One-Time Costs to Hurt Huntington Ingalls (HII) in Q3 Earnings?

Huntington Ingalls Industries, Inc. HII is set to report third-quarter 2021 results on Nov 4, before market open.

In the trailing four quarters, this military shipbuilder came up with an earnings surprise of 25.45%, on average.  The company’s Technical Solutions segment is likely to have hurt its third-quarter revenues.

Let’s discuss how things have shaped up prior to the announcement.

Mixed Segmental Performance

Segment-wise, revenue expectations from Huntington Ingalls’ Newport News unit, which generates more than 50% of the company’s total revenues, along with Ingalls Shipbuilding unit, remain solid.

Huntington Ingalls Industries, Inc. Price and EPS Surprise

Huntington Ingalls Industries, Inc. price-eps-surprise | Huntington Ingalls Industries, Inc. Quote

Increased volumes in aircraft carrier construction and submarine construction, as well as increased fleet support services, are projected to have boosted the top-line performance of the company’s Newport News business division.

The Zacks Consensus Estimate for third-quarter revenues at Newport News is pegged at $1,392 million, implying a 2.5% improvement from the year-ago quarter’s reported figure.

Solid revenue contributions from the DDG program and amphibious assault ships must have led to revenue growth for the Ingalls Shipbuilding division.

The Zacks Consensus Estimate for third-quarter revenues of the Ingalls Shipbuilding division is pegged at $689 million, indicating a 2.1% improvement from the figure reported in the year-ago quarter.

However, expectations for the Technical Solutions unit remain bleak. Factors like the divestiture of the oil and gas business as well as lower volumes in unmanned systems are expected to have impacted the performance of this unit in the soon-to-be-reported quarter.

The Zacks Consensus Estimate for third-quarter revenues of the Technical Solutions division is pegged at $255 million, indicating a 20.3% plunge from the figure reported in the year-ago quarter.

Therefore, the revenue decline expected from the Technical Solutions business might have outweighed the positive revenue impacts of the other two divisions, thereby impacting Huntington Ingalls’ overall revenue performance in the third quarter. The Zacks Consensus Estimate for third-quarter revenues is pegged at $2.31 billion, implying a slip of 0.4% from the year-ago quarter’s reported figure.

Earnings Expectation

As stated on the company’s second-quarter 2021earnings call Huntington Ingalls is slated to incur approximately $25 million of one-time pre-tax transaction and financing-related expenses in 2021 related to the acquisition of Alion.

Since this transaction was completed during the third quarter, the company is likely to have incurred a major portion of the aforementioned expenses this time around. It must have impacted Huntington Ingalls’ bottom-line performance in the third quarter.

Also, poor revenue performance might have unfavorably impacted the quarterly earnings.

The Zacks Consensus Estimate for third-quarter earnings per share is pegged at $3.21, implying a decline of 41.1% from the year-ago quarter’s reported figure.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Huntington Ingalls this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But this is not the case here.

Earnings ESP: The company’s Earnings ESP is +3.59%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Huntington Ingalls carries a Zacks Rank #2, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Another Stock to Consider

Here is another defense company that you may want to consider, as it has the right combination of elements to post an earnings beat this season:

Transdigm Group TDG has an Earnings ESP of +0.36% and a Zacks Rank #2.

Recent Defense Releases

L3Harris Technologies, Inc.’s LHX third-quarter 2021 adjusted earnings came in at $3.21 per share, which surpassed the Zacks Consensus Estimate of $3.16 by 1.6%. The bottom line also increased 13% from the year-ago quarter’s $2.84.

Raytheon Technologies Corporation’s RTX third-quarter 2021 adjusted earnings per share (EPS) of $1.26 outpaced the Zacks Consensus Estimate of $1.07 by 17.8%.

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Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.