HII - Earnings call transcript Q4 2018 | Huntington Ingalls Industries, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Q4 2018 Huntington Ingalls Industries Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode.

Following management's prepared remarks, we will have a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. It is now my pleasure to turn the conference over to Mr. President Relations. Vice Corporate Blake, of Investor Dwayne Please proceed.

Dwayne Blake

Executive to Hayley. conference Industries Ingalls Business morning, Management and call. Vice Financial Kastner, welcome Good and the Chief President fourth Petters, us and are Huntington and President, today Chris Executive Thanks, With Mike Officer; Officer. quarter Chief XXXX earnings

and SEC factors Mike filings to appendix the results. to on results address materially of refer included of the results are for a slides huntingtoningalls.com, comparable of is today, as the and GAAP presentation website. description non-GAAP Relations Mike during to anticipated over reminder, our the We're Investor and Chris Actual and are metrics of statements to statements measures link call differ. Safe that some As the click certain securities the With forward-looking our provisions the Mike? posted are Also from I'll may on Please access that the call in to a remarks President federal that at Reconciliations to are to to pursuant actual earnings to may the refer considered today's will our in made not cause comments. Harbor planning presentation of Petters. historical turn as our our fact view Please made measures. that, presentation our well website in the release. CEO our posted supplement vary earnings law. these call

Mike Petters

for us today. everyone, thanks and Dwayne. morning, joining Good Thanks, again

put thank year results. XX,XXX helped in and for each every safety, each details us core quality, which you the of cost forth and our the I remaining into produce principles call, employees our the me get another efforts appreciate solid we first of let day. truly of Before steadfast schedule, to of

for higher in billion fourth results, of quarter, Diluted for starting the presentation. the than Sales billion of full-year on the share and $X.X let record quarter awards highlights full-year of EPS the represent $X.X highs for was full-year, were new during and $X.X XXXX. XXXX production and our now billion So for three the approximately and both contracts serial slide me higher contract XX, received for the for and than We for approximately NSC XX% the Guard. some program continuation quarter XXXX financial the the quarter company. the significantly is including which of Coast XX stable $X.XX $XX.XX both

the News of As stabilizes Newport these and January which base workforce, more this billion. of a ships by enables significant for result, at backlog end material contract purchase permits our work announced affordably. than And quantity, at of funded. It in X-ship more and toward over vendors the of step the a efficiently. is states their The $XX approximately more to and billion $XX quarter, fragile and of billion supplier XX phase X,XXX it it the increases a CVN backlog end $XX is the award was approximately XX XX efficiently building contract

to ship were NSC aforementioned we including this contracts and award, the in shipbuilding quarter. captured included and XX the of a that XX addition measures contract the 'XX In and have a portion appropriations and last FY'XX the received six authorization in significant DDG

XX next LPD foundation the for expected support this forming LPDs with combined contracts these to previously, awards to and XX are VCS II future noted the Flight for years. As Block XX V, business

bolt-on XXXX our performance $X report very am This the for employees to pleased Now our have shifting first strategy. $X.X through $X.X of strategic our cash to I a business to allowed of have the our flow path billion and make Technical of we over shipyards, from billion three XXXX. invest business. moment, at Solutions to through billion pension we generated returned expenditures us during acquisitions the strong through in in capital shareholders operating invest XXXX cash that free capital has same contributions deployment in to flow At significant time, years

destroyers, look amphibious Washington, during on Cutters warships government was our partial leverage We lines appropriated to shutdown the last supply current and National were Regarding and XXXX Defense activities in years, cycle had Security nation of production forward serial working legislative the our into with in the to as business high year. warships produce appropriations and the impact measures, the XXXX requires. which Congress prior production enacted minimal to continue including the and authorized chains efficiently predominantly and law our work authorization submarines,

While sequestration hopeful that land two ultimately a support reached we for Defense remains non-Defense remain the discretionary that will law agreement needs. will years, more and budget best of be the

deliver half I'll this the of half team Now the Midgett ship acceptance remains first Paul Ingalls, provide the of first on to on of is business interest to completed expects in in few also this year. year. Ignatius deliver and track on a our At segments. in December points the and NSC-X trails DDG-XXX expected

I mid-year. early the on on complete fall is year. quarter For XXX At approximately pleased R. of the integration XXX together painting hall with team CVN testing on lessons D. this of later of planned trials the In the approximately support is and or erection News, spring in of from complete am focus the support of delivery LHA-X Black XX focused and in XXX of The completing to USS ship. lifts Gerald progress Tripoli, particular, dock Kennedy fourth very plan Newport in in Delbert learned the late and trials ship the of delivery ship joined dry CVN year. DDG are for And this summer structurally expected XX% XX% around XX overall. with launch and and continues the

line and achieving performance on continue Ford and shop performed the and the is assembly the cost increased schedule in manufacturing pre-outfitting work team platen expectations. our allow should that to in with

the preparation to higher Delaware in XXX Newport IV cost Block. XXX in for first Block experienced delivered They submarines, News for by expected the be also For remaining schedule SSN of the was launch the boats boat team Montana, reassess that and in December. completed SSN the than

has the and a additional the taken this for minimize result, to address impacts. Delaware, of the problem These actions in disappointing, a changes while is cumulative remaining schedule team these roughly very cost increased necessary IV and in Montana And net were Block the impacts. adjustment and situation $XX to the EACs boats million As negative fourth the quarter. resulted a

achieve Montana on pressure We complete expect the of second Delaware to in half hull and this deliver year.

return Virginia-class sales we the in return range back Even I to on and May, to be expected return X% XXXX. the with do the for XXXX XXXX. that shipbuilding program, last call QX in to the was X.X%. remain historical During expect X% for X% on And to expect reported shipbuilding the to and step we XXXX commented in to the the XXXX range the sales range for for X% X% in

Technical transition M&O achieved Now of quarter, the a of in the successful turning San Los number contract. availability and the the milestones key including a O'Kane Alamos in Diego of team to Solutions, maintenance the award

operations, and completed the services cybersecurity to key portfolio. customers services, Northern acquisition in last intelligence capabilities provider software that month, of During Maryland-based And a our had the the Virginia-based technology we also GX, significant services federal announced and quarter, solutions fourth solutions Fulcrum an of purchase capabilities advanced IT and agreement company government CXISR, cyber enterprise we area to that cyber. adds a

adding services agencies. capabilities earnings expand the these while relationships includes strengthen are another operations flow allow our cash incrementally as key expected new essential the in customer strategy to grow and our markets in This to that and supporting portfolio. Solutions communities and well in be acquisitions our we customers new security and the us as for to nation Now in And an markets are and these intelligence additional existing accretive defense customers team. have believe future relationships, directly trusted Technical the to partner special and will of these optimize federal

XX for am in business. leverage in and facilities, awards about another with Ingalls, to for our So XXXX predictable investments and I the Strategic year produce stability was risk revenue position capabilities and visibility and flows. contract such to ship multiyear low XX, DDG excited cash long-term X-ship CVN our unique contract closing, us the contract solid six very key a as future Huntington combined people the

and keen addition, on our for Chris? us In focus our over strong and path a And long-term the customers call to employees. I'll our sustainable on Kastner now balance creating on our strategy deployment our financials. the sheet remarks our Chris some execution, solid shareholders, continue keep value for turn to capital

Chris Kastner

for as you XXXX morning. good and well Thanks, quarter with on provide some XXXX. information items will results as Today, Mike, full-year review I our and and fourth consolidated

morning more release and refer detail to segment website. on the the this posted our please to earnings For results, issued

primarily presentation, of due and higher quarter from the driven basis at by of XXXX, consolidated Turning programs lower nuclear partially to in by XXXX, well million operating the support decreased fourth the billion, fourth increased higher higher volumes decreased LPD, XXX margin for revenues risk four lower fourth primarily VCS and program News income million of to our and LHA on services in at or the volumes the VCS Newport Ingalls, quarter of the Ingalls These quarter on aircraft program. cost of as of News. in results quarter decreases offset than X.X% as the over Operating NSC and to navy quarter $XX on program $XXX were points. at the volumes XX.X% carriers DDG $X.X retirement and slide in Newport anticipated X.X%

at higher the Operating increase from full-year volumes more results favorable consolidated lower as program. volumes was margin Adjustment partially by in was well News revenues driven billion ships to in by performance an year offset the partially VCS volumes driven well of XX.X%. and of XX.X% as and were onto margins. income operating on VCS lower $X.X XXXX. The operating primarily margin operating nuclear previously the lower Moving operating amphibious operating operating DDG Newport increases million million NSC FAS/CAS as in at volume program Ingalls navy at was the margin operating on of income Higher income compares increase This support was by for slide by aircraft XXXX. X.X% the $XXX on programs for offset for to driven overall assault the as higher and lower volumes $XXX and Ingalls was five, at carriers by services Newport year, News. the largely This and noted

year, Additionally, $XX decrease interest million to million the prior December for the in year bond $XX expense due XXXX. a refinancing the was from

and were the for impacted tax research quarter for and and the and tax development pension this The income rate for compares rates respectively, and the discretionary XX.X% was full-year, tax XXXX XXXX tax contributions. fourth effects driven by to Taxes effective higher were in rate full-year and XXXX. XXXX Our federal the XX.X% X.X% tax quarter one-time associated estimated in credits lower income for reform US reform by tax XXXX through tax of shares. lower with XX%,

on to in $XXX the slide presentation, $XXX Turning flow from cash quarter free was cash flow six the was cash million. million and operations of

cash our plans of of million of were pension for discretionary For free to $XXX benefit was from of pension and to and cash the flow million and or cash $XXX million $XXX $XXX full-year, million to X.X% plans. XXXX Cash sales. operations or the cash to capital the This million, contributions million. expenditures million from postretirement $XXX year $XXX and operations of Fourth sales $XXX million compares contributions compared quarter $XXX in qualified $XXX free our year, million which was the were were flow in XXXX. X.X%

cost million, approximately X.X approximately December as number a was bringing $XXX at repurchased million of $XX settled of a cost XXXX. total million of the shares in $XXX at we X.X XXXX million which Additionally, quarter the XX, not of yet repurchased in cash shares million, for to of

also dividends the quarter $XXX or year $XX for total million. We paid of bringing to dividends the paid share $X.XX million in per

million. $XX fourth the for GX of cash during we Finally, total acquired quarter, consideration

Now an initially in approximately lower in of CAS $XXX Adjustment is approximately update our FAS/CAS net Adjustment We are higher to favorable slide asset projected rates projected $XXX over let me earnings provide FAS/CAS calls project a million in seven, on turning contributions to in third XXXX. recoveries XXXX, million pension. million and quarter expected on provided XXXX. $XXX million interests XXXX in approximately approximately and year-end update be due returns to CAS XXXX. and $XXX CAS XXXX than

as slide Now eight. let additional with an for on me provide update some XXXX you items shown

to $XX expense million be be expected expense and sales year $X approximately is tax X% the million to in is income tax state expected for as Also, of our and $XXX and non-current amortization to XX%. to a depreciation percent income range be to to between rate million the expected X%. is the expect capital We expenditures be and $XX approximately million. approximately be Interest effective

we between expect now $X.X Additionally, X% of be X% and XXXX to between capital XXXX billion our and expect expenditures and sales capital XXXX. be We expenditures $X.X in between to billion.

a to the of to to As expected back X.X% remarks. That sales historical turn return of are capital call in I'll expenditures my reminder, XXXX. Q&A. over the level concludes Dwayne for approximately

Dwayne Blake

Chris. Thanks,

reminder call, limit one follow-up. please one yourself a everyone initial the to question on As to and

through it you get the will over many manage Q&A. to as the can as turn we people to So I queue Hayley, possible.

Operator

Walton of Myles [Operator Instructions] Our from first question UBS. is

open. now is line Your

Myles Walton

you're accordingly? in rates? of IV? transition bounded that result have sort you've of VCS? And founded new contract issue? much And, colors Block EAC like these some much the kind issue, as -- obviously, IV? the of give But result a was result the recovered again, of from of adjusted was us called you sounds structure Just some It the that of which of How summer, on Hey, a us bridging you've much hoping moving also the And of this in you much how Block Mike, at of kind how how I that late -- to is on give touch two. of the the increase delivery the assurance you've contracts? that experiencing the could you're was kind that

Mike Petters

and start the issues. to rates I'll I'll Chris then maybe let talk Yeah,

that that for wanted no quality We And to launch, time. launch we to least a our to there Delaware, ship we was pressure. principle before launch and to have as of where to launch on both started cost my you core a sort heading recognize there its approach a of we up at get as ship be should career were schedule on is, to

we So don't until launch ready. we're

-- and step mean to our ship for when So risk not this Delaware Block say something had of just that back we launch that the root is we do what in particular IV. when and delayed, last is the Block is that of were there register to in program on and we causes us, III. got But what account the

go it's our very But routine is in quarter. And the EAC a process process is a that so process management very also every disciplined. -- we risk process that through very,

Block reflect And so as we in registers went through that process, we recognized that the we that for needed to IV. risk

And We The we is Block that excited they Delaware, about as News the adjusted I that accounted is. that we experience the go the recognize So through we approach did team future and a Newport believe of both negotiations the the that. also I'm they program is submarine is We they we're adjustment for it. program also of got V. challenge ongoing forward. to took Block get we absolutely IV. for having -- in program how feel here rather bounded. confident in about where recognize And problem but very at the pretty also

future. that -- this program about the routine it is between So the was I'm us that I'm Block to why does. confident caught shows the and it that's where of Block that up in a very on IV, going kind adjustment But and go way III so cusp is

Myles Walton

a in you coming look And two post a case more Post things decline an terms is level? gave XXXX, company the in contributions or neutralized? CAS the cash deck net then, of the required XXXX after Chris, pension those showing on you're the in the CapEx recovery contributions are less of In What color towards and CAS. normalized back us XXXX? the uptick like by

Chris Kastner

Yeah.

'XX, So all to not course. they at start providing that planning Trying and standpoint to definitely comfortable data and a I'm of wind for equal, XXXX down 'XX you subsequent 'XX normalize a sure point. contribution being FAS/CAS from bit. to things get this

Operator

Thank you.

Doug comes Bernstein. of next from question Harned Our

Your is now open. line

Doug Harned

you're the Lucas Stevens. -- Ingalls -- been stages in to good minute. up wanted Jack and on you've the to you're the at and Ingalls for I go The just the getting Ted of margins a just ramping early

think So III? boats, transition margin we to how as you should get trajectory into these about that III Flight Flight with the

Chris Kastner

prepared we're Mike We're XXXX, in indicated comfortable X% III sales ships the -- the Flight on as III return on Flight remarks, that still his returning in are and boats mix. or

comfortable comfortable with sales that return on So those we're and projection. we're are with ships starting how X%

Mike Petters

little just on expand Doug. that, go Yeah, I'd maybe

Kennedy now, behind You across whole beginning of more on build. we're Newport we're very have launch and at Block know, Kennedy negotiating adding at We're two up Block the to will -- we're now the News. carriers we we contract business to be the V IV starting but we're

coming -- We of the News. the destroyers Ingalls, the planning We're refueling second business have we the contract steady next and Newport under of now refueling to a at have half XX At the refueling. beginning through will build. phase for beginning

in first in the be and contract production the registers there other be business, of and the just good be though across comfortable We will the we would whole more be II that We're pieces a of are a NSC that. that going place into that across to expanding range. of be And next of be lines two going would signed into registers pretty backlog the there Flight for above feel of that it, -- pretty XX. back to we're are NCSs, level, XX% to XX whole and we year going risk And that's the -- is we'll the where are we there's programs the at ship a we are because negotiating And were LPDs place business, the then hot. where risk to are that in even X% -- getting all a pieces range won't our be place dramatically. business a

range ship rate be pretty blended this going a that we're excited very even it was order going that you expanding we're Whether and in way the healthy as we quickly short to it play as we order, to see exactly very X% that believe short is XX% In about know, out, at So that. happen is. that's backlog in building. the though to

when in shipbuilding see. to we'll team is exciting time So now. seen execute cut the I've book and the The in I've are good can is But get orders. orders this most said gets the this really and that those go it close

Doug Harned

ships talking needs acquisitions then that And space lot the IT scale for the here space we've cost is for of that seen market. you little larger the by in some really done to a bit consolidation and arguments you've the players in and of both recently. government What

you companies. space? you the you're need really size together scale of pull as well think the so you many the mean I mean about large of how I to successful? in at these at Or you that what's And feel competing you these are do you other scale would below make do think that

Mike Petters

Yes Doug. good question

issue analytics partner new understand that that can that the to become that to and in about made. then need for capabilities rigorous build both cybersecurity taken those being the brought post you this record a In when that our enough what full-term that the pretty future. don't believe that capability that or same I that think they in to just We scale you been preferred successful going that. space customers we've just customer Kimball capabilities without be those we go we've selective business. I customer. look through And the we navy exactly think don't and going go so we we by GX whether customers has well because understand can in for capabilities customer and And of of are and things of those gone and what pretty we are at they we need I we've it the But evaluation for kind been where are several way. on acquired then decades are data be invest to it's smart. may the

you're and create about have have you've they excited think with customers intimate customer to a think time because I to about helps got need going and foundation they the figure partner. over And that business. to become to more be intimate when going to to they going it them capabilities that what much then become the need. to out more how we capabilities And her successful have the approach a be we're so to these services to go you're it we interested talking of that's be very us that

Operator

next Carter Research. from Our question comes of Melius Copeland

Carter Copeland

block probably that the answer can forward booking is cash just of ones a both for just quick us? aware then you should and were four significance lower that represented your guys sounds question we if into of? on the elements explaining two rate of One be thinking Myles QX Anything like should exit for versus any whatnot some and there it Chris. Just flow And XXXX? we good various Mike XXXX be confirm on DCS on pull secondly to working capital

Chris Kastner

Yes so handle one first. the last I'll

program. we was to stuff the working have really cash give so to the quarter but a working did working expecting to testament weren't its it maximize for capital DCS team sure. early paid you year that positive handle receivables bookings on and we payables. that a both capital in that we And Mike that over some the don't want ensure So and we did QX good Grad specifically the have we

Mike Petters

a, program say was this for for block for the this the X sides I would for relatively is a that. of small this size adjustment mean I

Carter Copeland

think big cash of on good we in you was? us how if some flow help the Chris news quantify Okay QX could that should

Chris Kastner

of at the hard the to team working very right very, can between think $XXX year in the you million because came that it. Yes is $XXX at of million end

Operator

Suisse. Our next question Credit of comes Spingarn Rob from

Rob Spingarn

beyond the bit next then this could the can and what that about but about if just think you, CapEx? in the Carter little us growth to the as Chris segment? in a year on XXXX? takes pension from should adjustments give the separately EIS various we year and on forward talk word into puts And you How given trend Following you

Chris Kastner

So XX free of was a type flow was of gross do Positive a cash and on and this XX that XX. of XX. call at and standpoint negative you factors was give net a what cash I you Ingalls various From the News nonrecurring intended HII I'll negative positive all give first. this Newport to the influence year items.

So depreciation amortization you capital you know related. as have net a pension And working you else lumpy. in seen capital cash is and as then just saw everything may that's timing and QX bit be

So hopefully cash understand more you where you given within corporation. can how I've a flow information

Rob Spingarn

we should early years up the XXXX In that other words of then from to part of XXXX you at it works over you of be and QX year? end strong some you XXXX. another the have the the similar in But expect catch

Chris Kastner

that hard happens. going very work ensure to We're to

Operator

Citi. from Our of comes next Raviv Jon question

Jon Raviv

little Sorry to more a cash keep flow specific. this on maybe but question just

think to on to of I of some you of of went that call free in at expect that couple level the in say specific maybe million levels such away. next side year cash the CapEx of years the tailwinds last flow the and be through XXXX? the able that pension? of sort all Pension beginning that Ratings cash cash in headwind the at moved having of in the talked about implied cash $XXX in free XXXX year you've

Chris Kastner

it's give that what we as provide really question. make I residential I I you with I to information Jonathan would flow. rather And do you be provided. there my XXXX. that all you the thoughts the know to to you don't probably appreciate I to tried But components can get that prepared give cash not and think directional is the up Yes going how relative

Jon Raviv

down a have a in XXXX a in level sustainability. all previously? at able then normalized what terms while new the claim Okay kind you started and you X% being given some business extent this been risk now Mike you've adjusted for backlog some or almost up were XX%. or that at I and even build you and about risk of your point again talked going talked of which that of not about the To that up to to is you have base follow-up flattish and

Chris Kastner

apologize not I hear very Jonathan did you i And well.

think subsequent with this CAGR still had we then about in This of don't Chris really obviously expect Los growth. tailwind that we will obviously Angeles through I But are X% pretty the is potentially. 'XX. submarine good XXXX and XXXX Mike year. was And finish question that we continue XXXX. can don't chime because confident to work

those sort So shipbuilding. still growth that years with of we're comfortable feel in rates for

Mike Petters

a large years. decade the going a XX persistent politically. to able immune be able going have for Lead back and where what's to to not just talk and we'll is in we rate have actually And that happen to but buy is to pretty going just is put growth to blow growth five out might to that persistent I of would about the under go find us and be in beyond be talk that that's to backlog work shipbuilding contract across what X% a place that years we're winds some a going

foundation us the very spot. So customer we a terms confidence that in our of unique gives business a our puts lot core of think us of with that in

Operator

Our from George Research. Shapiro comes of next question Shapiro

George Shapiro

negative year that Chris the on DCS. million the that we this is right or had Newport for expect from exclude the if low adjustment what I $XX about that you Is a should have X%. quarter's been in side? I you would heard If

Chris Kastner

on we at as Well achieve Obviously will quarter. News margin ups in a of run that's ship Newport yards. milestones there be the for sort opportunities for getting rate for a return sales on step both

So we about return think is the year. well how not on run sales within it rate that's

George Shapiro

us I I Yes Newport right it adjustments remind that XXXX. had thought because you net got mentioned in

the out adjustments the a is you get XXXX can et Newport News? roughly of cetera? then what underlying And on base this rate for So EAC taking kind do you as question of

Chris Kastner

that's think there George. I

George Shapiro

all talked X% of Or sales carriers there seem stuff? for getting then growth the that the be from incremental business business past assumed Mike. the you got? the in is and that you've Okay know Ford two and to about you had The

Mike Petters

for we think being The when carrier I contract was talked two but Yes uncertain X% point. was at not the destroyer instance was that about uncertain. piece first that I the talked think about

are I we're now like along that very of that frankly as confident we'd more. that because move There out think about work the things we've are we could there the help that where to X% captured. see this some

if right we you also we've you phase Carriers there do got can LHA in can out LHA LHA do out get can We've for way because got LHAs. X. a phase in that do for a If back LHA we very as perspective Aircraft instance do of and for and can nine got phase. ship do it's you to the by out from figure and as by program ship a But And are a XX LHA not shipbuilding to now. seven they efficiently are two

So in we've get those got to phase. to

the best would build multiyear two LPDs. remains to that to move way contract. LPS The negotiating flight We're the of flight be seen. contract a be to So first two to

do go to that. need we So

view. and enhance our would So out is there are that the view out enhance that there frigate those program our things will

we're So around this as done to still because of as be the we've work that we saw doing efficient there of we while to defied the out X% try can. more

George Shapiro

I little Or you there follow-up, were foresee? that what mean was how quick can than caused that? X% so the one this given didn't if just further? you much year in unique higher growth then items a And explain There

Mike Petters

we Yes by had was in George XXXX. availabilities class submarine the News that three boats Newport LA the that driven in

Operator

Our Vertical Research Partners. Sinha next from Krishna question comes of

Krishna Sinha

some safe want you MTV the I through of ships period something also December what Can the think And over just about for opportunity think X for like see revenues on the revenues? and to you're those $XXX sub Chief talk then flow period $XXX have I contract over late a recently million. going work how you for in those million for operations. option time you Naval

Chris Kastner

previously quarter gave entirely of relative perspective awards the you're awards all to all But in I not Mike growth we the sure I'm the rate. the the fourth apologize. had that and referencing the

Krishna Sinha

sort down the MRO are But on maintenance the So be for other of coming particularly any off. that you seeing LA rate? sort comes but you're hoc it and work. not on could any I that growth class and work ad or seeing incremental pipe that to the incremental of any know opportunity

Mike Petters

sort do were bigger of the their But I dynamics what pop-ups of that how can't now is There's talk we the discussion think that The to going forward. is to were terms that strategically. terms resources that as space of going about. of class We're what talked do maintenance to strategic available industry do. towards the readiness, also after in they been about those that. able a readiness we of they've very certainly there in point LA talking business. with in the to they actually that impact challenge Navy particular Well might been but premature try to our is try that were more it's engaged we forecast about right more issue with a at on they've do this And the we example moved have an around whole our Navy how

of and sort I the been that has that and space historically challenge So it it. of of think the unpredictability volatility of the

So going that right between I government the the on the now. is and industry think discussion

efficient would some of then not able we're project the our how a on if to more which drive can into start really we that But our into volatility. do So out And do to ahead. that can now. that right this way we we look do do

Krishna Sinha

if we If business exclude flow basis. final pension just just just business? on noisy's this we and sort a this. CapEx. from look it's of curious cash some harping is from point. harmonize then pension But And flow at cash cash maybe to expect everybody's normalized of like free free going a sort normalize perspective I'm your Like kind of the metric what's on flow, one we go-forward can that one on What's free this the for obviously one underlying

Chris Kastner

all apologize what top be provide and addition the so do Yes give we're and What tax on we we be. going you think sales rates I I've cash. standpoint is And that impact don't from variables tried going to we the a return that again where line guidance. but to to to provide

I a you But at capital Obviously it the that arrive provided or to number fairly on can moves information lumpy information times. think the I I a little around number. reasonable can on. you count with at working I get with you So based that can fairly bit a consistent in can be think provided

Operator

of comes next Epstein Bank America. Our question from Ron of

Ron Epstein

questions. growth revenue Back question. quick the of to couple A

seems do possibly low possibly that the seems won that question. could mean of first business the because how guess and hit that could better kind not question than everybody's you it up you've the I X% you I think I one. just that? That's I Largely mean number really is that? with you the right? how win could business not scratching

Chris Kastner

there can And within same boats the There's better be it consistently time. build answer you Well perfectly I this so go are is Ron many if shipyard. Chris. things but constraints a said have the you could only at

for as So our orders they and if is space. immediate within sales stability growth. it's these provide provide for get business not they amazing do we What

as So show in not sales margin. up if it's it and immediately

Ron Epstein

then And margins go carriers XX? about the asked mean from when we but I if think not CVN how to or on again think that ask I it we this two as don't was XX should I'll if it maybe we

Chris Kastner

to here Well I XXXX. think carry certainly us a we've to that's got going out contract

retired disciplined us before very we've point. at register actually all we the process this the making historic of along retire And large we have come it. for a this that advantages pretty sure we as risk are So with don't and

the through in first to here class. you going that happens third are the what really ship as the is be going ship Now it's

opportunities you're ship. able X. so have that going a the of high decide not take you've that's from advantage first be where learned on you'll the And maybe you'll the risk And what's to and on second ship first to you're risk at

just to programs. curve supposed other XX-year there'll on to as going So be it a we program curve like a on X-year other progression just is it's any a that be a X-year have or curve

Ron Epstein

you. one Got And maybe just just then for one. quick you more Got you.

being On built? are many in CapEx summary resumed outlook how instances are the XXXX

Chris Kastner

the records. current of program That's

that stand the in capital the around the putting And per that with budget to I that one support Virginia-class ship will made if being that we confirm process. the them that. comfortable itself of expanding two to the Columbia two into wanted budget that the kind But that we're I to along the we've a wanted BCS be you we industry rate. a seeing thought per in able we been three line If nation working that. if has Columbia-class about and to the the a going mean rate substantially here loud three today we're adding production would be add capital. to submarine require and is or program. so option things think They're the ships the capital. through and were We're with and discussion positioned that feel won't submarines or to on back they program. require on them add Discussions it rate submarines to we not stream support year program. Then go them ready way and decide think as they future well that the to ship are a build not to more would investments discussion Virginia-class a as as that's another very just question the go in. even well some capital sort we and be extreme to just there support But year build our other pretty handle of delivery the go been submarines That to Virginia-class more probably to really be

Operator

comes JPMorgan. of from question Douglas next Harned Our

UnidentifiedAnalyst

pretty to in to the thinking so this X% on range and into about So at around this way the pieces about at much in kind there just year But for And very I thinking you're getting X.X Ingalls. stock basic. range margin the apologize the XX% moving XXXX. shipyard above coming that of the new And

that carrier the And being margins improving that after offset too much the about allow you the so right the look that you've News Los implies Newport I the to on better guess on as that by absence better cross significantly you it way Virginia work. bring the even think of signed margins the not of X. Angeles to margin for moments margin? And Is contract at

Chris Kastner

this to and way to think stock. the about the welcome think I

brand programs lights. too have of out scars be that just our front we very head I we are to in think gotten new going ship way because the think about businesses building to booked our we've where conservatively is many

tremendous is now in be And so can new where understand risk News. more work of programs. we we are new that we a be conservative to mature is we we programs Where right Very went have aggressive. the we will at amount where Newport

mature there. as so we're at we've pretty production Newport conservative hot pretty News. at And we're And other hand And got result some a being programs lines. on the Ingalls

of a decade. the in making teams accelerate we and exceptionally the of that positioning all next well are they more be that's executing to can where we're into aggressive. programs. across And and place we're So we Both the are our work are that doing they

about And be across mix blended year. all be this so we even taking healthy next very of believe view significant mature that XX% our And case. rest on of that volume very the We've that we since the new Newport left range. the that been to we News expect in of with you in we're shipbuilding still with we've work the in that lines is that taken it ought that to of new consistent in the and the business blended and then a puts work of the a product to X%

that X% expect be XX% range to going that. our next blended year we're in comfortable We is pretty rate to with

XX the to does in So healthy us we're positions place because put excited this next us years. the five about for it where

UnidentifiedAnalyst

then cash it the say the out a flow of quick implies few we cash pulled here just working And I'd quarter even take million Great. into that fourth capital Chris $XXX of kind is contribution positive still on the to follow-up in for XXXX.

at more you're underway? given A neutral kind the some that like and we've capital growth sure make that's more, working front correct? on growing? And of point that since got this And does become a what's to want headwind driving of or Just

Mike Petters

so that increase so does our do with terms customers much. doesn't as we grow good capital Yes I have not we working capital working

all about month. capital end it's of timing what around with working happens So with us the and the

And relative pull to we'll see just forward. XXXX correct the how you're goes. So

Operator

Our next [indiscernible]. comes from question

Unidentified Participant

Couple of questions.

X% we've margins but relative it's some anything think X% color. to on mentioned X? you ship the delivering conservative You history. there many different programs year this Just kind how to Is this margin upon up remind you And how of I'd last about you appreciate obviously you're that the this year seen year. are I Can typically year? guys have compares on us of move range delivery.

Chris Kastner

So angles then we have five ship NSC-X. LHA deliveries we for have DDGs Delaware and seven two and

course evaluate of to additional we those if So it's book we'll registers when be over have ships and we opportunity some going risk delivers normal an margin. when

Unidentified Participant

what Avondale you've we Okay her announced being sort look to talked it it our actual the terms plus in Chris now was you understanding nonrecurring many, of of out value you also But question us behind has and whether I that's dollar been mean year cash XXXX XXXX? flow bleeds past when in of times. obviously into maybe many refresh recovery XXXX. about last in Could then a and

Chris Kastner

We've is Avondale Sure. that. behind recovered is now.

information. from AR that But I think get into did you related that an Avondale. went was we $XX the to inventory million

is that's the fully restructuring So covered. in is the absolutely behind saw and that us we facility

Unidentified Participant

Okay.

changes? and in the something plus year-to-year year-to-year The tax contribution. about working ex $XXX CapEx I because versus the million a increase million in wanted dynamic CAS just mismatching $XXX working identified and rate fair slight putting there's together that in pension recovery cash million XXXX. in the sling range capital like cash just contribution all may $XXX Is to It's you've between flow clear confusion. the bit So it things capital versus think that is increase little in the ex QX some the be looks the

Chris Kastner

XXXX Yes 'XX I'll will not we have I've comment on that's IRS. cash settle the out to book or going would I going. the you the information with tax, agreement tax the all when get that it's think will rate given on tax where not we

So I'm being too by here punished information unfortunately. giving

that all flow. cash you factors So the I tried to give influence

estimate working saw reasonable I capital effect You XXXX. XXXX. there's XXXX information enough you a and that potential add happens and XXXX think for can in And derive that for what to in for

Unidentified Participant

Last XX one me any of a for of the kind way. commentary give was on source variance you on of that either sort any EICs in quarter? CVN as whether And

Mike Petters

pleased We're material. Nothing progressing. is with how XX

Chris Kastner

earlier Right. for yes that and and the set persistent at by quite done. a They've XXXX. holding up encouraged pretty get moving we've been ship XXXX target for program steady been as launch we've while achieving We're launching and things they this team been the it's from need been into packet line achieve the to a now.

becomes that business. the behind So of now I more program is really importantly foundation with key together. for the more important And a even future two it think coming

Operator

Strauss David Barclays. comes question next from Our from

David Strauss

on of up launch. that Kenny Following in terms the

guess or So is occurs and launch in occur in as And factor guidance margins a swing you guys margins? it your not? XXXX or terms I that X% margin that doesn't safe whether and how of X% that assume XXXX assuming are of to in the to in big

Mike Petters

don't of be. that give projections what we might think specific Yes we

execute then to evaluated. have We it a

XXXX. range going As of not return necessarily things believe we in on for even without to lot to sales the next XX% can year. we get launch X% There's a on

David Strauss

the last were Like seem it but were recovery call that on CAS idea CAS off. you Chris. an I on it will they Question don't drop tempering think Okay. seems like on

sounded And in you that in You recovery our or we off about of CAS result performance another like were drop about from talking that focus a off drop term? levels pretty but we're XXXX seeing XXXX. number potentially call the XXXX big prior do in the big think how XXXX it here is and CAS longer

Chris Kastner

XXXX beyond contributions. a asset than FAS thought you should and does driven you by a give bit metering rates I'll and returns. a Yes less bit along and in down see 'XX that and discount down it little we 'XX But 'XX. come with 'XX

Operator

Our Joseph comes next DeNardi Stifel. of from question

Joseph DeNardi

anyway? for for block five program for Chris. accounting one in XX quick a Just Does effective the CVN the for have you

Chris Kastner

No.

Joseph DeNardi

Mike average? the part then healthy based have think on now. margin CVN be below have dilutive margin five But up the you're as better can just actually a you've remarks accretive of coming maybe how margin average into being from shipyard whether sight you when on obviously better line X than years average you of with XX% a wondering or of non actually of into And be that. that lot Okay. a X% margins it line or I'm can kind that sight if talked of bit on the period block I could to about I'm little than go this kind of few-year four

Mike Petters

will if indicate Yes. I view we're interesting that is is get too Frankly work. we XX% the that the not above question. would, range backfilling my what that far

to it It's And really while good not good exactly the really got would you so healthiest because for number. be. feel you a place

And focus so our our registered risk will intent be getting the retire.

these we that to can a to If that optimize keep backfill continue going in So that importantly late we so on work different hard we to But the added we will. were more the try to programs. the we're be return range. have we outlook healthy at point see working

Operator

comments. would any And further it's Mike to over questions. showing to it like I and I'm President no closing a Petters, for time turn CEO

Mike Petters

the for in you thank we Well all business. interest your

business. your the of focus today to full you. execution happening future. appreciate continue interest work We and the our seeing that's and Thank you to range and look on in time the We we forward across your

Operator

Ladies Everyone disconnect. gentlemen as of in and program may today's the you day. have now and This a for conference. you thank participating test great

Huntington Ingalls Industries (HII) 14 Feb 192018 Q4 Earnings call transcript