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Why Is Huntington Ingalls (HII) Down 1.3% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Huntington Ingalls (HII). Shares have lost about 1.3% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Huntington Ingalls due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Huntington Ingalls Q1 Earnings Lag Estimates, Down Y/Y

Huntington Ingalls first-quarter 2019 earnings of $2.85 per share missed the Zacks Consensus Estimate of $3.27 by 12.8%. The bottom line also decreased 18.1% from $3.48 registered in the prior-year quarter.

The year-over-year decline in earnings can be attributed to lower operating income and an unfavorable change in the non-operating portion of retirement benefit expense.

Total Revenues

Total revenues came in at $2.08 billion, exceeding the Zacks Consensus Estimate of $1.94 billion by 7.3%. The top line also rose 11% from $1.87 billion registered in the year-ago quarter. Higher volume at the Newport News Shipbuilding division and growth at the Technical Solutions division from recent acquisitions led to the upside.

Segment Details

Newport News Shipbuilding: Revenues totaled $1,265 million at this segment, up 16.9% year over year backed by higher revenues in aircraft carriers, naval nuclear support services, and submarines.

Meanwhile, operating income improved 52.9% to $78 million driven by higher volume and one-time employee bonus payments in 2018 related to the Tax Act.

Ingalls Shipbuilding: Revenues at this segment slipped 0.2% to $584 million on account of lower revenues in surface combatants. Also, operating income declined 28.1% to $46 million primarily due to lower risk retirement on the LPD program.

Technical Solutions: Revenues at this segment summed $257 million, up 10.3% year over year. The upside was supported by higher mission driven innovative solutions revenues, following the acquisitions of G2 and Fulcrum IT Services. Also, increased oil and gas revenues contributed to the top line. Operating income totaled $5million compared with $2 million in the year-ago quarter.

Backlog

Huntington Ingalls received new orders worth $19.6 billion in the first quarter. As a result, the company’s total backlog reached $41 billion as of Mar 31, 2019, compared with $23 billion as of Dec 31, 2018.

Financial Update

Cash and cash equivalents as of Mar 31, 2019, were $51 million, significantly down from $240million as of Dec 31, 2017.

Long-term debt, as of Mar 31, 2019, was $1,496million compared with the 2018-end level of $1,283 million.

Cash from operating activities, at the end of the first quarter 2019, grossed $11 million compared with $120 million at the end of first quarter 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.93% due to these changes.

VGM Scores

Currently, Huntington Ingalls has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Huntington Ingalls has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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