Huntington Ingalls Industries, Inc. (NYSE:HII) Q4 2022 Earnings Call Transcript

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Seth Seifman: Just maybe to follow up on that — good morning. Maybe to follow up on that question, Tom, you talked about Newport News being in the low 6s for 2022 and 2021. I know you guys don’t typically guide segment margins. But if we are just to think kind of maybe qualitatively, overall Shipbuilding margins should be up 10 basis points to 20 basis points at the midpoint of the guidance. Does that mean there’s a little bit of improvement in each yard or given the way that some of the one-timers or some of the potential upside associated with the milestones that you are expecting at the shipyards. Is there opportunity for more expansion import news and maybe some headwinds in Ingalls? How do we think about that for this year?

Chris Kastner: So I will start and then Tom can get into the details and thank you for saying we don’t guide by shipyards. We don’t do that. But I firmly expect Newport News will be better this year. I think they are executing their operating system very well. I think labor is more stable. I think the supply chain is more stable. I think the team has some momentum and I think Newport News is going to do better this year. So, with that, Thomas, you want to add anything about Ingalls, I think, they are pretty stable as well.

Tom Stiehle: I am with you that we don’t guide by division, but from a historical perspective, things 10.5, 11, 11.1 for the last three years, they have the same portfolio basically done there finding labor overheads, the pressures that we talked about, but very strong operating team, a leadership. They know what they are building, those ships are under production. So I would think historically, they are going to continue perform well. And I think from a Newport News perspective, as they just fight it way through here, new technology started with Ford and now Colombia. We had that booking we talked about back in 2020, a little bit of COVID pressure, inflation, supply chain and hiring. But you can see some stabilization both in the performance over the last two years. We see stabilization and some stability in hiring and the schedule here and our expectation is that that yard can perform better. So I would expect that to increase as we go forward in the year here too.

Seth Seifman: Okay. Great. Great. And then maybe to follow up real quick on a similar type of question on Mission Technology, I think you said, the EBITDA margin there ex the valuation allowance was like 8.6% in 2022 and so what’s driving it down in 2023?

Tom Stiehle: We are probably just being conservative on the guide. So we had a 6.6% quarter with the impairment out of it, it was 8.3%. We have had quarters at Mission Technology anywhere from the low 8s to the low 9s. Last year was 8.6%. And as I said, adjusted it — was unadjusted was 8% to 8.6% right now. So I think it’s just a function of net sales base. We have fixed and semi-variable costs there. It’s a good sized operation. We think we have the right people on board with the right strategy. The pipeline has grown year-over-year and the pipeline is more mature. And I think with the Mission Technologies integration into the HII family, with that behind us, as I mentioned in my notes, it was done under budget and is on time.

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