Huntington Ingalls Industries Q1 Earnings Call Highlights

Key Points

• HII reported Q1 sales of $3.1 billion and diluted EPS of $3.79, with consolidated revenue up 13.4% and shipbuilding revenue up 17.6% to $2.4 billion, though segment operating margin fell to 5.6% from 6.3% a year earlier.
• Management said Q1 contract awards totaled $4 billion, reaffirmed full‑year 2026 guidance and guided Q2 shipbuilding revenue ≈$2.4 billion (margin 5.7%–6%), while expecting Virginia‑ and Columbia‑class submarine contract activity in Q2 and noting free‑cash‑flow variability tied to award timing and working capital.
• HII is boosting investments in autonomous/unmanned capabilities and Mission Technologies won positions on large multi‑award programs plus a new $500 million DoD cyber/data‑mesh contract, while operationally targeting ~15% throughput improvement, hiring >1,600 shipbuilders and expanding distributed shipbuilding (outsourcing hours +30% y/y).

Huntington Ingalls Industries NYSE: HII reported first-quarter 2026 sales of $3.1 billion and diluted earnings per share of $3.79, as the company pointed to higher shipbuilding volumes and continued demand across its portfolio. Segment results showed year-over-year revenue growth in all three divisions, while operating margins declined from the prior-year period.

First-quarter results and contract activity

President and CEO Chris Kastner said HII delivered “another strong quarter of shipbuilding sales growth at 18% year-over-year,” which he attributed to a focus on increasing throughput in its shipyards and broader efforts to rebuild the U.S. maritime industrial base. Kastner said first-quarter contract awards totaled $4 billion.

Chief Financial Officer Tom Stiehle reported consolidated revenue increased 13.4% from the prior-year period, driven by particularly strong growth at both shipyards. Shipbuilding revenue rose 17.6% year over year to $2.4 billion, “modestly ahead” of the $2.3 billion guidance previously provided for the quarter. Mission Technologies revenue was $748 million, up 1.8% year over year.

Segment operating income for the quarter was $172 million, with a segment operating margin of 5.6%, compared with 6.3% in the first quarter of 2025. Consolidated operating income was $155 million, down from $161 million a year earlier, which Stiehle said was driven by higher non-current state income taxes.

Shipbuilding milestones across Ingalls and Newport News

At Ingalls Shipbuilding, Kastner highlighted multiple program milestones during the quarter, including stern release on LPD 31 USS Pittsburgh, keel laying for LPD 32 USS Philadelphia, and loading JP-5 fuel on LHA 8 Bougainville. He said HII continued test progress on LPD 30 Harrisburg, which the company expects to deliver later this year.

Kastner also noted progress on the destroyer program following the delivery of DDG 128 Ted Stevens late last year. He said HII loaded fuel on DDG 129 Jeremiah Denton, launched DDG 131 George M. Neal, and achieved stern release on DDG 133 Sam Nunn. The company also loaded main machinery on DDG 135 Thad Cochran and received the first two “units in yard” from distributed shipbuilding partners on DDG 137 John F. Lehman.

At Newport News Shipbuilding, Executive Vice President and President Kari Wilkinson said the yard successfully completed builder sea trials of CVN 79 John F. Kennedy and remains focused on preparing for acceptance trials later this year. Wilkinson said CVN 80 Enterprise is “over 50% erected” in Dry Dock 12, while CVN 81 units are moving through steel fabrication and outfitting in support of keel laying later this year.

On submarines, Wilkinson said the company completed sea trials and redelivery of SSN 796 USS New Jersey after post-shakedown availability, and remains focused on getting SSN 800 Arkansas to sea and delivering later this year.

During Q&A, Kastner provided an update on the company’s milestone outlook, citing delivery expectations for LPD 30 in the back half of 2026, CVN 79 acceptance still “on schedule,” and SSN 800 delivery “towards the back half of the year,” adding that 2027 milestones are “all on schedule.”

Mission Technologies awards and autonomous investment

Kastner said Mission Technologies posted “another quarter of strong sales” at $748 million and described a “robust opportunity pipeline.” He said the division was awarded positions on the $25 billion ceiling Advanced Technology Support Program microelectronics multi-award contract and the $151 billion ceiling Missile Defense Agency SHIELD multi-award contract. Kastner also said HII secured a new $500 million contract to expand cyber defense and data mesh solutions for the Department of Defense.

He added that HII is increasing investment in its autonomous solutions portfolio, citing government acquisition approaches that emphasize corporate investment and demonstration ahead of formal contract awards. Kastner said HII has multiple autonomous vessels in production and is extending the capabilities of its Odyssey autonomy software “in strategic partnership with leading AI companies.”

Asked about the timeline for unmanned awards, Kastner said he does not expect the opportunity to be “immediate,” but he expects it to ramp over the next few years, saying investors will see “material growth in the unmanned business for HII.” He also referenced the MUSV program as an opportunity “right in front of us,” while declining to discuss ongoing competitions in detail.

Operational initiatives: throughput, hiring, and distributed shipbuilding

Kastner said HII remains on plan to achieve approximately 15% throughput improvement for full-year 2026. He said the company hired more than 1,600 shipbuilders in the first quarter and graduated nearly 200 apprentices this year, with apprentice schools now at full enrollment.

On the company’s distributed shipbuilding strategy, Kastner said HII is on track to grow outsourcing hours by 30% year over year in 2026, as it seeks to expand capacity across a “trusted industrial base network.” Wilkinson said the Charleston, South Carolina facility acquired in January 2025 contributed nearly half a million earned hours of progress in its first year as Newport News Shipbuilding Charleston Operations, and that the 2026 plan is to double Charleston throughput, including more fully outfitted units ready for integration.

Bank of America’s Ron Epstein asked about the memorandum of agreement with Hyundai. Kastner said HII continues to engage in discussions and evaluate potential, but “we don’t see them in the network right now for this year,” adding the relationship could provide upside if the parties jointly invest in manufacturing footprint and could also yield efficiency gains.

Guidance reaffirmed; contract awards expected in second quarter

Stiehle said HII reaffirmed all guidance elements for 2026 and its medium-term outlook. He noted that the company continues to view the new battleship and frigate programs as “meaningful upside opportunities” to the medium-term outlook, but said HII needs additional details before including them in guidance.

For the second quarter, the company guided to:

• Shipbuilding revenue of approximately $2.4 billion and shipbuilding operating margin between 5.7% and 6%
• Mission Technologies revenue of approximately $750 million and operating margin of approximately 4%, inclusive of strategic investments in unmanned capability and production capacity
• Free cash flow between negative $100 million and positive $100 million

Stiehle said the second-quarter free cash flow outlook reflects variability tied to the timing of a submarine contract award, working capital movement, and capital expenditure timing. He also said it is “prudent” to use a 21% effective tax rate for the second quarter, while reaffirming expectations for an approximately 17% rate for full-year 2026 due to an expected research and development tax credit later in the year.

On submarine contracting, Kastner said HII is making good progress on Virginia-class Block VI and the next Columbia-class contract, with awards expected in the second quarter. Responding to questions about timing and outlook impacts, Stiehle said the contract modification is a factor in second-quarter guidance, but the precise impact on margin and cash will depend on timing and the speed of processing the modification through the system.

Analysts also asked about amphibious ship schedules and Ingalls profitability. Kastner said issues on LHA 8 were tied to challenges in the test program and new systems, though he said testing had recently improved. He said he remains “very confident” that post-COVID ships will improve margins, and described Ingalls’ first quarter as a “pacing quarter,” noting the company took “minor adjustments” related to LHA 8 risk.

Stiehle said shipbuilding revenue growth is expected to be “fairly linear” through the year, and said the company does not expect a revenue contraction in the back half of 2026. He described the company’s full-year guidance as conservative and said HII wants additional run-rate evidence before raising expectations.

HII ended the quarter with $216 million in cash and approximately $1.9 billion in liquidity. Cash used in operations was $390 million and free cash flow was negative $461 million, which Stiehle said was better than guidance due to stronger collections and some disbursements moving out of the quarter. The company paid a dividend of $1.38 per share, totaling $54 million, and did not repurchase shares during the quarter.

About Huntington Ingalls Industries NYSE: HII

Huntington Ingalls Industries NYSE: HII is America's largest military shipbuilding company and a leading provider of professional services to the U.S. government. Headquartered in Newport News, Virginia, HII designs, constructs and maintains nuclear-powered aircraft carriers, submarines and other complex vessels for the U.S. Navy. The company's products include nuclear aircraft carriers, Virginia-class and Columbia-class submarines, as well as amphibious assault ships, destroyers and cutters.

Established in 2011 as a spin-off from Northrop Grumman's shipbuilding operations, HII traces its heritage to two historic builders: Newport News Shipbuilding, founded in the 19th century, and Ingalls Shipbuilding, founded in 1938.

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