Aerospace and defense company Huntington Ingalls (NYSE: HII) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 16.1% year on year to $3.19 billion. Its GAAP profit of $3.68 per share was 9.4% above analysts’ consensus estimates.

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“We made steady progress on our 2025 operational initiatives in the third quarter," said Chris Kastner, HII’s president and CEO.

Company Overview

Building Nimitz-class aircraft carriers used in active service, Huntington Ingalls (NYSE: HII) develops marine vessels and their mission systems and maintenance services.

Revenue Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Huntington Ingalls grew its sales at a tepid 5.9% compounded annual growth rate. This fell short of our benchmark for the industrials sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Huntington Ingalls’s recent performance shows its demand has slowed as its annualized revenue growth of 4.1% over the last two years was below its five-year trend.

Huntington Ingalls also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Huntington Ingalls’s backlog reached $55.7 billion in the latest quarter and averaged 4.9% year-on-year growth over the last two years. Because this number is in line with its revenue growth, we can see the company effectively balanced its new order intake and fulfillment processes.

This quarter, Huntington Ingalls reported year-on-year revenue growth of 16.1%, and its $3.19 billion of revenue exceeded Wall Street’s estimates by 8.1%.

Looking ahead, sell-side analysts expect revenue to grow 3.1% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and indicates its newer products and services will not lead to better top-line performance yet.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Huntington Ingalls was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.8% was weak for an industrials business.

Looking at the trend in its profitability, Huntington Ingalls’s operating margin decreased by 2.3 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Huntington Ingalls’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q3, Huntington Ingalls generated an operating margin profit margin of 5%, up 2.1 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Huntington Ingalls’s flat EPS over the last five years was below its 5.9% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

We can take a deeper look into Huntington Ingalls’s earnings to better understand the drivers of its performance. As we mentioned earlier, Huntington Ingalls’s operating margin expanded this quarter but declined by 2.3 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Huntington Ingalls, its two-year annual EPS growth of 4.5% was higher than its five-year trend. Accelerating earnings growth is almost always an encouraging data point.

In Q3, Huntington Ingalls reported EPS of $3.68, up from $2.56 in the same quarter last year. This print beat analysts’ estimates by 9.4%. Over the next 12 months, Wall Street expects Huntington Ingalls’s full-year EPS of $14.47 to grow 12.1%.

Key Takeaways from Huntington Ingalls’s Q3 Results

We were impressed by how significantly Huntington Ingalls blew past analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a solid print. The stock traded up 5.3% to $314.25 immediately following the results.

Sure, Huntington Ingalls had a solid quarter, but if we look at the bigger picture, is this stock a buy? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.