McAleese & Associates: Investors Expect HII to Hit 10% Shipbuilding Margins in 2019

Jim McAleese

A new report by consulting firm McAleese & Associates says investors expect Huntington Ingalls Industries (NYSE: HII) to return to 10 percent shipbuilding operating margins in 2019.

Jim McAleese, founder and principal at McAleese & Associates and a 2019 Wash100 winner, wrote in the report the figure could be driven by five ship deliveries this year and “EAC-risk-retirement” profit increase expected from the launch of the CVN-79 Kennedy aircraft carrier in the fourth quarter of 2019.

HII saw its 2018 sales grow 10 percent to $8.2B, according to the report.

Meanwhile, CEO Mike Petters said Thursday at the company’s earnings call that he expects HII to reach 9 percent to 10 percent shipbuilding margins by 2020.

HII also anticipates the inclusion of the potential 2020-2024 LPD Flight II multi-year program in the U.S. Navy’s upcoming budget request for fiscal 2020 and now pushes for a two-ship buy of LHA-9 and LHA-10 America-class amphibious assault ships.

HII still invests 5 percent of its sales in capital expenditures, while investors call for cuts to CapEx by 2021 to protect the company’s cash flow, according to the report.

McAleese noted that the Ingalls Shipbuilding business accounted for 32 percent of the parent company’s total sales and 47 percent of the total sector profits, making it HII’s “profit engine.”

HII’s “growth engine” is Newport News Shipbuilding, which generated 58 percent of total sales and 49 percent of total sector profits, the report noted.

According to HII’s Q4 and full-year 2018 financial results, HII’s technical solutions business saw its 2018 revenue increase 3.8 percent to $988M and posted $32M in operating income, up from $21M in 2017.

In December, HII acquired Annapolis Junction, Md.-based cybersecurity services provider G2, which is now part of the technical solutions segment.

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