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Aerospace and defense company Huntington Ingalls (NYSE:HII) announced better-than-expected results in Q2 CY2024, with revenue up 6.8% year on year to $2.98 billion. It made a GAAP profit of $4.38 per share, improving from its profit of $3.27 per share in the same quarter last year.
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Huntington Ingalls (HII) Q2 CY2024 Highlights:
- Revenue: $2.98 billion vs analyst estimates of $2.84 billion (4.7% beat)
- EPS: $4.38 vs analyst estimates of $3.60 (21.8% beat)
- Gross Margin (GAAP): 14.5%, up from 14% in the same quarter last year
- Free Cash Flow was -$102 million compared to -$274 million in the previous quarter
- Backlog: $48.5 billion at quarter end, up 3.5% year on year
- Market Capitalization: $11.04 billion
Defense ContractorsDefense contractors typically require technical expertise and government clearance. Companies in this sector can also enjoy long-term contracts with government bodies, leading to more predictable revenues. Combined, these factors create high barriers to entry and can lead to limited competition. Lately, geopolitical tensions–whether it be Russia’s invasion of Ukraine or China’s aggression towards Taiwan–highlight the need for defense spending. On the other hand, demand for these products can ebb and flow with defense budgets and even who is president, as different administrations can have vastly different ideas of how to allocate federal funds.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Regrettably, Huntington Ingalls's sales grew at a mediocre 6.6% compounded annual growth rate over the last five years. This shows it couldn't expand in any major way and is a tough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Huntington Ingalls's annualized revenue growth of 7.2% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.
We can better understand the company's revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Huntington Ingalls's backlog reached $48.5 billion in the latest quarter and was flat over the last two years. Because this number is lower than its revenue growth, we can see the company hasn't secured enough new orders to maintain its growth rate in the future.
This quarter, Huntington Ingalls reported solid year-on-year revenue growth of 6.8%, and its $2.98 billion of revenue outperformed Wall Street's estimates by 4.7%. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months, a deceleration from this quarter.
Operating MarginHuntington Ingalls was profitable over the last five years but held back by its large expense base. It demonstrated mediocre profitability for an industrials business, producing an average operating margin of 6.6%.
Analyzing the trend in its profitability, Huntington Ingalls's annual operating margin might have seen some fluctuations but has generally stayed the same over the last five years, meaning it will take a fundamental shift in the business to change.
In Q2, Huntington Ingalls generated an operating profit margin of 6.3%, in line with the same quarter last year. This indicates the company's overall cost structure has been relatively stable.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Huntington Ingalls's EPS grew at a weak 3.1% compounded annual growth rate over the last five years, lower than its 6.6% annualized revenue growth. However, its operating margin didn't change during this timeframe, telling us non-fundamental factors affected its ultimate earnings.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Huntington Ingalls, its two-year annual EPS growth of 13.7% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.
In Q2, Huntington Ingalls reported EPS at $4.38, up from $3.27 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Huntington Ingalls to perform poorly. Analysts are projecting its EPS of $18.86 in the last year to shrink by 8% to $17.35.
Key Takeaways from Huntington Ingalls's Q2 ResultsWe were impressed by how significantly Huntington Ingalls blew past analysts' revenue expectations this quarter. We were also excited its EPS outperformed Wall Street's estimates. Zooming out, we think this was a great quarter that shareholders will appreciate. The stock remained flat at $281 immediately following the results.
