Huntington Ingalls Industries: Big Sub Award Likely Brings Modest Upside to Guidance

研报英文原文证据摘录

Huntington Ingalls Industries: Big Sub Award Likely Brings Modest Upside to Guidance

rhaul Style Exposure

program and a $28m benefit on another. These net to -$20m and so the +$8m

for the segment leaves another $28 net positive and given the lack of disclosure,

we assume none was indivdually material. It appears that the primary driver of

those remaining positive adjustments was incentives associated with

submarine contracts. Wednesday evening’s release noted that the $77b

headline value of the contracts for GD and HII included portions the Navy had

previously awarded and we believe these prior awards triggered a portion of the

Q2 incentives. Also, the incentives in these contracts should improve

productivity across the entire yard, and so they can drive EAC changes on

multiple programs, not only Virginia and Columbia. At the end of the day then,

underlying NN margin performance was steady and mgmt changed cost

estimates on a number of programs. The net impact of these changes was

modestly positive and this was thanks largely to the expected impact of the

major submarine contracts, portions of which were received prior to

Wednesday, across the yard.

• . . . and going forward. The benefits of the big sub contracts are playing out

a bit differently than we expected and should continue to support margin

performance through the remainder of the year. First, while some of the

benefits showed up in Q2 incentives, not all of them did, and HII should book

incentives related to these contracts, both in Q3 and Q4. Guidance calls for the

company-wide shipbuilding margin to remain at ~6.3% in Q3 and given the

sub-6% underlying margin at Newport News, that likely includes some EAC

contribution. The guidance for the year also implies that Q4 will have the