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Huntington Ingalls (HII) Down 9.4% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Huntington Ingalls (HII - Free Report) . Shares have lost about 9.4% in that time frame, underperforming 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 Q2 Earnings Miss, Revenues Drop Y/Y

Huntington Ingalls second-quarter 2020 earnings of $1.30 per share missed the Zacks Consensus Estimate of $4.16 by 69%. Moreover, the bottom line declined 57.8% from $3.07 reported in the prior-year quarter.

Total Revenues

Total revenues came in at $2.03 billion, lagging the Zacks Consensus Estimate of $2.14 billion by 5.3%. The top line also declined 7.4% from $2.19 billion in the year-ago quarter. The decrease was primarily due to revenue loss at the Newport News and Technical Solutions divisions.

Operational Performance

Huntington Ingalls incurred total operating loss of $5 million against operating income of $138 million in the second quarter of 2019.

Huntington Ingalls received orders worth $2.9 billion during the second quarter. As a result, the company’s total backlog reached $46.1 billion as of Jun 30, 2020.

Segmental Performance

Newport News Shipbuilding: Revenues totaled $1,122 million at this segment, down 12.3% year over year, on account of lower revenues from aircraft carriers and submarine construction.

Meanwhile, the segment incurred operating loss of $69 million against operating income of $71 million in the year-ago quarter. This downside was due to unfavorable cumulative catch-up adjustments on Block IV boats of the Virginia-class submarine program as well as the impact of discrete COVID-19 delay and disruption.

Ingalls Shipbuilding: Revenues at this segment remained flat at $622 million, as higher revenues from the Legend-class National Security Cutter (NSC) program, the San Antonio-class LPD program and the America-class LHA program were offset by lower revenues from the Arleigh Burke-class DDG program.

Also, operating income declined 20.3% to $55 million, while operating margin contracted 225 basis points(bps) to 8.8%. These decreases were on account of unfavorable adjustments, including delay and disruption from COVID-19 and lower risk retirement on the Legend-class NSC program.

Technical Solutions: Revenues at this segment slipped 0.3% to $320 million on account of lower mission driven innovative solutions (MDIS), fleet support and nuclear and environmental services revenues.

The segment’s operating income was $9 million against operating loss of $2 millionin second-quarter 2019.

Financial Update

Cash and cash equivalents as of Jun 30, 2020 were $631 million, significantly up from $75 million as of Dec 31, 2019.

Long-term debt, as of Jun 30, 2020, was $2,276 million compared with the 2019-end level of $1,286 million.

Cash from operating activities, at the end of second-quarter 2020, grossed $269 million against cash used worth $33 million at the end of second-quarter 2019.

 

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 -8.9% due to these changes.

VGM Scores

Currently, Huntington Ingalls has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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. It's no surprise Huntington Ingalls has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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