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Will Newport News Drive Huntington Ingalls (HII) Q2 Earnings?

Zacks Equity Research

Huntington Ingalls Industries, Inc. HII is set to report second-quarter 2019 results on Aug 1, before market open.
 
In three of the trailing four quarters, this military shipbuilder has outperformed the Zacks Consensus Estimate, the average positive surprise being 13.56%.
 
The company’s Newport News segment is likely to reflect rising demand for aircraft carriers and submarine support services in the quarter to be reported. Yet, costs related to the incident that caused its drydock damage may mar earnings growth.
 
Let’s discuss the factors influencing Huntington Ingalls’ second-quarter results.
 
Newport News Segment — A Key Catalyst

Huntington Ingalls’ Newport News is the nation's sole designer, builder and refueler of nuclear-powered aircraft carriers. It generates more than 50% of the company’s total revenues. We expect higher sales volumes for aircraft carriers along with increased revenues on account of navy nuclear support services to consistently boost this division’s top line, which should get reflected in the upcoming quarterly result.

In line with this, the Zacks Consensus Estimate for second-quarter revenues at Newport News is pegged at $1,224 million, implying a 3.5% improvement from the year-ago quarter’s reported figure.

Huntington Ingalls Industries, Inc. Price and EPS Surprise

Huntington Ingalls Industries, Inc. Price and EPS Surprise

Huntington Ingalls Industries, Inc. price-eps-surprise | Huntington Ingalls Industries, Inc. Quote

 
Ingalls Division — Another Growth Driver
 
Huntington Ingalls has been making strategic investments in its Ingalls business division, which has secured certain key contracts over the past few quarters. These, in turn, should boost revenues at this unit. However, in the first quarter, some contract adjustments in relation to the DDG program impacted the Ingalls division. With the company making efforts to resolve this issue, we may expect its impact to no longer weigh on Ingalls’ performance in the second quarter. Thus, we may expect this division to reflect solid revenue growth in the upcoming quarterly results driven by higher volumes in the LPD, LHA and DDG programs.

In line with this, the Zacks Consensus Estimate for second-quarter revenues at the company's Ingalls division is pegged at $637 million, indicating a 1.3% improvement from the figure reported in the year-ago quarter.

Other Factors at Play
 
A steady inflow of orders from the Pentagon has continued to provide significant impetus to this shipbuilder. Such key contracts strongly position the company to witness steady revenue growth in the to-be-reported quarter. In sync with this, the Zacks Consensus Estimate for the company’s second-quarter revenues stands at $2.12 billion, suggesting an increase of 5.1% from the year-earlier quarter’s reported figure.
 
However, Huntington Ingalls is expected to incur significant expenses in relation to the incident that occurred this March while delivering the new floating drydock. The incident involved damage of its DDG 119 Delbert D. Black ship as well as its generated testing barge and the new drydock. Additional costs associated with the launch and subsequent delivery of SSN 791 Delaware along with the aforementioned incident may weigh on Huntington Ingalls’ bottom line in the to-be reported quarter.
 
Considering these, the consensus mark for second-quarter earnings is pegged at $3.56, calling for a decline of 34.1% from the figure reported in the year-ago period.
 
What the Zacks Model Unveils?


Huntington Ingalls does not possess the right combination of two key ingredients — a positive Earnings ESP  and a Zacks Rank #3 (Hold) or higher — that increases the odds of an earnings beat in the second quarter. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Huntington Ingalls has an Earnings ESP of 0.00% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 
Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Upcoming Defense Releases

Investors can consider the following players from the Aerospace sector that have the right combination of elements to beat on earnings in their next releases.

Ducommun Incorporated DCO is expected to report second-quarter 2019 results on Aug 5. The company has an Earnings ESP of +12.05% and a Zacks Rank #3.

Triumph Group, Inc. TGI is expected to report first-quarter fiscal 2020 results on Jul 31. The company has an Earnings ESP of +6.03% and a Zacks Rank #3.

A Recent Defense Release

FLIR Systems Inc.’s FLIR second-quarter 2019 adjusted earnings of 56 cents per share surpassed the Zacks Consensus Estimate by 1.8% and also increased 1.8% year over year. Revenues increased 6.5% year over year, beating the Zacks Consensus Estimate by 0.42%.

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