Huntington Ingalls Industries(HII) - 2025 Q1 - Quarterly Report

Financial Performance - Sales and service revenues for the three months ended March 31, 2025, decreased by $71 million, or 3$161 million, an increase of $7 million, or 5$154 million in the same period in 2024[86]. - General and administrative expenses increased by $14 million, or 6$246 million for the three months ended March 31, 2025, primarily due to higher overhead costs[97]. - Segment operating income for the three months ended March 31, 2025, was $171 million, reflecting a slight increase of$1 million, or 1%, compared to $170 million in the same period in 2024[101]. - Interest expense increased by$7 million, or 33%, to $28 million for the three months ended March 31, 2025, compared to$21 million in the same period in 2024[86]. - For the three months ended March 31, 2025, total sales and service revenues decreased by $71 million, or 3$2,734 million compared to $2,805 million in the same period of 2024[108]. - Ingalls segment sales and service revenues decreased by$18 million, or 3%, to $637 million, primarily due to lower volumes in amphibious assault ships[112][113]. - Newport News segment sales and service revenues decreased by$38 million, or 3%, to $1,396 million, driven by lower volumes in aircraft carriers and naval nuclear support services[115][116]. - Mission Technologies segment sales and service revenues decreased by$15 million, or 2%, to $735 million, primarily due to lower volumes in C5ISR[118][119]. - Operating income for the three months ended March 31, 2025, increased by$7 million, or 5%, to $161 million compared to$154 million in the same period in 2024[108]. - Ingalls segment operating income decreased by $14 million, or 23$46 million, primarily driven by lower performance on amphibious assault ships[112][114]. - Newport News segment operating income increased by $3 million, or 4$85 million, primarily due to contract incentives on the Virginia class submarine program[115][117]. - Mission Technologies segment operating income increased by $12 million, or 43$40 million, driven by higher performance in cyber, electronic warfare & space[118][120]. Budget and Funding - The fiscal year 2025 budget cycle concluded with the passage of the Full-Year Continuing Appropriations and Extensions Act, which included funding for key shipbuilding programs[80]. - The federal budget environment remains a significant long-term risk, with continued uncertainty in defense discretionary spending impacting the defense industrial base[79]. Cash Flow and Investments - Cash used in operating activities for the three months ended March 31, 2025, was $395 million, compared to$202 million in the same period in 2024, largely due to unfavorable changes in trade working capital[138]. - Cash used in investing activities for the three months ended March 31, 2025, was $199 million, significantly higher than$71 million in the same period in 2024, primarily due to the acquisition of W International[140]. - Free cash flow for the three months ended March 31, 2025, decreased by $188 million to$(462) million from $(274) million in 2024, mainly due to unfavorable changes in trade working capital[143]. - Cash used in financing activities for the three months ended March 31, 2025, was$70 million, a decrease from $147 million in the same period in 2024, primarily due to a reduction in common stock repurchases[141]. Backlog and Contracts - Total backlog as of March 31, 2025, was$48.0 billion, a decrease from $48.7 billion as of December 31, 2024, with approximately 22$2.1 billion, primarily driven by awards at Newport News[134]. Workforce and Operations - The Company employs over 44,000 people domestically and internationally, highlighting its significant workforce in the defense sector[75]. Geopolitical and Economic Environment - The global geopolitical and economic environment continues to be impacted by heightened tensions and instability, affecting the market for defense products and services[81]. Interest and Tax Rates - The effective income tax rate for the three months ended March 31, 2025, was 20.3%, up from 16.8% in 2024, mainly due to excess tax benefits recognized on stock-based compensation in the prior period[130]. - Interest expense for the three months ended March 31, 2025, increased to $28 million from$21 million in the same period in 2024, due to an increase in outstanding long-term debt[126]. - The Operating FAS/CAS Adjustment was a net expense of $10 million for the three months ended March 31, 2025, compared to$17 million in the same period in 2024, primarily driven by higher interest rates under FAS[104]. - For the three months ended March 31, 2025, the non-operating retirement benefit increased to $48 million from$44 million in the same period in 2024, primarily due to the amortization of net actuarial costs[128]. Capital Expenditures and Financial Position - Capital expenditures for maintenance and sustainment in 2025 are expected to be approximately 1.0% to 1.5% of annual revenues, with discretionary capital expenditures expected to be around 2.0% to 2.5%[141]. - As of March 31, 2025, the company had $12 million in undrawn letters of credit and$389 million in outstanding surety bonds, with no significant off-balance sheet arrangements[145]. - The company has a $1.7 billion revolving credit facility and a$1.7 billion commercial paper program, with no indebtedness outstanding as of March 31, 2025, indicating no interest rate risk from these instruments[155]. Construction and Development Projects - The company is constructing 12 new Columbia class (SSBN 826) submarines to replace the aging Ohio class, with the first submarine's construction beginning in 2020 and long-lead-time material contracts awarded for the next five boats in 2023[152]. - The company delivered USS Gerald R. Ford (CVN 78) to the U.S. Navy in Q2 2017, and has received contracts for the detail design and construction of John F. Kennedy (CVN 79), Enterprise (CVN 80), and Doris Miller (CVN 81)[152]. - The company has contracts to construct multiple Arleigh Burke class (DDG 51) destroyers, including Ted Stevens (DDG 128) and Jeremiah Denton (DDG 129), with deliveries made for USS Frank E. Petersen Jr. (DDG 121) in 2021, USS Lenah H. Sutcliffe Higbee (DDG 123) in 2022, and USS Jack H. Lucas (DDG 125) in 2023[152]. - The company delivered USS Fort Lauderdale (LPD 28) in 2022 and received a long-lead-time material contract for Philadelphia (LPD 32), with further modifications awarded in 2023[153]. - The company is currently constructing Bougainville (LHA 8) and Fallujah (LHA 9) as part of the America class (LHA 6) amphibious assault ships program, with a contract modification awarded for Helmand Province (LHA 10) in 2024[152]. - The company has delivered 10 out of 11 planned Legend class National Security Cutters (NSCs), which are the largest and most advanced cutters in the U.S. Coast Guard[153]. - The company is constructing Virginia class (SSN 774) fast attack submarines as the principal subcontractor to Electric Boat, tailored for a wide range of warfighting missions[153]. Inflation Risks - The company is exposed to inflation risks affecting raw materials and components, and mitigates this by negotiating long-term agreements and incorporating price escalation provisions in contracts[156]. - The company expects persistent cost inflation to potentially impact its financial position and cash flows if long-term inflationary conditions continue[156].