with HII’s AMSECÂ on technology services work for the Navy.
“In a broader sense these two businesses together have an opportunity to pursue new customersÂ neither could pursue on their own, ” Petters said in Newport News, Virginia-based HII’sÂ third quarter earnings call.
Petters also said the purchaseÂ 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 coveredÂ here Wednesday, Camber willÂ 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 haveÂ the scale to focus on that business in a way that allows for the pace to keep up with what is required in services.Â 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 withÂ current on the balance sheet and said the transaction will not change its strategy of full free cash flow deployment toÂ 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 theÂ 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 aÂ shareholder value-focused company.
Huntington Ingalls raised its quarterly cash dividend 20 percent to $0.60 per share Wednesday and aims to raiseÂ the shareholder payment by at least 10 percent each year through 2020 and told investors in November 2015 it intends to deploy “nearly all”Â cash flowÂ set aside for dividends and repurchases over five years.
In a similar vein, General DynamicsÂ has increased itsÂ dividendÂ 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 stockÂ repurchases and dividends.
Shares in Huntington Ingalls traded down 3.98Â percent as of 12:30Â p.m. Eastern time