Huntington Ingalls Industries, Inc (HII) Q3 2025 Earnings Call Transcript

Huntington Ingalls Industries, Inc (NYSE: HII) Q3 2025 Earnings Call dated Oct. 30, 2025

Corporate Participants:

Christie Thomas — Vice President, Investor Relations

Christopher D. Kastner — President And Chief Executive Officer

Thomas E. Stiehle — Executive Vice President and Chief Financial Officer

Analysts:

Scott Mikus — Analyst

Noah Poponak — Analyst

Ronald Epstein — Analyst

Seth Seifman — Analyst

Scott Deuschle — Analyst

Myles Walton — Analyst

Gautam Khanna — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2025 HII Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that this that today’s conference is being recorded. [Operator Instructions] I would now like to hand the call over to Christie Thomas, Vice President of Investor Relations. Mrs Thomas, you may go ahead.

Christie Thomas — Vice President, Investor Relations

Thank you, operator, and good morning, everyone. Welcome to the HII third quarter 2025 conference call. Matters discussed on today’s call that constitute forward-looking statements, including our estimates regarding the Company’s outlook, involve risks and uncertainties that reflect the Company’s judgment based on information available at the time of this call. These risks and uncertainties may cause our actual results to differ materially. Additional information regarding these factors is contained in today’s press release and the Company’s SEC filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, which are available on the Investor Relations page of our website at ir.hii.com.

On the call today are Chris Kastner, President and Chief Executive Officer, and Tom Stiehle, Executive Vice President and Chief Financial Officer. Now I’ll turn the call over to Chris.

Christopher D. Kastner — President And Chief Executive Officer

Thanks Christie. Good morning, everyone. The United States Navy recently celebrated its 250th birthday and the US Marine Corps will do the same in the coming weeks. So I would like to start today by thanking both of them for their enduring service to our country and their commitment to our national defense. Thank you for all that you have done and all that you do to protect us and future generations. Moving on to the third quarter, I’ll start by discussing our results and division highlights and provide an update on our operational initiatives. Then Tom will provide some details on our financial performance and outlook.

Before I begin, I’d like to reiterate our commitment to accelerate shipbuilding construction to meet our customers’ requirements. We continue to support the identification of strategies to increase throughput across our shipbuilding programs and are working closely with our customer and partners to achieve this important mission. Now turning to our results. This morning, we reported record third quarter sales of $3.2 billion and diluted earnings per share of $3.68. Shipbuilding sales growth of 18% year-over-year was driven by our shipbuilding division’s focus on increasing throughput in our shipyards and supported by broader efforts underway to rebuild the US maritime industrial base.

Likewise, 11% sales growth at Mission Technologies was driven by our team’s continued focus on delivering innovative solutions, including growth in the critical areas of C5, ISR, Cyber, Electronic Warfare and Space and live virtual constructive training, as well as unmanned systems. Demand for our products and services remain strong. Third quarter contract awards were $2 billion and our backlog is $56 billion of which $33 billion is funded. At Newport News we continue to make progress on submarines and aircraft carriers. The last two Virginia-class Block IV submarines are in the water with SSN 798 Massachusetts having recently completed sea trials and preparing for delivery this year.

As for our carrier program, CVN 79 Kennedy continues to make progress in its testing program and we expect to conduct the ship’s first sea trials around the end of the year, and shipbuilders are installing the large components that have now been received on CVN 80 Enterprise which will allow erection progress to accelerate. Moving to Ingalls, in the third quarter we successfully completed builders’ trials for DDG 128 Ted Stevens, bringing her a step closer to acceptance trials and delivery. Our amphibious warship construction continues to make progress with both LHA 8 Bougainville and LPD 30 Harrisburg going through integration and testing in support of trials next year.

At Mission Technologies we had another strong quarter of sales at $787 million, along with a book-to-bill of 1.25 and announced key strategic partnerships around future opportunities. First, we joined forces with Babcock International to integrate HII’s unmanned underwater vehicles with the Babcock submarine weapon handling and launch systems, while Arima 620 was validated for torpedo tube deployment. This will position our torpedo tube launch and recovery solutions for international markets.

We also announced a partnership with Shield AI to accelerate cross-domain and modular mission autonomy solutions in a partnership with Thales to develop advanced autonomous undersea mine countermeasure capabilities. Additionally, we unveiled the ROMULUS family of unmanned surface vessels powered by Odyssey Autonomy software and have started building the flagship ROMULUS 190. ROMULUS is one example of numerous projects and contracts underway in Mission Technologies that combines internally developed technology with world class partner technology to create best of breed technology solutions for the warfighter.

Now shifting to an update on our operational initiatives, both Ingalls and Newport News performance was stable to slightly improving in the quarter as we continue to work through ships that were contracted prior to Covid. As I previously indicated, during the contract mix transition from pre-Covid contracts to our newly awarded contracts, we continue to expect some choppiness in performance.

The first operational initiative increasing throughput, is showing improvement over 2024, initial indications align with our expectation that the HII and Navy investments in workforce, infrastructure, and supply chain will have a positive impact on throughput trajectory. Our updated expectation is to achieve approximately 15% throughput improvement for the full year 2025 as throughput improvements have accelerated throughout the year.

From a labor perspective, we have hired over 4,600 shipbuilders year-to-date and our retention rates have improved at both shipyards. At Newport News, we’ve seen an increase in experienced hires following the wage investment this summer and increased hiring from regional workforce development pipelines which provides more proficient incoming shipbuilders.

These are important steps to stabilize and level up the experience of our workforce. Also, we are seeing success and expansion of the industrial base with our distributed shipbuilding strategy, resulting in significant outsourcing taking place at 23 partners and growing. With the Navy’s support, we are partnering with shipyards and fabricators in multiple states to grow throughput and improve schedule adherence for all of our shipbuilding programs. The second operational initiative is our $250 million annualized cost reduction effort and we remain on track to achieve this target.

And the final operational initiative is achieving our new contract awards. Having completed the negotiations for the significant award of two submarines earlier this year, our teams have pivoted to negotiations of Block VI and the next Columbia award and are working towards having agreements in place late this year. Shifting to activities in Washington, the new fiscal year began with a lapse in appropriations and as a result many activities of the federal government have halted. I will note in the Department of War shutdown guidance, shipbuilding is one of the six departmental priorities that should be supported to the extent possible with available funds. To date, our programs in shipbuilding have been fully supported and we’ve seen no impact to normal operations.

We have had immaterial impact to Mission Technologies, but we are watching those programs closely as they are more likely to be impacted by budget timing. We continue to support completion of the FY26 appropriations process as soon as possible to minimize the impact that a lapse in funding could have on our programs. Both House and Senate defense appropriations bills include critical funding to support the submarine and maritime industrial base, and both bills reflect continued investment in our shipbuilding programs with funding provided for the Columbia class and Virginia class submarine programs for CVNs 80 and 81 construction and CVN 82 advanced procurement for the DDG 51 program and for the second of three years of funding for the refueling and overhaul of CVN 75.

We also look forward to Congress completing work on the fiscal year 2026 National Defense Authorization Bill, codifying the strong support for shipbuilding and other national security priorities reflected in the respective House and Senate bills. The two Defense Authorization Committees continue to show strong support for our company’s programs. In summary, we had a solid third quarter with record sales as we ramped production in support of delivering on our commitments, and now I’ll turn the call over to Tom for some remarks on our financial performance. Tom?

Thomas E. Stiehle — Executive Vice President and Chief Financial Officer

Thanks Chris, and good morning. Let me start by briefly discussing our third quarter results, and then I’ll address our outlook for the year. For more detail, please refer to the earnings release issued this morning and posted to our website. Beginning with our consolidated results on Slide 5 of the presentation, our third quarter revenues of approximately $3.2 billion were a record for HII and increased 16.1% compared to the same period last year. The higher revenue was attributable to strong year-over-year growth at all three divisions. Ingalls revenues were a record $828 million and increased by 24.7% compared to the third quarter of 2024, driven primarily by higher material volume and surface combatants.

Newport News revenues of $1.6 billion increased by 14.5% compared to the third quarter of 2024, driven primarily by higher volumes across submarine and aircraft carrier programs. Together, shipbuilding revenue was $2.4 billion, well ahead of our guidance for the quarter, as results benefited from higher-than-expected material receipt as well as the impacts of wage investments and our broader efforts to drive higher shipbuilding throughput, including increased outsourcing. Mission Technologies revenues of $787 million increased by 11% compared to the third quarter of 2024, driven by higher volume in C5, ISR Cyber, Electronic Warfare and Space, and live virtual and constructive training, as well as our growth in unmanned systems.

Moving on to Slide 6, segment operating income of $179 million and segment operating margin of 5.6% in the third quarter of 2025 were both up from prior year results, primarily driven by the prior year period’s negative adjustments as well as the positive impacts of the volume growth I discussed. At Ingalls, segment operating income was $65 million, and operating margin of 7.9% compared to $49 million and 7.4% in the third quarter of last year. The increases were driven by the volume increases in surface combatants.

The third quarter net cumulative adjustment at Ingalls was a positive $6 million and none of the adjustments were individually significant. At Newport News, segment operating income was $80 million and operating margin was 4.9% compared to $15 million and 1.1% in the third quarter of 2024. Prior year results were impacted by negative adjustments resulting from the performance challenges and the delay of new contract awards. For the third quarter of 2025, Newport News Shipbuildings net cumulative adjustment was negative $13 million. None of the adjustments in the quarter were individually significant.

Mission Technologies operating income and margin were largely consistent year-over-year as changes in the contract mix offset the higher volumes I previously mentioned. Consolidated operating income for the quarter was $161 million and operating margin was 5% compared to $82 million and 3% in the same period last year. The variance was primarily driven by the segment results I’ve just noted.

Net earnings in the quarter were $145 million compared to $101 million in the third quarter of 2024. Diluted earnings per share in the quarter were $3.68 compared to $2.56 in the same period last year. The effective tax rate in the third quarter was 28.9% higher than our initial expectations as results were impacted by reduction in the estimated research and development tax credit for the prior year.

Turning to Slide 7, cash provided by operations was $118 million in the quarter. Net capital expenditures were $102 million, or 3.2% of revenues. Free cash flow in the quarter was $16 million. Free cash flow results in the quarter were better than the guidance we had provided, largely due to stronger collections in the quarter as well as some disbursements moving out of the quarter. I’ll discuss our updated 2025 free cash flow guidance in a moment. During the quarter, we did not repurchase any shares. We did pay a cash dividend of $1.35 per share, or $53 million in the aggregate. Last week we announced a modest increase in our quarterly dividend to $1.38 per share.

Turning to liquidity in the balance sheet, we ended the quarter with a cash balance of $312 million and liquidity of approximately $2 billion. Our capital allocation priorities are unchanged, we value our investment grade credit rating, and we will continue to prioritize prudent debt levels while strategically investing in our shipyards and thoughtfully growing our dividend while continuing to use excess free cash flow for share repurchases.

Moving on to our outlook on Slide 8, we have narrowed the shipbuilding revenue range to be between $9 billion and $9.1 billion, which is an increase of $50 million at the midpoint from the prior guidance range. We are reiterating the shipbuilding margin range up between 5.5% and 6.5%. For Mission Technologies, we are now expecting revenue between $3 billion and $3.1 billion, an increase of $50 million from the prior guidance range. At the midpoint, we expect Mission Technologies operating margins of approximately 4.5% and EBITDA margins between 8% and 8.5%.

Our 2025 guidance is predicated on achieving the operational initiatives we have laid out. We are pleased with the throughput improvement we saw in the third quarter, though we have not been able to overcome the slower start to the year and therefore had to trim our throughput improvement expectations for the full year. As Chris noted, we are continuing to work towards the Virginia-class Block VI and Columbia build two submarine awards later this year. If the award were to push into 2026, it would be a headwind to our guidance that would likely have us end the year slightly below the midpoint of our shipbuilding margin guidance range.

Conversely, an award this year would support us ending at or slightly above the midpoint of the range. For 2025 free cash flow, we are updating our guidance to be between $550 million and $650 million. At the midpoint this is an increase of $50 million compared to our prior guidance range. We are establishing a cumulative free cash flow target for 2025 and 2026 of $1.2 billion using the 2025 free cash flow guidance midpoint. This does imply both years will generate about $600 million in free cash flow.

As always, our cash flow in a particular quarter or year can be impacted by small changes in timing for large receipts and disbursements. We are also updating a number of discrete income statement guidance elements. We have made some minor revisions to our pension outlook and you can find updated 2025 and 2026 expectations in the appendix of today’s slide presentation. We are also updating the expected effective tax rate for the year to 22%, given the elevated rate in the third quarter that I discussed previously.

To close, it was a good quarter as we continue to make steady progress, working our way through challenging shifts and executing our 2025 operational initiatives. Securing new contracts aligned to the current environment drive higher throughput and thoughtfully manage cost. With that, I’ll turn the call back over to Christie to manage Q&A.

Christie Thomas — Vice President, Investor Relations

Thanks, Tom. As a reminder to everyone on the call, please limit yourself to one initial question and one follow up so we can get as many people through the queue as possible.

Operator, I’ll turn the call over to you to manage the Q&A.

Questions and Answers:

Operator

Thank you very much. We will now open the Q&A session. [Operator Instructions] Our first question comes from Scott Mikus with Melius Research, your line is now open. Please go ahead.

Scott Mikus

Morning, Chris and Tom. I wanted to ask Virginia Block VI and Columbia build two negotiations. So, you kind of touched on the fact that shipbuilding is not really impacted by the shutdown. Is there anything that’s potentially holding up that negotiation, maybe due to government employees being furloughed? And then also from a high-level perspective, does it make sense for industry and the customer to commit to that many boats at once or should the negotiation may be split up into two or more negotiations to just get a better understanding of the cost and schedule to build those?

Christopher D. Kastner

Yeah, thanks, Scott. I think furlough’s not impacting that negotiation. The team’s working very hard to get that done. I won’t comment directly on the negotiation because it’s inappropriate, but the team’s working very hard to get that done before the end of the year. I know. I also know the Navy’s working on how that works with the shutdown and potential CR to make sure that we can get the ships awarded. So, more to come there. But I think we’re making good progress. On a incremental award or potentially award less shifts really doesn’t make sense. And contrary to really what we think is the most important thing for the industrial base, which is a consistent demand signal.

And as important as that is to us, the supply chain really needs it. So, I think incrementally negotiating these, rewarding these does not make a lot of sense. We need to get all 10 of these awarded and be on our way. So thanks, Scott. Appreciate it.

Scott Mikus

Okay, and then a quick one. It looks like you mentioned retention rates have been improving. You had the wage increase go in at Newport News, I think in June. When is the wage increase going in at Ingalls?

Christopher D. Kastner

Yeah, so we’re in discussions with the union at Ingalls. That union agreement expires next year. So, we’re hoping to get that in place beating of next year, maybe end of this year, but we’re in discussions. It makes it a bit more complicated because we have to engage with the union to get that done.

Scott Mikus

Okay, got it. Thank you.

Christopher D. Kastner

Sure.

Operator

Our next question comes from Noah Poponak with. Sorry, with Goldman Sachs. Your line is now open. Please go ahead.

Noah Poponak

Good morning, everyone.

Christopher D. Kastner

Good morning [Speech Overlap]

Noah Poponak

Hey, thanks, Tom. You highlighted the shipbuilding revenue in the quarter being almost $250 million ahead of your plan, but then only raising the full year by $50 million. And to be in the full year range, 4Q shipbuilding revenue would need to be flat, actually, maybe even down a little. I think the compare is pretty easy. Can you help me with that math? And I guess the bigger picture question is just seeing this very high growth rate in the quarter on shipbuilding revenue. The question is, have you achieved much better ability to get the throughput relative to demand? And can we extrapolate maybe it’s not 16 every quarter for a while, but can we extrapolate much better growth in the medium term? Or was there something just with, the outlay allocation or something kind of random to the quarter?

Thomas E. Stiehle

I appreciate the question there, Noah. So, a couple things there. At Newport News, they grew 15%. Ingalls grew 25%. From Newport News perspective, what we saw there, increased throughput, wages, and outsourcing. It was primarily driven by the material that we see on those contracts as well. From an Ingalls perspective, who’s the material volume that we saw on the surface combatants, a mixture of FY23, the destroyers, the DDG 1000, and some growth on some long lead contracts we have. And some orders on that front, I do expect. we held the guidance right now.

We took the bottom range up, we held the top range still. What we gave you at the beginning of the year there, there is some tailwinds, I’ll tell you. So, we want to see how we continue to improve. As Chris mentioned in his remarks up front, it was earned throughput. Charleston operations is providing a list in revenue. We’ve qualified over 23 new vendors on the outsourcing side. So, all that’s very favorable. We want to continue to see a positive trend as we go forward here. I would say a couple of the dollars are pull aheads from Q4 to Q3, but there’s some foundation and some substance there of increased growth as we go forward here.

Chris and I will evaluate how Q4 plays out, and then we’ll provide some guidance of revenue projections for shipbuilding on the February call.

Christopher D. Kastner

Yeah. I think to add to that and no, Obviously I think 4% midterm growth is probably in the rearview mirror, but we want to make sure we roll up our plans and give you good guidance on the year-end call.

Thomas E. Stiehle

Yeah. I would comment too, if you pull back. Just even though Q3 was 18% growth that we had here, kind of year over year in shipbuilding, for the year itself, it’s 6.1%, between Q1, Q2 and Q3 here. So, we do see some positive signs of the capacity and throughput. And I envision, as we continue to execute on the backlog we have, we have the book of business. The investments mature, the wages take hold, and the workforce becomes more senior. I would envision that that’s going to ramp as we go forward here.

Noah Poponak

Chris, 4% in the rearview mirror. What do you mean by that?

Christopher D. Kastner

Just long midterm guidance for shipbuilding. It’s. We provided kind of midterm guidance for shipbuilding at 4%.

Noah Poponak

Yeah, yeah. What do you mean by it being in the rearview mirror?

Christopher D. Kastner

That means it’s not probably not valid anymore. It’s probably in excess of that. We just need to roll up our plans.

Noah Poponak

Okay, understood. And then Tom or Chris, the $20 $50 million cost initiative, it’s a pretty big number just compared to your EBITDA base. Will that be a gross number? Do we need to net that number? And how much of that is already done and in your numbers versus is still ahead of you?

Christopher D. Kastner

Yeah. It’s all in our guidance. We assume we’re going to achieve that in our guidance. So, it’s all in.

Noah Poponak

It’s in your 2025 guidance?

Christopher D. Kastner

Yes.

Thomas E. Stiehle

Yeah.

Noah Poponak

Has that been benefiting the margin year-to-date?

Christopher D. Kastner

Well, these are long term contracts and you make assumptions about what the cost profile is going to be. So, it’s all been in our guidance.

Noah Poponak

Okay. All right, thanks a lot. I appreciate it.

Christopher D. Kastner

Sure. Noah.

Operator

Our next question comes from Ron Epstein with Bank of America. Your line is now open. Please go ahead.

Ronald Epstein

Hey, yeah, good morning, guys.

Christopher D. Kastner

Hey, Ron.

Ronald Epstein

Thanks for the question. Yeah, just maybe a quick one here. Can you give us more color on your partnering strategy on unmanned vessels? You announced recently a partnership with SHIELD AI and the progress you’re having on your own internal autonomy systems for these vehicles.

Christopher D. Kastner

Sure. Thanks for that. As you know, it’s an Odyssey software solution for autonomy we’ve got. The beauty of Odyssey is it’s open source. So, the implementation or incorporation of new software tools is pretty seamless. And so, when we review the space and opportunity, we had to identify partners that could add capability into that software. Shield AI made a lot of sense. C3 AI makes a lot of sense. It just makes it more powerful, for the mission. We’ve been working on that software for a long time. As you know, we have over 750 uncrewed vehicles that have been delivered both to international and domestic partners.

So, it’s been very positive. And I don’t know if you’ve seen the releases relative to our ROMULUS line of vehicles that we’re building as well. So, Odyssey is a critical part of that. It only makes sense as part of MT’s strategy to use world class commercial solutions to make sure that we provide the best solutions for our customer. And the open architecture of that software makes that pretty seamless. So, we’re excited about it. We think it’s going to be a great tool and we tend to include it going forward in our unmanned products.

Ronald Epstein

Got it. Got it. Ultimately, how big do you think the unmanned market can be for you?

Christopher D. Kastner

Yeah. So, I don’t want to give a specific size. It is ramping. It is becoming more material within Mission Technologies. And you see the budget environment, the allocation of additional unmanned opportunities in reconciliation is very positive. So, it’s ramping. I don’t want to size it here, but it’s definitely a place we’re investing in.

Ronald Epstein

Got it. Got it. And then maybe just one last one. You probably saw in the news yesterday, and if you can’t answer this, I mean, it didn’t happen that long ago, but that the Trump administration suggested that Hanwha is going to be making nuclear submarines at the Philadelphia Navy Yard. How’s that changed things or not? I mean, how do you think about that strategically?

Christopher D. Kastner

Well, it’s definitely been an exciting couple of days in shipbuilding. I don’t want to comment specifically on that because that’s pretty new information. But at the end of the day, we’re going to build what the Navy wants us to build. We’re going to partner with them, and if they need our help, we’re going to help them. So, we’re not getting distracted by anything. We’re keeping our heads down and we’re going to build what’s in front of us. But that’s pretty new information. I don’t want to comment directly on it until we understand more details.

Ronald Epstein

Got it. Yeah. Thank you for that. Yeah. Thanks.

Christopher D. Kastner

Sure.

Operator

Our next question comes from Seth Seifman with J P Morgan. Your line is now open. Please go ahead.

Seth Seifman

Hey, thanks very much and good morning.

Thomas E. Stiehle

Good morning.

Christopher D. Kastner

Good morning.

Seth Seifman

So wanted to ask, I think, Tom, I think you mentioned with regard to the margin rate, if the contract didn’t come at in, Q4 you’d be below the midpoint for the year, which I think would imply kind of a step down in the margin in Q4. And just kind of curious what drives that, given where the underlying margins are in the — in each shipyard after EACs. It would seem that the, underlying margin here with kind of neutral EACs is something that is, above 6%, kind of in the maybe low towards mid 6% range. And so, is that some conservatism that, leads you to have that guidance or is there some kind of, anticipation or potential further negative adjustments?

Thomas E. Stiehle

Yes, I appreciate the question. Our shipbuilding margins for the first three quarters have been stable. We saw 6%, 4%, 5%, 8% and 5%, 9%. We’re just tweaking the guidance on what will happen as we play out Q4. The 15%[Phonetic] boat[Phonetic] award will have incentives in there, some performance incentives, some capital incentive. Just the math about is the timing of when that happens and how we book that has, incremental changes as we adopt the capital projects. Take the capex incentives and how we book that. So, we’re probably, being a little conservative on that front and we’re trying to guide the street as well we could land depending on the timing of those awards.

Don’t see some step backs right now, through Q3 we’ve booked our performance for cost and schedule, and we’re just reiterating the guide that we gave you at the beginning of the year for 5.5% to 6.5%, but no issues or concerns. Expect to kind of finish up around the midpoint as we go forward here.

Seth Seifman

Okay. Okay, great. Thanks. Thanks very much. I’ll stick to one this morning.

Thomas E. Stiehle

Thank you.

Operator

Our next question comes from Scott Deuschle with Deutsche Bank. Your line is now open. Please go ahead.

Scott Deuschle

Hey, good morning, Chris. Relative to that 15% throughput target, are you looking for a similar number from both Ingalls and Newport News, or is that target materially different between the two yards?

Christopher D. Kastner

No, they actually are ending up at about the same place. So, that doesn’t often happen, but yeah, they’re ending up in about the same place. And it’s pretty equally distributed between increased outsourcing and performance of the labor force. So, yeah, it’s been pretty equal.

Scott Deuschle

Okay, and then relative to the reduction from the 20%, was that also equal or did one of the yards see like slightly less improvement than was expected? It sounds like fairly equal as well. But just curious for that.

Christopher D. Kastner

Yeah, yeah, yeah, fairly equal.

Scott Deuschle

Okay. And then Chris, after you raised wages for your workers at Newport News, did you see any other local area industries respond in kind by also raising wages? I’m just trying to get a sense as to whether you’re maintaining a consistent spread above the market wage rate as a result of those increases or if the market’s also already eating into that at all.

Christopher D. Kastner

Yeah. The market has not materially adjusted such that it’s impacted our hiring in Newport News. It’s been pretty positive at Newport News and the effect of those wages has been positive and reduced attrition. But we’re probably most excited about repositioning the experience level of the workforce where we have more experience. But we’re also hiring about 50% out of what we call the pipeline, which are the regional workforce development centers, the apprentice schools and the high school programs, which is very positive. So, Newport News labor is doing well, kind of cautiously optimistic, we hope to keep it going.

Scott Deuschle

Thank you.

Christopher D. Kastner

Sure.

Operator

Our next question comes from Myles Walton with Wolfe Research. Your line is now open. Please go ahead.

Myles Walton

Great. Thanks. And thanks. Good morning, and Tom, on the cash flow flatness implied in 2026, maybe just give us a little bit of a color there. Obviously, an assumption that earnings will grow capex, I would have thought maybe steps down a touch. Is there an offset to that, to kind of keep it in the flat range? And then a couple of years back there was a bigger target for cash flow in the $7[Phonetic] million to $800 million range. Is that something that can only arrive with something like the saws being resolved?

Thomas E. Stiehle

I appreciate the question on that. Yeah. So, we brought back more than a guide, an annual guide here for two-year guide. A piece of that is just with five quarters this quarter this year and next year as the awards come through, we watch performance for Q4 and then we set the trajectory for next year. We wanted to kind of settle the street on where we think we’re going to be. We’ve talked about the book of business. We have the performance where we stand. and I think it’s consistent that we’ll have a run rate here of about $600 million between the two years.

We’ll just see what hits this year versus kind of next year between receipts and the awards. So, I’m comfortable with that right now. Relative to your math yet the revenue does grow here. There is a lot of moving parts in there between the working capital that I have, the capex and again the timing of receipts and the performance for the next five quarters. That plays into all of that here. But generally speaking, this, I’m comfortable with where we’re at. It’s a conservative guide. I would tell you for 2026 as we go forward here, I really want to close out the year, lock home our plan, get the awards from the customer which has both opportunity RNOs around that and then we’ll give you more color that in the February timeframe.

Relative to your comment on the $700 million to $800 million as we get back obviously the top line is growing and that’s good. We’ve kind of hinted here that the 4% has some good tailwinds. And you see for the first three quarters of this year it’s over 6%. So, we’ll give you increase kind of guidance on that in the February timeframe. But the top line will grow, kind of meaningfully. And the major piece that will change that cash flow inflection in the medium to long term will be the return of the profitability.

We expect incremental profitability from year-to-year. And as we continue to retire there the pre-Covid contract work, the new contracts are aligned with the efficiencies and schedules and the materials that we see. And as we get into those contracts, we start kind of booking more conservatively. But as we get into those contracts three to five years out, we will see us getting back to more traditional expectations of profitability in shipbuilding. Obviously higher top line, higher bottom line. And that’s where we get back to the cash flows that you’ve kind of hinted here on the tail end of the decade here. So. Okay?

Myles Walton

Okay, got it. And then Chris, maybe one for you and I don’t know if you can answer this one either, but the president has recently quoted saying he’s going to have an executive order losing aircraft carrier design back to steam from emails. I’m just curious what carrier could that cut over into if that was actually a change that was going to take place?

Christopher D. Kastner

Yeah. So again, I probably don’t need to comment on that directly. What I will say is we’re going to build whatever the Navy asks us to build. So, if they ask us to code over emals or weapons elevators, we’ll work with them to do it the most intelligent way, and cut it over in the right way. But again, we’re going to build what they ask us to build.

Myles Walton

Yeah. Thank you.

Christopher D. Kastner

Sure.

Operator

Our next question comes from Gautam Khanna, TD Cowen. [Operator Instructions] Gautam your line is now open. Please go ahead.

Gautam Khanna

Hey, good morning. Can you hear me?

Christopher D. Kastner

Morning. Yes.

Gautam Khanna

Great. Guys, I was wondering if you could update us on a couple things. One, did you receive the modules for CVN 80 that were delayed in the quarter?

Christopher D. Kastner

We did. We will install those in Q4 and begin to get back on the erection schedule for that boat. So, yeah, we did receive the modules.

Gautam Khanna

Terrific. And could you give us the net EACs by segment?

Thomas E. Stiehle

Yeah. So, the net EACs that we had here were gross favorable was $37 million, unfavorable was $40 million, a net of minus $3 million that was made up of angles at positive $6 million, as I said in my remarks. And they put these at minus $13 million. Those are in the remarks as well as NT at positive $4 million.

Gautam Khanna

Okay, sorry I missed that. Thank you. And then I was just curious, Tom, on the Q4 implied shipbuilding EBIT, pretty wide range, but you did mention that, it’s going to be somewhere around the midpoint with or without the submarine contract signed. Is there the high end? Is that like what would get you to the high end of the implied range? And is there any reason to think that, the extremes are actually in play?

Thomas E. Stiehle

Yeah. I appreciate the question. We gave you that guide at the beginning of the year in February. We have reiterated in May and July, and now here we just have not changed that. I mean, maybe math at the extremes take a lot of things breaking one way or another way. I would stick to the comments I had earlier here. We’ve been very consistent from quarter to quarter. I don’t really expect this to inflect, significantly up or down from here for the end of the year. As I said earlier, I do expect as we go from year-to-year, and incremental improvement here, but we understand how we’re operating. The performance has been really steady right now and we, raised the focus and we have the for the end of the year to close out within our guidance ranges that we gave you.

Gautam Khanna

Perfect. And one last one, Tom, just. I know you talk about the pre-Covid and post-Covid contract mix. Can you remind us what it is this year and what do you expect it to be in 2026?

Thomas E. Stiehle

Yeah. We haven’t given specific percentages on that, but we’ve said that when we get to 2027, there’ll be more work post-Covid than pre-Covid. It’ll be over 50%. So, you can do the math of that, of where we stand, but we’re ramping from, being in the 80s and 70s down to that by 2027. And it’s fairly significant to retire those boats and ships every time we sell one-off. Obviously, there’s less pre-Covid work and then the opportunity set is in front of us there with the new contracts aligned to performance and schedule and cost that we see here.

Gautam Khanna

Thanks a lot, guys.

Thomas E. Stiehle

Okay, thank you.

Operator

Our next question comes from Noah Poponak with Goldman Sachs. Your line is now open. Please go ahead.

Noah Poponak

Hey guys, just one follow up on kind of everything happening here. Can you talk about why, philosophically or mechanically and whether that’s mechanically in the actual work or the nature of your contracting. Why would throughput and top line growth improve before faster than the margins?

Christopher D. Kastner

Yeah, that’s a, that’s an interesting question. The throughput assumptions we have in our schedules support the EACs and we have risk and opportunity around them. So, if we can execute on those throughput targets, then it mitigates significant amount of risk, and there’s potential upside. But you have to evaluate each every quarter. It’s not a perfectly aligned metric tied to margin performance.

Noah Poponak

Okay, yeah, just sort of trying to better understand, the much better top line and your confidence in, that continuing with the shipbuilding margin being kind of just flat through the year and it, I guess I would, improve the labor. Would I guess would maybe immediately drive higher throughput, but then you need the labor to refine and get better before it impacts the margin was maybe a thought or I didn’t know if it’s just the nature of percentage of completion accounting. It’s just sort of an interesting dynamic in the financials.

Christopher D. Kastner

Yeah. So yeah, I think it’s an interesting question. Tom can chime in here as well, but one quarter doesn’t win the day. Right in an EAC, and you’re running risk and opportunity throughout the entire program. So while, yes, you’re retiring risk and if you’re achieving your throughput targets and achieving your sales targets, you are retiring risk. But you aren’t necessarily going to convert that into profitability in your EACs.

Noah Poponak

Right. So perhaps one quarter is evidence of a start of everything you’re doing, but you need more than that to put it in the actual booking rates.

Christopher D. Kastner

That’s why I consider this a stable quarter. It’s stable, but we need to continue to keep our head down and work.

Noah Poponak

Got it. Okay

Thomas E. Stiehle

I’d comment on the back of that too. I’m with Chris Van Aure[Indecipherable]. It’s 13 weeks. Some of these contracts have two to six years to go. It’s good. It’s actuals plus estimate to complete and you put a quarter in the books, that’s a solid quarter, which is good. Expect that trend to continue, if not improve. But that wouldn’t necessarily mean that immediately we change the EACs, incrementally we’ll continue with good performance to retire down the risk. And as the cost risk kind of goes away, that’s the catalyst to really take the booking rates up.

So, I like the trends that I’m seeing right now, and quarter-over-quarter as we continue to see that, that’s what’s going to drive the incremental improvement of the bottom line. Thanks for the follow up.

Noah Poponak

Yeah, yeah, it’s interesting. Appreciate the detail. Thanks a lot.

Christopher D. Kastner

Thanks, Noah.

Operator

Thank you. I am not showing any further questions at this time. I would now like to hand the call back over to Mr. Kastner for any closing remarks.

Christopher D. Kastner

Thank you for taking the time to join us today, and for your interest in HII. At HII, we’re committed to delivering on our strategic priorities, and aim to drive growth, improve efficiency, and create value for all our stakeholders. Please have a safe and happy Halloween weekend ahead.

Operator

[Operator Closing Remarks]