With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

Fortune 500

The 300 companies on this year’s list brought in over $12.5 trillion in revenue for the latest 12 months, with the median revenue figure at $24 billion.

America's Most Innovative Companies

Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

The 300 companies on this year’s list brought in over $12.6 trillion in revenue for the latest 12 months, with the median revenue figure at $22 billion.

Industry included in sector is aerospace and defense.

Fortune Sector Leaders: Aerospace and Defense

The Fortune 500, in its 70th year in 2024, ranks the biggest U.S. companies by revenue.

The 200 companies on this list are transforming industries from the inside out.

The 300 companies on this list are transforming industries from the inside out.

The Fortune 500, in its 69th year in 2023, ranks the biggest U.S. companies by revenue.

This year’s Fortune 500 marks the 68th running of the list.

This year’s Fortune 500 marks the 67th running of the list.

F500-2021-327-Huntington Ingalls Industries

As America's largest military shipbuilding company, HII employs more than 42,000 people operating both domestically and internationally.

This year's Fortune 500 marks the 66th running of the list.

F500-2020-357-Huntington-Ingalls-Industries

America's largest military shipbuilding company for the U.S. Navy and Coast Guard, Huntington Ingalls also provides manufacturing, engineering, and management services for the nuclear energy, oil, and gas markets.

This year's Fortune 500 marks the 65th running of the list.

This year's Fortune 500 marks the 64th running of the list.

This year's Fortune 500 marks the 63rd running of the list.

This year's Fortune 500 marks the 62nd running of the list.

This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

Sector

Strongest Dimension

Years on list

Previous rank

State

Key Financials (last Fiscal Year)

Revenues ($M)

Profits ($M)

Assets ($M)

Total Stockholder Equity ($M)

Profit Ratios

Profit as % of Revenues

Profits as % of Assets

Profits as % of Stockholder Equity

Earnings Per Share (last Fiscal Year)

Earnings Per Share ($)

EPS % Change (from prior fiscal year)

EPS % Change (5 year annual rate)

EPS % Change (10 year annual rate)

Total Return

Total Return to Investors (last year)

Total Return to Investors (5 year, annualized)

Total Return to Investors (10 year, annualized)

Huntington Ingalls Industries is a shipbuilding and defense contractor that provides engineering, manufacturing, and technology services. The company builds and maintains nuclear-powered ships for the U.S. Navy, including aircraft carriers and submarines. It also offers services in defense technology, unmanned systems, and cybersecurity. HII supports both government and commercial clients with mission-critical capabilities.

Q2 2026

Q1 2026

Q4 2025

Q3 2025

Q2 2025

Q1 2025

Q4 2024

Huntington Ingalls Industries (HII): Company Profile, Stock Price, News, Rankings

legacy

Huntington Ingalls Industries

huntington ingalls industries

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter twenty twenty four HII Earnings Conference Call. At this time, all participants are in a listen only mode. Please be advised that today's conference is being recorded. I would now like to hand the call over to Christie Thomas, Vice President of Investor Relations. Mrs.

Thank you, operator, and good morning, everyone. Welcome to the HII fourth quarter twenty twenty four conference call. Matters discussed on today's call that constitute forward looking statements, including our estimates regarding the company's outlook, involve risks and uncertainties and reflect the company's judgment based on information available at the time of this call. These risks and uncertainties may cause our actual results to differ materially. Additional information regarding these factors is contained in today's press release and the company's SEC filings.

We will also refer to certain non GAAP financial measures. For additional disclosures about these non GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, which are available on the Investor Relations page of our website at ir.hii.com. On the call today are Chris Kastner, President and Chief Executive Officer and Tom Seeley, Executive Vice President and Chief Financial Officer. I will now turn the call over to Chris.

Thanks, Christy. Good morning, everyone, and thank you for joining us on our fourth quarter twenty twenty four earnings call. Last year, HII employees remained steadfast in their commitment to our mission of delivering the world's most powerful ships and all domain solutions in service of the nation. I thank them for these efforts, which contributed to HII reaching critical milestones last year. We remain focused on meeting our commitments to the Navy and all our customers.

Before I discuss the 2024 results, operational initiatives and guidance, I would like to put in context where we are and give you a perspective on the next twenty four months as well as the mid to long term outlook. Over the next twenty four months, we expect to secure over $50,000,000,000 of contract awards. These contracts are being and will be negotiated with current performance and economic conditions in our estimates. They are expected to have a more balanced risk equation, be predictable in cost and schedules for our customers and provide an opportunity to achieve margins more consistent with historical norms. At the same time, we are achieving key milestones on ships contracted prior to COVID.

And as our progress continues, these contracts are becoming an increasingly smaller portion of our portfolio and less of a drag on our financial results. By 2027, the majority of pre COVID contracts will be behind us. In addition, our focus on increasing throughput and cost reductions are expected to lead to improved operational execution across the business. With these operational initiatives and the significant demand for our products and services, we expect improved financial performance over the mid to long term. We anticipate growing to $15,000,000,000 of annual revenue by 02/1930 with associated margin expansion, opportunity and free cash flow growth.

Now turning to our 2024 results, we generated sales of $11,500,000,000 and earnings per share of $13.96 All three of our divisions hit key milestones and won significant new business during the year. 2024 awards totaled $12,000,000,000 and our year end backlog was $49,000,000,000 of which $27,000,000,000 is funded. Now I'll provide some highlights from each of our divisions. First, Mission Technologies had another strong year. It achieved awards of more than $12,000,000,000 in potential total contract value, a 2024 book to bill of 1.339 revenue growth year over year.

This positive performance reflects Mission Technologies' continued alignment with our country's and our allies' national security strategies. For example, in 2024, Mission Technologies achieved its largest win ever, a $6,700,000,000 contract to provide electronic warfare engineering and technical services support for the U. S. Air Force, as well as a $3,000,000,000 LOGICS task order to provide logistics services, ISR operations and next gen technology. And in Australia, Mission Technologies was awarded an initial five year contract to provide global supply chain services to the Australian Government's Department of Defense.

In summary, the Mission Technologies team is executing well and we are confident in its ongoing success, particularly given how closely its portfolio maps to our defense customers' needs. In 2024, at Ingalls Shipbuilding, we were awarded a 9,600,000,000 multi ship procurement contract for the construction of LPD 33, 30 four and 30 five and large deck amphibious ship LHA 10, which secures amphib production backlog well into the next decade. Also, we delivered LPD 29 USS Richard M. McCool Jr. And launched LPD 30 Harrisburg and we continued to make progress on the DDG program with six destroyers in production, authenticating the keel of DDG 133 Sam Nunn in the fourth quarter.

Finally, we completed drydock work and undocked USS Zumwalt DDG 1,000 in December. In 2024 at Newport News Shipbuilding in the Virginia class submarine program, we floated off SSN seven ninety eight Massachusetts, delivered SSN seven ninety six USS New Jersey, shipped the final module of SSN eight zero one Utah and in December we christened SSN 800 Arkansas. As for aircraft carriers, we completed drydock work for the RCOH of CVN 74, USS John C. Stennis, and were awarded the advanced planning contract for the RCOH of CVN 75, USS Harry S. Truman.

Also, 94% of CVN 79 Kennedy compartments have been turned over to the Navy and all combat systems have been turned over to the test team. And CVN 80 Enterprise was moved for the first time, enabling construction of two aircraft carriers at once in the same drydock. Looking ahead to 2025, at Ingalls, we expect to launch DDG 129, Jeremiah Denton and complete sea trials for DDG 1,000. And at Newport News, we plan to deliver SSN seven ninety eight and float off SSN 800. Also, the team is focused on completing CVN 79.

CVN 79 is scheduled to deliver in 2025 and the program team is evaluating options for optimizing combat capability additions and readiness for Navy workups. In 2026, we expect to deliver DDG 128 Ted Stevens and LHA eight Bougainville at Ingalls. And at Newport News, we expect to deliver SSN 800 and lay the keel for CVN 81 Dorey Miller. In 2025, we are also doubling down on operational improvement actions to address the residual COVID related labor, productivity and supply chain challenges that we have been facing. Starting with labor and enhancing throughput, in 2024, we exceeded our hiring goal of over 6,000 craft personnel, but attrition remains stubbornly high.

Our data shows that additional investment in wages in coordination with our Navy partner will provide needed workforce stability. These increases also allow us to attract highly skilled first class shipbuilders and the proficiency they bring. Additionally, we continue to deploy our enterprise operating system across all our shipbuilding programs to ensure consistency. On labor and throughput, we have acquired the assets of an existing advanced metal fabricator W International in Charleston, South Carolina. This acquisition increased our workforce by approximately 500 highly trained personnel and we plan by 2027 to increase employment significantly at this site a 480,000 square foot facility.

HII Charleston operations is already working on aircraft carrier units for Newport News and in the next few weeks we expect to start submarine unit construction. Similarly, we plan to increase our outsourcing by 30% in 2025 and in source contract labor to address critical skill gaps within our shipyards. As a result of these workforce strategies, we expect to achieve a 20% year over year improvement in shipbuilding production throughput. Our second operational initiative is an annualized enterprise wide cost reduction target of approximately $250,000,000 per year. Several actions have already been taken to achieve this target, including the realignment of Mission Technologies segment from six business units to four and the implementation of a new payroll system at the beginning of 2025.

Further cost efficiency plans around optimizing cost structures, decreasing overhead and service and support costs and reducing third party services are under development and are expected to be executed throughout 2025. Our third operational initiative for 2025 is ensuring our new contract awards reflect the current economic and production environment. Regarding the FY twenty twenty four Block V submarine contract agreement, negotiations are continuing and we continue to be confident that an agreement will be reached, although we do not have certainty today on the timing of that agreement. These three items, meeting our throughput improvement goals, executing our cost reductions and achieving new contract awards that reflect the current economic and production environment underpin our guidance and are expected to bring more predictability to our contract cost estimates, delivery schedules, financial performance and guidance. In terms of our financial outlook, more specifically for 2025, we expect shipbuilding revenues between $8,900,000,000 and $9,100,000,000 and shipbuilding margins in the range of 5.5% to 6.5%.

For Mission Technologies, we expect revenues between 2,900,000,000 and $3,100,000,000 and margins between 44.5% with EBITDA margins between 88.5%. Our free cash flow outlook for 2025 is between $300,000,000 and $500,000,000 The 2025 shipbuilding margin and free cash flow outlook is predicated on meeting our throughput and cost reduction objectives. It also assumes appropriate resolution on the last two VCS Block V boats, the Block VI and Columbia Build II contracts consistent with the continuing resolution anomaly language that was passed by Congress. Turning to activities in Washington for a moment, we are pleased with the passage and enactment of the Defense Authorization Act for fiscal year 2025. The FY 2025 NDAA strongly supports our shipbuilding programs In addition to authorizing funding for three Arleigh Burke class surface combatants, one Virginia class submarine and one San Antonio class amphibious warship, the NDAA authorizes the refueling and overhaul of CVN 75, additional incremental funding for the second Virginia class attack submarine in FY 2025, and continued support for Gerald R.

Ford class aircraft carriers in the LHA and LPD amphibious warship bundle. The NDIA also recommends the Navy optimize aircraft carrier acquisition strategy and procure CVN 82 in FY '28. We applaud Congress for including anomalies in the CR that provide additional support for nuclear powered vessel programs and we look forward to Congress finalizing FY 2025 appropriation bills. In summary, we continue to make progress on our programs with impactful operational initiatives that we believe will lead to meaningful improvements in productivity and throughput. Demand for our products and services is strong and we continue our focus on executing for our key customer, the U.

S. Navy, with five deliveries over the next two years. We have a line of sight for generating approximately $15,000,000,000 in annual revenue by decade's end with incrementally improving operating margins over that period, which will facilitate improved results for all stakeholders. So with that, I will turn the call over to Tom for some remarks on our financial results and guidance. Tom?

Thanks, Chris, and good morning. Today, I'll review our fourth quarter and full year results and also provide some additional color regarding outlook for 2025. For more detail on the segment results, please refer to the earnings release issued this morning and posted to our website. Beginning with our consolidated fourth quarter results on Slide six, our fourth quarter revenues of $3,000,000,000 decreased approximately 5% compared to the same period last year. This decline was driven by lower year over year revenue at all three segments.

Ingalls revenues of $736,000,000 decreased $64,000,000 or 8% compared to the fourth quarter of twenty twenty three, driven primarily by lower volumes on amphibious assault chips, partially offset by higher surface patent revenues. At Newport News, revenues of $1,600,000,000 declined $77,000,000 or 4.6% from the fourth quarter of twenty twenty three, primarily due to lower RCOH volumes, unfavorable cumulative adjustments on the Virginia class and aircraft carrier construction programs, partially offset by higher Columbia class volumes. At Mission Technologies, fourth quarter twenty twenty four revenues of $713,000,000 decreased $32,000,000 or 4.3% from the fourth quarter of twenty twenty three, primarily driven by lower volumes in C5ISR due to non recurring product revenue in the fourth quarter of twenty twenty three. Moving to Slide seven, segment operating income for the quarter was $103,000,000 and segment operating margin was 3.4%. This compares to $330,000,000 and 10.4% respectively in the fourth quarter of twenty twenty three.

Fourth quarter '20 '20 '3 results included two non recurring favorable items that make for a difficult year over year comparison. The first item was a $70,500,000 sale of a court judgment at Ingalls. The second was a $49,500,000 insurance claim settlement at Mission Technologies. Ingalls operating income of $46,000,000 and margin of 6.3% compares to $169,000,000 and 21.1% respectively in the fourth quarter of twenty twenty three. The prior year period included both the favorable sale of a court judgment that I noted as well as a surface combatant related contract incentive.

Newport News Fourth Quarter Twenty Twenty Four operating income of $38,000,000 and margin of 2.4% compares to 100 and 10,000,000 and six point six percent respectively in the fourth quarter of twenty twenty three. The declines were driven by lower performance on Virginia class submarine and new carrier construction, partially offset by contract incentives on the Columbia class program. Shipbuilding margin for the fourth quarter of twenty twenty four was 3.6%. Mission Technologies' fourth quarter operating income of $19,000,000 and segment operating margin of 2.7% compares to $51,000,000 and 6.8%, respectively, in the fourth quarter of twenty twenty three. The declines were primarily driven by favorable insurance claim settlement that occurred in the fourth quarter of twenty twenty three.

Net earnings in the quarter were $123,000,000 compared to $274,000,000 in the fourth quarter of last year. Diluted earnings per share in the quarter were $3.15 compared to $6.9 in the fourth quarter of the previous year. Moving on to consolidated results for 2024 on Slide eight. Revenues of $11,500,000,000 increased $81,000,000 or approximately 1% compared to 2023. Growth was driven primarily by higher volumes at Mission Technologies, partially offset by lower volumes at Newport News Shipbuilding.

Ingalls revenues of $2,800,000,000 in 2024 increased $15,000,000 or 0.5% from 2023, driven primarily by higher volumes in surface combatants, largely offset by lower amphibious assault ship and NSE program revenues. At Newport News, twenty twenty four revenue of $6,000,000,000 decreased by $164,000,000 or 2.7% from 2023, primarily due to unfavorable Virginia class cumulative adjustments as well as lower volumes in aircraft carriers and nuclear support services, partially offset by higher volume on the Columbia program. At Mission Technologies, twenty twenty four revenues of $2,900,000,000 increased $238,000,000 or 8.8% from 2023, primarily driven by higher volumes in cyber, electronic warfare and space as well as C5ISR contracts. Moving to Slide nine, segment operating income for the year was $573,000,000 and segment operating margin was 5%. This compares to $842,000,000 and 7.4% respectively in 2023.

Ingalls operating income of $211,000,000 and margin of 7.6% in 2024, compares to $362,000,000 dollars and 13.2% respectively in 2023. The declines were primarily driven by the sale of the court judgment in 2023 as well as lower performance on amphibious assault ships and surface combatants. Newport News Twenty Twenty Four operating income of $246,000,000 had margin of 4.1% compared to March and 6.2% respectively in 2023. The decreases were primarily driven by lower Virginia class and aircraft carrier performance, partially offset by Columbia class contract incentives. Shipbuilding margin for 2024 was 5.2% within the revised guidance range we provided for the year.

Net cumulative adjustments for the year were negative $126,000,000 Newport News' net cumulative adjustment was negative $154,000,000 partially offset by positive net cumulative adjustments at both Ingalls and Mission Technologies of approximately $14,000,000 Mission Technologies 20 20 4 operating income of $116,000,000 and segment operating margin of 3.9% both improved from $101,000,000 and 3.7% respectively in 2023. The improvement was driven primarily by volume and performance in cyber, electronic warfare and space contracts, stronger performance in fleet sustainment as well as higher equity income. Again, the Mission Technologies twenty twenty three results included a favorable $49,500,000 insurance claim. So we are lapping that difficult comparison and we believe our results still show strong absolute income growth and margin expansion for the year. Mission Technologies twenty twenty four results included approximately $99,000,000 of amortization and purchase intangible assets compared to approximately $109,000,000 in 2023.

Mission Technologies' EBITDA margin for 2024 was 7.9%. Company net earnings in 2024 were $550,000,000 compared to $681,000,000 in 2023. Diluted earnings per share in 2024 was $13.96 compared to $17.07 in 2023. Turning to cash and capital deployment on Slide ten, 2024 free cash flow was $40,000,000 consistent with our most recent guidance and reflecting factors previously discussed. During the year, the company invested $353,000,000 in capital expenditures or 3.1 of sales as we continue to prioritize higher throughput in our shipyards.

We paid $2.00 $6,000,000 in dividends while ending 2024 with $831,000,000 in cash and cash equivalents on hand and liquidity of approximately $2,500,000,000 Cash contributions to our pension and other post retirement benefit plans totaled $47,000,000 in 2024. Our pension outlook for 2025 has modestly improved from the update that we provided in November, giving this increase in discount rates partially offset by 2024 asset returns that was slightly below our expectations. Actual asset returns for 2024 were 7.7%. Our five year pension outlook has been updated and is available in the appendix of today's presentation on Slide 13. Turning to Slide 11 and our financial outlook.

First, we are reaffirming our medium to long term growth targets for both shipbuilding and mission technologies. As Chris noted, we see a clear path to $15,000,000,000 in annual revenue by the end of the decade given our robust backlog and very strong demand across the portfolio. Regarding twenty twenty five expectations, Chris provided our operational guidance, but let me provide a bit more color on our cash flow outlook. We expect 2025 free cash flow of between $300,000,000 and $500,000,000 dollars Performance on contracts entered into prior to the commencement of the COVID pandemic has impacted our ability to achieve program milestones and corresponding cash receipts. We expect this headwind will continue in 2025, which along with elevated capital expenditures and cash taxes is impacting our overall cash generation.

We expect 2025 capital expenditures to be approximately 4% of sales as we continue to thoughtfully invest in increasing our shipbuilding efficiency and throughput. Additionally, we expect our 2025 cash taxes will total approximately $220,000,000 Regarding our expectations for the first quarter in twenty twenty five, we expect approximately 2,100,000,000 for shipbuilding revenues and $680,000,000 of Mission Technologies revenues with shipbuilding margin near 5.5% and Mission Technologies operating margin of approximately 3%. Consistent with normal cash flow cadence, we expect first quarter free cash flow to be negative, representing a use of between $300,000,000 and $500,000,000 and working as working capital continues to build through mid year before we are able to reach program milestones and contract awards. Turning for a moment to capital allocation. As we have highlighted today, we will continue to invest in our business to maintain and grow the capacity of our shipyards.

Our approach to dividends and returning excess cash to shareholders remains unchanged. Our focus now of cost is working through challenged contracts and returning free cash flow to more normalized levels. To close my remarks, achieving the throughput, cost reduction and contract award initiatives that we have outlined are critical to stabilizing shipbuilding performance in 2025 and achieving the outlook we have provided. Similar to 2024, we expect that about 70% of the shipbuilding revenue generated in 2025 will be derived from pre COVID contracts. We forecast approximately 60% of 2026 shipbuilding revenue will be derived from pre COVID contracts.

Finally, we expect that in 2027, a majority of the shipbuilding revenue will be derived from contracts that reflect the current operating environment and we will set the foundation for margin improvement and returns towards historical margin levels. With that, I'll turn the call back over to Christy for Q and A.

Thanks, Tom. As a reminder to everyone on the call, please limit yourself to one initial question and one follow-up, so we can get as many people through the queue as possible. Operator, I will turn it over to you to manage the Q and A.

Thank you very much. Our first question comes from Doug Harned with Bernstein. Doug, your line is now open. Please go ahead.

Good morning, Doug. Sorry for the background noise. We're going through a thunderstorm outside right now, but just bear with us a little bit.

Okay. I've got a snowstorm here too. So, if I go back a few years, there was a margin outlook that had always been talked about in the 9% to 10% level. And knowing that, I mean, the CPI is hardly a good indicator for inflation for you all. But can you give us a sense first, when you look at the margin gap that you have now, how much of that would you attribute to inflation versus other operational challenges if you're looking back at that 9% to 10% type projected level?

Yes. So that's a very interesting question and I don't have a specific number for you, Doug. We do have some EPA protection on our and inflation protection on our Ingalls contracts and limited EPA protection on material on our aircraft carrier contracts. But it's not just directly inflation that impacts you. It's a little bit more nefarious than that because you have inflation that adjusts very quickly on some products and services that can be passed along very quickly to a customer where we have long term contracts that we have to perform against the baseline that was negotiated where you really can't adjust as quickly, which leads to less experienced workforce and performance challenges.

So I hate to say that I hate to not give you a number related to that, but it's a broader question than just the calculation of the inflation impact on our ship programs. As related to that is in the supply chain, it's even if we have protection for it, they're just the performance of the supply chain because of inflation is not as efficient. So it's a very broad answer and I apologize for not giving you a precise answer, but inflation kind of seeps into various elements of our cost structure, not just pay people

Well, just to follow on that, if you look outside of shipbuilding, I mean, the Pentagon has frankly not been very helpful at all in providing equitable price adjustments and that's across many types of programs. And even though you have some, it appears you've been facing a lot of the same problem and everyone I think there's universal acceptance of the importance of the Virginia class, the Columbia class. But when you're negotiating new contracts now in what has been a tough funding environment, do you still see it as possible to get back to those 9% to 10% type margin levels that have been more traditional? Or are we living in a different world now where you may have to sort of give in in a sense to lower financial performance?

Well, yes, interesting. I absolutely believe that 9% is possible moving forward. The $50,000,000,000 of contracts that we've negotiated some of those with the bundle, the ANFIB bundle down in Mississippi and we're negotiating the FY 2024 Block five-two boat contract now. The customer has been very receptive to understanding the current economic environment. And we will get inflation protection in those new contracts.

I think you saw Congress put the additional $5,700,000,000 in the anomaly for those FY 2024 boats. There's a recognition that we need to rebuild this industrial base. And there's also a recognition, I believe, that shipbuilders need to earn fair margins. And so we're taking that to the table and we're going to make sure that that happens. But I absolutely believe that 9% is something that we can achieve.

And the reason I believe it, Doug, is simply because I've done it before. Down at Ingalls, we're in the exact same position. We had to negotiate performance post Katrina into the new data set of ships. We got that done and they had a very good run where there was predictable cost and schedule performance because ultimately it doesn't do anybody any favor to agree to cost estimates or schedules that are unrealistic. So we're going to make sure that that happens.

I think the customer is on board with that. They want realistic achievable schedules as well. And so I firmly believe that's going to happen.

Our next question comes from Seth Seifman with JPMorgan. Seth, your line is now open. Please go ahead.

I wanted to ask about good morning. In the prepared remarks, I think, you talked about the guidance, what underpins the guidance, I think expects for more predictability. Are you basically what contract awards are you assuming that the company will get this year in the guidance?

Yes, the submarine contracts, the 17 boats contemplated by FY twenty four.

Yes, the full laws kind of plan that you've been advocating is assumed in this guidance.

No, let me correct you there. It's not a full SOLUS plan. We're negotiating FY 2024, two boats consistent with the acquisition approach that was set forth by Congress and supported by the anomaly. Block six and Columbia Bill two, we're going to have to see the acquisition approach for those boats as they develop. SAWs or a derivative of SAWs is positive.

Anything that brings additional investment into the industrial base that accelerates shipbuilding production is positive, but we're going to take this one step at a time.

So the guidance doesn't assume the 17 boats get under contract?

It does. It does. It assumes FY twenty four two boats and then assumes the negotiation of Deep Lock six contracts and the Columbia Bill two contract. Yes.

Okay. Okay. And do you I guess what gives you have you had communications with the new administration? What kind of gives you confidence that that's going to happen during this year?

Yes. So interesting. I have high confidence in the FY twenty twenty two votes that will happen first part of the year. I have had limited conversations with elements of the new administration and they've assured me that shipbuilding is one of their top priorities. And that's welcome.

That makes perfect sense based upon the threat environment. So I believe we'll step right into Block six after we negotiate the last two Block five boats.

Okay. Okay. Thanks. I'll leave it there for now.

Thank you very much. Our next question comes from Scott Micas with Melius Research. Scott, your line is now open. Please go ahead.

Good morning. Chris, I kind of want to follow-up on your answer to Doug's question. When I think about post Katrina, Northrop had a lot of struggles with the shipbuilding business before spinning it off to form HII. Shipbuilding margins initially weren't that great post spin, but come 2013, there was a meaningful pickup in favorable EAC adjustments and your stock more than doubled that year. So just curious,

lessons did you learn from the late 2000s and early 2010s that are still relevant and could be applied today? And when do you think investors will see EACs flip from unfavorable to favorable?

Thank you. I'll start this answer and then I'll kick it over to Tom for some timing related issues. But I have confidence that we can get this done because I've done it before as you said. And the key is making sure that you're very transparent and disclose current performance and ensure that you're resolute at the negotiation table and there's achievable and predictable cost and schedule estimates, when you do those negotiations. As I said previously, it doesn't do anybody for any favors to miss schedules or miss cost estimates.

So, we just need to make sure that we estimate them correctly and negotiate them correctly. And that can be done. And there's $50,000,000,000 of work that's going to be negotiated here. It's just getting through the pre COVID contracts is what's important. So I'll let Tom talk about the timing a little bit.

Thanks, Chris. Yes, as Chris mentioned, both him and myself were down there. I spent ten years from 2011 to 2021, so I saw that march up. And it's really about making sure, one, we get good contracts and have a good cost equilibrium balance between us and our customer. We've been hit now with COVID and inflation and things of that nature.

It's really causing a draw on our production lines. These long term contracts are being impacted by inflation. The number of heads experienced in the yard and the supportability of the material right now. So one is any of the new awards we get like the bundled down in Ingalls that we have, the FY 2023 award for destroyers that we received and now going forward the plethora of 17 boats between VCS five, six and Columbia Bill two. Getting balanced contracts that we have appropriate, our performance is appropriately aligned, our schedules that we see right now are rolled in the investments both from ourselves and from our Navy partner will have a positive benefit.

But ensuring we have a solid program plan and we're putting good commitments on contract. And then obviously, we've got to execute on our commitments on that front. So it's maintaining our budgets, holding schedules, making progress weekly, monthly, quarterly. And we have a track record of doing that. I'm confident we have the processes and the facilities.

For the most part, we need more throughput, but the processes and the tools and the facilities are in place right now. It's about building out the workforce we have, strengthening and more consistent supply chain that we have against our schedules, and then us kind of hitting the mark on cost and schedule on a regular rhythm. That's what we did down at Ingalls. I think we have the pieces in place and where we are short on people, the cost reduction initiatives that we have right now and we've talked about the contracts and contract equity going forward here. I think we understand what's causing us a delay in our production programs, specifically on VCS and some headwinds they have down at Ingalls on the Destroy program.

And I think we're working hard putting the dollars and the pressure in the right areas, to find the rhythm that we saw in the Ingalls March up post Katrina.

So we don't have a specific date for you on when we get back to those, sort of profitability estimates. But as Tom mentioned in his script, we are transitioning over the next couple of years out of these pre COVID contracts into the new contracts. And as we transition, there should be an uplift in profitability.

Okay. And then one quick follow-up. The midpoint of the guidance implies about $540,000,000 of shipbuilding operating income. I'm just curious, is there any assumption baked in there for what net EACs will be for this year?

Yes. So, obviously, we run our EAC process on a quarterly basis. We don't provide the profitability by ship or by class like that, even by division. So, we are always baking in EAC. The estimate to complete in EAC is aligned with our performance that we have right now with risks and opportunities kind of hedged against that, right?

We know we're throwing additional investment dollars in it and efforts and improvements of our production lines. We balance that with the risks and opportunities we see in front of us, so that sets the trajectory and how we expect to perform kind of going forward. And again, that ETC estimate to complete on these EACs gets reevaluated on every 90 days when we get another set of actuals. So I'm not going to get into the specific details that we have in there, but we do expect a stabilization and an improvement as we go forward.

Thank you. Our next question is from Pete Gubitski with Alembic Olympic Global. Pete, your line is now open. Please go ahead.

I guess just sticking to the shipbuilding margin questions, it sounds like maybe you'd recommend we assume sort of gradual improvement on shipbuilding margin through kind of to the end of the decade, maybe hitting that 9% mark. And I don't know if we should think about a step change improvement in 2027 or just keeping it gradual. And then, I just wonder if you could talk about the it sounds like you could potentially get a contract change on CBN seventy nine. I wasn't sure if that if you did get a contract change if that would impact margin one way or another. Thanks.

Yes. So let me start and I'll let Tom chip in. Maybe let me ask let me answer the $79,000,000 question first and then I'll kick the margin timing question over to Tom. On $79,000,000 yes, we do expect a contract change related to some additional capabilities that may be put in the ship. The program team is working on that and with the objective of getting the ship delivered with the most capability and deployed as soon as possible.

The program teams are working on that and there would be a change related to that, but I don't think it's positive or negative. It's just an equitable adjustment related to the capabilities that are added. So with that, I'll send it over to Tom on the margin timing.

Yes. So specifically, obviously, we don't provide margin guidance for the following year or the out years. Obviously, there is a shape and an expectation we have right here. And as of Q3 last year, we missed the expectation of where we thought we were. You really got to get down to where we've been impacted.

And again, it's the less experienced the labor we have, the throughput and the support of supply chain. We see areas and we have initiatives to kind of improve all of that. So going forward, that's going to be a lift against all operations we have. Now for contracts that have run through COVID, the older pre COVID contracts, those contracts have seen increased costs. So there's limited ability to go and get additional profitability on those contracts.

As we put the new work, the $50,000,000,000 on here, obviously that didn't run through that. It's going to get the benefit of the current performance and where we stand right now and the opportunity is much greater

bounce back. So I would say the way to model that is follow the revenue. In my remarks, I gave you the mix and how it blends out. And by 2027, the majority of the work will be post COVID work.

And I do expect a ramp in profitability as we work ourselves through the

But always remember, we're pretty conservative when we start out ships. So I do agree it's going to increase, but I wouldn't anticipate a step change.

Our next question is from David Strauss with Barclays. David, your line is now open. Please go ahead.

Hey, Chris. Could you maybe talk about the opportunity to buy additional chipyard capacity? I think you've made some comments recently in the press around that. Can you kind of size that opportunity? And if I miss, I apologize on the call or in your prepared remarks.

Huntington Ingalls Industries (HII) Q4 2024 Earnings Call Transcript

Company Participants