Thomas E. Stiehle
Executive Vice President and Chief Financial Officer at Huntington Ingalls Industries
Thanks, Chris, and good morning. Let me first start by briefly discussing our third quarter results, and then I'll address our updated outlook. For more detail, please refer to the earnings release issued this morning and posted to our website.
Beginning with our consolidated results on Slide 6 of the presentation, our third quarter revenues of approximately $2.7 billion decreased 2.4% compared to the same period last year. This decreased revenue was attributable to declines at both Ingalls Shipbuilding and Newport News Shipbuilding, partially offset by growth at Mission Technologies. Operating income for the quarter of $82 million decreased by $90 million or 52.3% from the third quarter of 2023, and operating margin of 3% in the quarter compares to 6.1% in the same period last year. Decreased operating income was largely driven by declines at both Newport News and Ingalls, which I will discuss in more detail in a moment.
Net earnings in the quarter were $101 million compared to $148 million in the third quarter of 2023. Diluted earnings per share in the quarter were $2.56 compared to $3.70 in the third quarter of the prior year. Our contractual commitments increased by approximately $900 million in the period, bringing backlog to $49.4 billion at the end of the quarter. While we did secure the $9.6 billion award in the quarter at Ingalls for four amphibious ships, including LHA 10, LPD 33, 34 and 35, we recorded just the authorized value to date approximately $565 million in the quarter. We will see the awarded values of those ships grow over time as authorizations expand.
Moving to Slide 7. Ingalls revenues of $664 million in the quarter decreased $47 million or 6.6% from the same period last year, driven primarily by lower volumes in the amphibious assault ships and the National Security Cutter program, partially offset by higher surface combatant volume. Ingalls operating income in the quarter was $49 million and operating margin was 7.4% compared to $73 million and 10. 3%, respectively, from the same period last year. The decreases were primarily due to lower performance on amphibious assault ships and surface combatants.
At Newport News, revenues of $1.4 billion in the quarter were down $41 million or 2.8% from the same period last year, driven primarily by lower volumes in naval and nuclear support services as well as the cumulative adjustments on the Virginia class submarine program and aircraft carriers, partially offset by higher volumes in the Columbia class submarine program. Newport News operating income in the quarter was $15 million and operating margin of 1.1% compared to $90 million and 6.2%, respectively, in the prior year period.
Newport News results included net unfavorable cumulative adjustments totaling $78 million including $34 million on Block IV of the Virginia class submarine program, $16 million on the Enterprise CVN 80 and Doris Miller CVN 81 two carrier contract and $14 million on the refueling and complex overhaul of the USS John C. Stennis CVN-74. As Chris described, these unfavorable adjustments were driven by both the change in our assumption around contract awards as well as program performance challenges as we have not achieved planned performance improvements.
During the quarter, some welder issues were reported publicly that we had previously disclosed to our customer. An initial assessment at Newport News Shipbuilding determined that fewer than two dozen welders did not consistently follow procedures in their weld process. We continue to work alongside with the Navy through a comprehensive investigation and analysis to determine the extent of any financial impact.
At Mission Technologies, revenues of $709 million increased $24 million or 3.5% compared to the third quarter of 2023, primarily due to higher volumes in cyber, electronic warfare and space. Mission Technologies operating income for the quarter was $33 million and operating margin was 4.7% compared to $24 million and 3.5%, respectively, in the third quarter of last year. The increases were primarily driven by higher Cyber Electronic Warfare and Space volumes as well as equity income from Nuclear and Environmental joint ventures.
Third quarter results for Mission Technologies included approximately $25 million of amortization of purchased intangible assets. Mission Technologies EBITDA margin in the third quarter was 8.9% compared to 8.2% in the third quarter of 2023 and 8.5% last quarter.
As Chris noted, Mission Technologies' performance in 2024 has been very strong with year to date sales growth of 14%. This follows 2023 revenue growth of 13.1% over 2022. Mission Technologies' third quarter contract awards, which entail new work and recompete wins across the service branches and multi-domain operations, represent nearly $11 billion in total potential contract value, a record for Mission Technologies.
Turning to Slide 8. Cash generated by operations was $213 million in the quarter. Net capital expenditures were $77 million or 2.8% of revenues. Free cash flow in the quarter was $136 million. Cash contributions to our pension and other postretirement benefit plans were $12 million in the quarter. We have provided an update to our 2024 and 2025 pension outlook in the appendix of today's slides. The cash flow impacts related to the updated forecast are quite minimal. Pension related numbers are subject to year end performance and measurement criteria. As usual, we plan to provide a multiyear update of pension estimates on our fourth quarter call in January.
During the quarter, we repurchased approximately 134,000 shares at a cost of approximately $35 million bringing the year to date total to 608,000 shares at a cost of $162 million. With cash from operations now below our initial expectations, consistent with our capital allocation priorities, we have throttled repurchases for the remainder of the year.
Also during the quarter, we paid cash dividends of $1.30 per share or $52 million in aggregate. Yesterday, we were pleased to announce an increase to our quarterly dividend to $1.35 per share or an increase of approximately 3.8%.
Moving on to our updated outlook, which we have summarized on Slide 9. We've increased Mission Technologies revenue by $50 million for the year, now to $2.8 billion to $2.85 billion and increased their margin outlook to 3.75%.
For shipbuilding, we have centered on revenue guidance to the lower end of the range at $8.8 billion. Our prior shipbuilding revenue and margin guidance anticipated receiving an omnibus of submarine contract awards and contract modifications incorporating opportunities to address key shipbuilding structural challenges across the Newport News enterprise, focusing on investments in our workforce, aiding attrition and training and investments in our infrastructure, buildings, facilities, manufacturing tooling and aids for additional throughput and capacity across the Newport News portfolio.
While we remain confident that we will ultimately receive the new contract awards, we are now uncertain of the timing and whether the overall contracting construct of those awards will enable to full pursuit of near term key investments needed to accelerate performance, rate and volume of the Newport News portfolio of contracts.
Our initial guidance for 2024 also assumed incremental program performance improvement consistent with normal expectations to capture learning curve improvements and production efficiencies over time. Performance has not improved at the forecasted rate due to workforce inexperience and delays with the supply chain, which, along with our updated contracting expectation, has a near term impact on our ability to achieve progress milestones, burn down working capital and collect associated cash. The results and updated outlook announced today reflect a reduced performance trajectory aligned to current conditions.
Our updated shipbuilding operating margin expectation for the year is now 5% to 6%. Our updated free cash flow is between $0 and $100 million and our capital expenditure outlay for the year has been reduced from 5.3% to 3.4% of sales. Prior guidance anticipated contract structures that would have allowed us to capture additional progress milestones as well as the inclusion of incentives related to the new contract awards.
We expect to return to more normal free cash flow levels once we are able to work through the challenging portions of our current contracts and have a better understanding of the new submarine awards. In light of this dynamic, we are withdrawing our five-year free cash flow target. Beyond our operational guidance, we have also made modest updates to our outlook for pension related items, interest expense and our expected tax rate for the year, which has declined to 17%. The lower annual forecasted tax rate is driven by third quarter results that include an increase in the research and development tax credits for current and prior years, resulting in an effective tax rate of approximately 10% for Q3.
Turning to the balance sheet. We ended the quarter with liquidity of approximately $1.3 billion and modest leverage of approximately 2.1x net debt to trailing 12 month EBITDA. Our capital allocation priorities are unchanged, including our commitment to investment grade credit rating, thoughtful investment in our shipyards, continued dividend growth and the return of excess cash through share repurchases.
Within the third quarter, we expanded our revolver from $1.5 billion to $1.7 billion and raised our commercial paper program from $1 billion to $1.7 billion consistent with our normal cost of business and given the more favorable interest rate environment, we are considering a new debt issuance in the coming months. Proceeds would be used in part to support the redemption of the $500 million senior notes due in May 2025 and for other general corporate purposes. This plan is still under evaluation.
Further to Chris' comments on our focus on cost efficiency ongoing across the corporation, we recently announced the consolidation of Mission Technologies into four groups, down from the previous six business units, simplifying the division's structure around key growth initiatives while enhancing competitiveness by reducing operational cost. This more efficient alignment of the portfolio, talent and resources will support continued long term business growth.
To close, I will reiterate that while our updated guidance removes the assumption of a near term omnibus contract agreement for the next increment of VCS and Columbia Submarines, we continue to advocate for innovative and sensible solutions to address the urgent shipbuilding industry challenges we have discussed. We are confident in our ability to work through the current challenges. We will continue to focus on aggressively driving performance improvement in our shipyards, expanding capacity and throughput and securing equitable contract solutions that address the business realities of the current operating environment.
With that, I'll turn the call back over to Christie to manage Q&A.
