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Huntington Ingalls Industries, Inc. (HII - Snapshot Report) posted impressive second quarter 2013 results on the back of solid program execution at Ingalls Shipbuilding and Newport News Shipbuilding.

The company reported earnings of $1.12 per share, beating the Zacks Consensus Estimate of 92 cents by 21.7%. The reported number also climbed 12.0% from the year-ago profit of $1.00 per share.

Revenue

The company generated total revenues of $1,683.0 million during the reported quarter that surpassed our projection of $1,659.0 million. However, it came below the year-earlier level of $1,721.0 million by 2.2%. Of the total revenues, product sales dipped 5.4% while service sales increased 19.8%.

Huntington won $5.3 billion of new contracts during the quarter, boosting the total backlog to $20.7 billion. Going forward, the company expects to receive revenues from the construction of five new DDG-51 Arleigh Burke-class guided missile destroyers and the National Security Cutter Munro (NSC-6), and also from the mothballing of the nuclear aircraft carrier USS Enterprise (CVN 65).

Operating Income

Operating income increased 9.4% to $116.0 million in the quarter from $106.0 million in the second quarter 2012.

The results were mainly driven by additional risk retirement at Newport News on the SSN-774 Virginia-class (“VCS”) program and National Security Cutter (“NSC”) program.

Huntington Ingalls’ segment operating margin jumped 70 basis points year over year to 8.1% in the second quarter.  

Quarterly Segmental Highlights

Ingalls Shipbuilding: The segment revenue declined 11.1% year over year to $672.0 million. The lower numbers were driven by lower sales in amphibious assault programs, which were partially offset by higher sales in the National Security Cutter (“NSC”) program and surface combatants.

Operating income dropped 7.9% year over year to $35.0 million in the second quarter. The decrease reflects the receipt of $7 million for resolution of a contract dispute with a private party in the same period last year.

Newport News Shipbuilding: This division generated $1,031.0 million of revenue during the quarter versus $979.0 million in the year-ago level, thanks to higher sales of submarines, aircraft carriers and fleet support services.

Operating income at the segment was $101.0 million, an increase of 13.5% from $89.0 million in the second quarter 2012. The enhancement was mainly associated with the VCS program, for risk retirement and the favorable resolution of outstanding contract changes.

Financials

The cash balance at the end of the second quarter was $623.0 million, down from $1,057.0 million at 2012 end. Long-term debt (including current portion) at quarter end stood at $1,817.0 million, down from $1,830.0 million at 2012 end. The debt-to-capitalization ratio was 67.5% in the reported quarter.

Net cash used in operating activities was $337.0 million in the second quarter of 2013 versus $178.0 million in the second quarter 2012.

Zacks Rank

Huntington Ingalls presently retains a Zacks Rank #2 (Buy). Apart from Huntington Ingalls, favorably placed stocks in the sector also include Northrop Grumman Corp. (NOC - Analyst Report), General Dynamics Corp. (GD - Analyst Report) and Lockheed Martin Corp. (LMT - Analyst Report), all with a Zacks Rank #2 (Buy).

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