Huntington Ingalls touts services as its growth engine

Military shipbuilder Huntington Ingalls Industries doubled down on government services market late last year and continues to view services as a growth engine with an early win in the books and another upcoming large contract on the horizon.

In its second quarter earnings call Thursday, HII CEO Mike Petters said the company’s Technical Solutions segment needed to be independent from the two other main shipbuilding divisions: Ingalls Shipbuilding and Newport News Shipbuilding.

“The way that they compete (in TS) is fundamentally different than the way we compete in shipbuilding,” Petters said. “The style of competition is very different, the magnitude and quantity of the customers that are out there are very different and so how you go to market is very different.”

Huntington Ingalls has seen an immediate return on its services focus as it is part of a Honeywell-led joint venture that won the potential 10-year, $5 billion contract to manage the Energy Department’s Nevada National Security Site.

“We see (DOE) has a lot of those kind of programs in front of it over the next 10 years and we expect to be a bigger player in it than we have in the past,” Petters said. “The ability now to connect the shipyard to those customers at (DOE) is going to give us a chance to grow that piece of the business.”

Newport News, Va.-based HII formed the estimated $1 billion services business upon its late 2016 acquisition of IT and professional services contractor Camber Corp. The shipbuilder then combined Camber with six other subsidiaries to form the technical services segment that counts the Navy, Army, Air Force and Energy Department among its federal customers.

“Their slate of customers is tremendously large compared to the customers we have in shipbuilding,” Petters said. “Behind that is a fundamental reliance on the shipbuilding business to support the technical solutions team.”

HII has another key upcoming competition in the Navy’s Extra Large Unmanned Undersea Vehicle contract, which seeks a large undersea drone that can loiter in a deployed location and release payloads prior to a home base return. The company has partnered with Boeing to offer the latter’s Echo Voyager vehicle in that competition.

An award for XLUUV is anticipated in September, according to Deltek. To date, Boeing and Huntington Ingalls are the only companies to publicly show interest in the program.

Huntington Ingalls first showed interest in unmanned in 2015 when it bought the Panama City, Fla.-based underwater drone maker now known as Undersea Solutions Group. That offered HII “an opportunity to partner in ways that we couldn’t partner before” and complement the company’s submarine business, Petters said.

Unmanned opportunities create new sets of customers and requirements even though the “physics are all the same” compared to manned subs, according to Petters. And thus HII needed experience and expertise in the field.

“It was a huge change in our company because it gave us chance to go and really engage in that space,” Petters added.

Since its 2011 spinout from former parent Northrop Grumman, HII executives have communicated to investors that its longer-cycled shipbuilding business would be essentially flat over the long-term. HII has prioritized strong cash flow and dividend payments to investors.

The acquisition of Camber and subsequent formation of the Technical Solutions business is an aspect of Huntington Ingalls’ “Path to 2020” strategy that emphasizes government services for expansion. Huntington Ingalls has targeted sales growth of 5 percent to 7 percent by 2020 for services.