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What's in Store for Huntington Ingalls (HII) in Q3 Earnings?

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Zacks Equity Research
·4 min read
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Huntington Ingalls Industries, Inc. HII is set to report third-quarter 2020 results on Nov 5, before market open.

This military shipbuilder missed the Zacks Consensus Estimate in two of the trailing four quarters and beat in the remaining two, the average negative surprise being 27.13%.

The company’s Newport News and Ingalls segments are likely to have boosted its Q3 revenues.

Let’s discuss how things have shaped up prior to the announcement.

Huntington Ingalls Industries, Inc. Price and EPS Surprise

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


Newport News Segment — A Key Catalyst

Huntington Ingalls’ Newport News is the nation's sole designer, builder and refueler of nuclear-powered aircraft carriers. The segment generates more than 50% of the company’s total revenues.

Increased volumes in aircraft carrier construction along with submarine construction tend to boost revenue growth for the company’s Newport News business division. We expect this trend to have prevailed in the third quarter as well since defense-related activities remained moderately resilient amid the coronavirus pandemic. However, unfavorable cost and schedule performance owing to the pandemic might reflect in this unit’s Q3 results.

The Zacks Consensus Estimate for third-quarter revenues at Newport News is pegged at $1,305 million, implying a 3.2% improvement from the year-ago quarter’s reported figure.

Other Factors to Consider

The company has been making strategic investments within its Ingalls Shipbuilding division that has enabled the unit to secure certain key contracts over the recent past. Such notable contract wins in the past quarters are expected to have boosted this unit’s top line in the soon-to-be-reported quarter.
In line with this, the Zacks Consensus Estimate for third-quarter revenues for the Ingalls Shipbuilding division is pegged at $663 million, indicating a 2.5% improvement from the figure reported in the year-ago quarter.

However, the technical solutions unit is expected to have witnessed a 13.8% decline in top-line performance during the third quarter, which must have marred the company’s overall revenue growth trajectory. Notably, the Zacks Consensus Estimate for the company’s third-quarter revenues stands at $2.23 billion, suggesting a mere 0.4% rise from the year-earlier quarter’s reported figure.

In July 2020, the company announced changes to the organization and alignment within its Technical Solutions segment to better serve existing and future customers while achieving support function efficiencies. This reorganization, which started from the onset of the third quarter, might have had an adverse impact on the unit’s quarterly performance.

However, the company is expected to have witnessed improved margin performance considering its focus on cost management. The Zacks Consensus Estimate for third-quarter earnings per share is pegged at $4.18, implying an increase of 11.8% from the year-ago reported figure.

Nevertheless, continued lower staffing levels and lower employee productivity, in the wake of the pandemic, might have impacted Huntington Ingalls’ ability to achieve anticipated milestones, thereby affecting its third-quarter  results.  

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Huntington Ingalls this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But this is not the case here.

Earnings ESP: The company’s Earnings ESP is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Huntington Ingalls carries a Zacks Rank #4 (Sell) currently.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Some Q3 Defense Releases

Lockheed Martin LMT reported third-quarter 2020 earnings from continuing operations of $6.25 per share, which surpassed the Zacks Consensus Estimate of $6.07 by 3%.

Hexcel HXL reported third-quarter 2020 loss of 29 cents per share against the Zacks Consensus Estimate of earnings of 7 cents. The bottom line also declined from the prior-year quarter’s earnings per share of 90 cents.

Teledyne TDY reported third-quarter 2020 adjusted earnings of $2.48 per share, which surpassed the Zacks Consensus Estimate of $2.40 by 3.3%.

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