Huntington Ingalls Industries, Inc. (HII) - 10-Q Summary
Business Context and Reporting Period
This summary covers the quarterly period ended June 30, 2026. HII is the largest U.S. naval shipbuilder, operating through three segments: Ingalls Shipbuilding, Newport News Shipbuilding, and Mission Technologies. The company primarily serves the U.S. Government, with a focus on nuclear and non-nuclear ship design, construction, and overhaul.
Key Financial Metrics (Six Months Ended June 30, 2026)
| Metric | 2026 (YTD) | 2025 (YTD) |
|---|---|---|
| Sales and Service Revenues | $6,517 million | $5,816 million |
| Operating Income | $365 million | $324 million |
| Net Earnings | $357 million | $301 million |
| Diluted EPS | $9.06 | $7.66 |
| Operating Cash Flow | ($421 million) used | $428 million provided |
| Free Cash Flow | ($611 million) used | $268 million provided |
| Cash and Equivalents | $12 million | $343 million (end of prior period) |
| Long-Term Debt | $2,702 million | $2,700 million |
| Total Backlog | $57.3 billion | $53.1 billion |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 12% year-over-year (YTD), driven by higher volumes at Newport News (aircraft carriers, submarines) and Ingalls (amphibious assault ships, surface combatants).
- Profitability: Operating income rose 13% to $365 million. Segment operating income increased 15% to $396 million, with significant gains in Newport News (+19%) and Mission Technologies (+18%).
- Cash Flow Deterioration: Operating cash flow swung from a $428 million inflow in 2025 to a $421 million outflow in 2026. This was primarily due to a $956 million unfavorable change in trade working capital, attributed to the timing of billings across programs.
- Liquidity: Cash and cash equivalents dropped significantly from $774 million at year-end 2025 to $12 million as of June 30, 2026, reflecting the working capital outflow and dividend payments.
- Backlog: Total backlog grew to $57.3 billion, with $34.6 billion funded and $22.7 billion unfunded.
Guidance, Outlook, and Risks
- Outlook: Management expects cash generated from operations, combined with existing borrowing facilities, to be sufficient to service debt and fund operations for at least the next 12 months. Capital expenditures for 2026 are expected to increase due to investments in shipbuilding capacity.
- Government Budget: The FY2027 budget request includes $65.8 billion for shipbuilding procurement. Congressional action is ongoing, with uncertainty regarding the timing of final appropriations.
- Risks and Contingencies:
- Working Capital: Significant cash outflow due to billing timing creates short-term liquidity pressure.
- Legal Proceedings: An antitrust lawsuit regarding a "gentlemen's agreement" on recruiting was settled in March 2026 (liability recorded but not material). An insurance claim regarding COVID-19 business interruption is currently on appeal to the Vermont Supreme Court.
- Quality Issues: Ongoing investigation into welding procedure noncompliance at Newport News; ultimate outcome cannot be predicted.
- Asbestos Litigation: Longstanding claims continue, though costs to date are not material.
- Unusual Items: Net cumulative catch-up revenue adjustments were favorable by $11 million for the six months ended June 30, 2026. This included a $48 million unfavorable adjustment on the USS George Washington (CVN 73) RCOH, partially offset by other favorable adjustments.
Investor Verification Checklist
- Cash Position: Verify the sustainability of operations with only $12 million in cash on hand and negative operating cash flow for the period.
- Working Capital Timing: Assess the specific billing cycles causing the $956 million swing in trade working capital and the expected reversal timeline.
- Debt Covenants: Confirm that the current liquidity position and cash flow trends remain compliant with debt covenants given the low cash balance.
- Backlog Funding: Review the ratio of funded ($34.6B) vs. unfunded ($22.7B) backlog to gauge revenue certainty in the face of potential government budget delays.
- Legal Resolutions: Monitor the status of the Vermont Supreme Court appeal regarding the COVID-19 insurance claim and the resolution of the Newport News welding investigation.