Aerospace and defense company Huntington Ingalls (NYSE:HII) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 2.5% year on year to $2.73 billion. Its non-GAAP profit of $3.31 per share was 17.8% above analysts’ consensus estimates.

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Huntington Ingalls (HII) Q1 CY2025 Highlights:

Revenue: $2.73 billion vs analyst estimates of $2.79 billion (2.5% year-on-year decline, 2.1% miss) Adjusted EPS: $3.31 vs analyst estimates of $2.81 (17.8% beat) Adjusted EBITDA: $237.5 million vs analyst estimates of $210 million (8.7% margin, 13.1% beat) Operating Margin: 5.9%, in line with the same quarter last year Free Cash Flow was -$462 million compared to -$274 million in the same quarter last year Backlog: $48.05 billion at quarter end, in line with the same quarter last year Market Capitalization: $8.75 billion

StockStory’s Take

Huntington Ingalls’ first quarter results were shaped by operational challenges in shipbuilding, with management highlighting production delays at Newport News due to late equipment deliveries and weather disruptions. CEO Chris Kastner acknowledged that while Ingalls Shipbuilding met its production goals, Newport News experienced setbacks, particularly on the CVN 80 carrier. The company also noted lower volumes in amphibious assault ships and nuclear support services as contributing factors to the revenue decline. Kastner stated, “Once this equipment is received from our suppliers, which is scheduled throughout the summer, we anticipate an acceleration of progress.”

Looking ahead, management maintained its full-year outlook and pointed to ongoing cost reduction efforts and increased outsourcing as key levers for future improvement. CFO Tom Stiehle noted that the company is “progressing on each of these items,” expecting margin and free cash flow normalization in the coming years. Leadership also cited industry tailwinds, including new government contracts and executive orders aimed at strengthening the domestic shipbuilding base, as supportive of long-term growth.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to specific operational issues and strategic moves within its core shipbuilding and Mission Technologies divisions.

Production Delays at Newport News: Delays in receiving major equipment impacted progress on the CVN 80 carrier, with weather compounding the schedule variance. Management expects improvement once the necessary parts arrive during the summer. Shipbuilding Throughput Initiatives: Huntington Ingalls continued efforts to increase shipbuilding throughput by 20% year over year, including ramped-up outsourcing and the integration of its South Carolina facility. Ingalls Shipbuilding operations remained on track, while Newport News lagged due to the aforementioned equipment delays. Cost Reduction Plan: The company reaffirmed its goal of achieving $250 million in annualized cost reductions by year-end. Initiatives include contract negotiations, workforce development, and streamlining operational processes across shipyards. Mission Technologies Growth: The Mission Technologies division reported contract wins, such as a high-energy laser prototype for the U.S. Army and delivery of uncrewed undersea vehicles, signaling continued traction in advanced defense technologies. Strategic Partnerships and Policy Tailwinds: Huntington Ingalls established a memorandum of understanding with HD Hyundai Heavy Industries to explore collaborative shipbuilding opportunities. Management highlighted executive orders from the administration as supportive of domestic shipbuilding and defense innovation.

Story Continues

Drivers of Future Performance

Management’s outlook centers on ramping up shipbuilding throughput, delivering on cost reductions, and capitalizing on policy-driven demand in the U.S. maritime sector.

Operational Execution Needed: Achieving targeted increases in shipbuilding throughput and meeting delivery schedules, especially at Newport News, are critical for revenue and margin improvement. Defense Policy and Funding: The company expects sustained demand from new government contracts, industry initiatives, and executive orders aimed at expanding shipbuilding capacity and modernizing the defense industrial base. Labor and Supply Chain Dynamics: Management cited workforce retention, targeted hiring of experienced personnel, and timely receipt of key equipment as ongoing risks to schedules and cost efficiency.

Top Analyst Questions

Doug Harned (Bernstein): Asked how increased government funding would translate into higher submarine production rates. CEO Chris Kastner pointed to targeted investments in workforce and facilities, noting, “These are the right investments to get at the build rate.” David Strauss (Barclays): Inquired about the structure of new shipbuilding contracts and implications for margins. CFO Tom Stiehle explained the new contracts blend cost-type and incentive structures, aiming for a balance between affordability and profitability. Scott Mikus (Melius Research): Questioned whether more contracts would shift to cost-plus formats amid labor negotiations. Kastner responded that contract types would be determined case-by-case, emphasizing the importance of timely wage support for workforce retention. Myles Walton (Wolfe Research): Probed progress on hiring and attrition. Kastner reported 1,000 new hires in the quarter and noted attrition is “moving in the right direction,” driven by hiring more experienced personnel. Ron Epstein (Bank of America): Asked about modernization and automation in shipyards. Kastner stated that while some automation is underway, the focus is on streamlining processes and increasing efficiency, rather than full-scale automation.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) progress on shipbuilding throughput and timely resolution of supply chain and equipment delays, (2) execution of cost reduction and outsourcing initiatives to improve margins, and (3) the impact of new government contracts and policy measures on backlog and order flow. Additionally, the pace of workforce hiring and retention, as well as progress on Mission Technologies’ advanced defense programs, will be important signposts for operational and financial performance.

Huntington Ingalls currently trades at a forward P/E ratio of 15.8×. Is the company at an inflection point that warrants a buy or sell? Find out in our free research report.

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