Key Takeaways
- Huntington Ingalls jumped 10% after third-quarter earnings of $5.48 a share beat the $4.43 expected, and it raised its 2026 shipbuilding revenue guidance.
- After $32.4 billion in new awards, HII has about 90% of its expected shipbuilding revenue through 2030 secured, so execution is now the question.
- The same submarine contracts run through General Dynamics, BWX Technologies and Leonardo DRS.
- Management only reaffirmed its 6.0-6.5% shipbuilding margin guidance, which at the midpoint implies about 6% in the fourth quarter, after the third quarter’s 6.9%.
Huntington Ingalls Industries (HII) soared about 10% this morning on a third-quarter beat. But the bigger news is how much work it has locked in.
The quarter’s $32.4 billion in new awards included Block VI Virginia-class and Build II Columbia-class submarine contracts, shared with Electric Boat, part of General Dynamics (GD). BWX Technologies (BWXT) makes the reactors that power the Virginia class. Leonardo DRS (DRS) supplies Columbia’s electric propulsion.
A Beat and a Raise
- Revenue: $3.54 billion, up 10.8%, against $3.37 billion expected
- Earnings per share: $5.48, against $4.43 expected
- 2026 shipbuilding revenue guidance: raised to $10.5-$10.7 billion, from $10.2-$10.4 billion
CEO Chris Kastner said in HII’s third-quarter release that the awards “have now secured approximately 90 percent of our expected shipbuilding revenue through 2030.”
Analysts expect revenue to climb from $12.5 billion in 2025 to $15.2 billion by 2028:
The raised guidance points to 2026 revenue at or a bit above the $13.4 billion consensus, so estimates should hold.
Now HII Has to Build Them
Kastner said HII’s focus is now “squarely on shipbuilding execution.” Newport News made a good start: its margin rose to 6.9% from 4.9% on Virginia-class contract adjustments and incentives. Ingalls slipped to 6.7% from 7.9% on weaker surface combatant work.
Combined, the shipyards earned 6.9% in the quarter, but only 6.3% for the year so far. Management reaffirmed 6.0-6.5% for the full year, even on higher revenue. At the midpoints, that implies a fourth-quarter margin of about 6%, though the top of the range would allow a repeat of the third quarter.
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The Submarine Money Spreads
The Navy awarded the $76.6 billion in submarine contracts to Electric Boat and Newport News on July 29, after General Dynamics’ second quarter closed. So its report on Friday will be the first to show them. Its Marine Systems revenue rose 10.4% to $4.66 billion in that second quarter. The backlog jump is the number to check.
Leonardo DRS jumped about 11% today on its own third-quarter report. Bookings were led by naval power and propulsion, funded backlog hit a record $5.6 billion, up 21%, and it raised full-year guidance. BWX Technologies’ government revenue rose 2% to $601.3 million in the second quarter, but that segment’s backlog reached $6.8 billion, up from $4.4 billion a year earlier. It reports on Monday, Nov. 2.
What HII Has to Show in February
HII traded at 14x forward earnings at Wednesday’s close, below its five-year average of 16x, and today’s jump takes it to about that average.
The jump is deserved, with HII’s work lined up through 2030. But at an average multiple, more upside needs margins above that 6.0-6.5% guide, and the fourth-quarter report in February will show whether the third quarter’s 6.9% can hold. That report has a second test, too. Free cash flow is negative $182 million so far this year, so HII needs $682 million to $782 million in the fourth quarter alone to hit its reaffirmed $500 million to $600 million target.
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