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

The company reported adjusted earnings of $1.17 per share, beating the Zacks Consensus Estimate of 87 cents by 34.5%. The reported number climbed 31.5% from the year-ago profit of 89 cents per share.

Revenue

The company generated total revenues of $1,562.0 million during the reported quarter that came below our projection of $1,605.0 million as well as the year-earlier level of $1,568.0 million. Of the total revenues, product sales dipped 2.4% while service sales increased 12.1%.

Operating Income

Adjusted operating income increased 21.6% to $118.0 million in the quarter from $97.0 million in the first quarter 2012.

The results were mainly driven by additional risk retirement at Newport News on the SSN-774 Virginia-class (“VCS”) program and the absence of unfavorable cumulative adjustments on the LPD-17 San Antonio-class (“LPD”) program at Ingalls.

Huntington Ingalls’ segment operating margin jumped 124 basis points year over year to 7.7% in the first quarter.  

Quarterly Segmental Highlights

Ingalls Shipbuilding: The segment revenue declined 8.8% year over year to $631.0 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.

However, operating income surged 30.0% year over year to $26.0 million in the first quarter. The improvement was primarily attributable to the absence of unfavorable cumulative adjustments on the LPD program.

Newport News Shipbuilding: This division generated $950.0 million of revenue during the quarter versus $895.0 million in the year-ago level, thanks to higher sales of submarines and fleet support services.

Operating income in the segment was $94.0 million, an increase of 16.0% from $81.0 million in the first 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 first quarter was $652.0 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 72.0% in the reported quarter.

Net cash used in operating activities was $362.0 million in the first quarter of 2013 versus $329.0 million in the first quarter 2012.

Zacks Rank

Huntington Ingalls presently retains a Zacks Rank #1 (Strong Buy). Apart from Huntington Ingalls, favorably placed stocks in the sector include Northrop Grumman Corporation (NOC - Analyst Report) and Wesco Aircraft Holdings, Inc. (WAIR - Snapshot Report), both with a Zacks Rank #2 (Buy).

Huntington Ingalls, originally an affiliate of Northrop Grumman, was spun off in Mar 2011. It operates major shipyards in La., Miss. and Va.

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