Huntington Ingalls (NYSE: HII ) shares are soaring this morning, buoyed by a positive report on how Q4 earnings surged at the tail end of 2013. Expected to report a $1.19 per share profit on revenues of $1.75 billion, Huntington instead treated investors to a report of $1.82 per share (diluted) earned, and $1.94 billion in revenue, easily exceeding expectations on both fronts.
And that was just the beginning -- or rather the end -- of the good news. As it turns out, pretty much all of 2013 was pretty kind to Huntington. Here's a quick rundown of the highlights for 2013:
- Revenues grew less than 2% to $6.82 billion.
- Operating profit margins rose 220 basis points to 7.5%.
- Net profits were up 79% at $261 million.
- And profits per diluted share did nearly as well -- up 78% to $5.18 per diluted share.
Huntington's business is divided into two main divisions: Ingalls Shipbuilding, which builds smallish warships such as amphibious assault ships, guided missile destroyers, and Coast Guard cutters; and Newport News Shipbuilding, where the company churns out hulking, nuclear-powered vessels such as America's aircraft carriers and ballistic missile submarines.
Of the two, Newport News is by far the more profitable operation, generating operating profit margins of 9.1% last year. Doing so well, the division also had the least room for improvement in 2013, however, and grew its operating profit margin to "only" 9.5%.
In contrast, Ingalls Shipbuilding was a real laggard in 2012, achieving only 3.4% operating profitability. In 2013, it grew that number by leaps and bounds, nearly doubling profitability to a (relatively) sterling 6.3% operating profit margin. Going forward, I'd expect the division to maintain that momentum as it continues churning out Legend-class National Security Cutters, Arleigh Burke-class DDGs, and the new line of America-class mini-aircraft carriers.
One Foolish caveat
The one thing that could derail Ingalls Shipbuilding's resurgence, though, is the fact that earlier this month, the U.S. Coast Guard cut Huntington out of the contest to build its new line of Offshore Patrol Cutters -- a potential $12 billion bonanza for the company, which will now more likely go to Huntington rival General Dynamics (NYSE: GD ) . Huntington announced this week that it will protest the Coast Guard's decision; if it's successful, winning that contract could give the company a real shot in the arm, and a chance at boosting profit margins even further.
The risk? Huntington was expected to be awarded this contract from the get-go. If it fails to win the Coast Guard over to its cause, analyst expectations for growth rates could come down by a lot -- and the stock's value to investors will surely sink.
Beware the shoals
A second strike against Huntington Ingalls is the fact that, within the defense contracting industry, it pays one of the stingiest dividend yields around -- less than 1%!
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