Huntington Ingalls Industries, Inc. (HII) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Second Quarter 2026 HII Earnings Conference Call. [Operator Instructions] Please be advised 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. Mr. Thomas, you may begin.

Thank you, operator, and good morning, everyone. Welcome to the HII Second Quarter 2026 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 and 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; Brian Blanchette, Executive Vice President and President of InglShipBuilding; and Tom Stiehle, Executive Vice President and Chief Financial Officer. Now I'll turn the call over to Chris.

Thanks, Christie. Good morning, everyone. This morning, we released our second quarter results, which reflect our continued focus and progress on increasing throughput and delivering ships and mission solutions to the nation's sailors, marines and war fighters. I'll start today by providing the Q2 results, highlights from Newport News shipbuilding emission technologies and an update on our operational initiatives. Brian Blanchette, President of Ingalls Shipbuilding has joined me to discuss Ingall's updates, and then Tom will provide more details on our financial performance and outlook. Now turning to our results. We reported second quarter sales of $3.4 billion and diluted earnings per share of $5.27. Shipbuilding sales were $2.7 billion, 16% ahead year-over-year and reflect our fourth consecutive quarter of double-digit growth. Given this momentum and our plans to deliver 5 ships over the next year, we are raising our 2026 shipbuilding revenue guidance to between $10.2 billion and $10.4 billion and our 2026 shipbuilding margin guidance to between 6% and 6.5%. At the same time, customer demand for our products and services remain strong, Second quarter contract awards were $6.7 billion. At Newport News, CVN 79 Kennedy successfully completed builder's trials earlier this year and we expect to achieve preliminary acceptance later this year with final ship delivery in 2027. CVN-80 enterprise continues to gain momentum and has achieved 64% erected. We expect to lay the keel for CVN-81 later this year. And on submarines, SSN 800 Arkansas is progressing towards delivery later this year. Shifting to Mission Technologies. We delivered another strong quarter with $760 million in sales and above 10% EBITDA margin, reflecting steady demand and disciplined execution. The division secured several major awards this quarter, including a recompete award of $418 million to continue supporting ship word-based elevators across U.S. Navy aircraft carriers and amphibious ships. Romulus unmanned surface vessel advanced to the U.S. Navy's MUSV ATC testing phase scheduled for September, a major milestone in this development. We also broadened our REMUS industrial base through new partnerships with Bayou Metals and Halamar shipbuilding, strengthening production capacity and scalability. Additionally, we secured the next production option for the Navy's Line fish, small unmanned undersea vehicle program, further demonstrating how our commercial Remus 300 has successfully evolved into the Navy's preferred next-generation EUV. The growth in budgets for autonomous products, coupled with a strong domestic and international pipeline point to a potential significant growth in this market space, our proven products and technologies along with our partnerships with commercial technology leaders, put us in a position to take advantage of this market inflection. For example, we recently announced our partnership with Applied and tuition to develop and integrate AI defined capabilities for next-generation naval platforms in maritime manned, unmanned teaming. Moving to an update on our operational initiatives, increasing shipbuilding throughput continues to be a main focus. Year-to-date, we've achieved a 12% improvement over 2025 and with plans in place to meet our full year goal of 15%. Throughput improvements are expected to accelerate in the second half of the year as we hit more milestones and deliveries. Year-to-date, we've hired over 3,500 shipbuilders. We continue to gain traction with attracting new shipbuilders from pipeline programs, providing a foundation for our future workforce. Also, we are on track to increase distributed shipbuilding by 30% this year. We continue to evaluate meaningful opportunities to bring more capacity into the shipbuilding space, including additional shipyard facilities. Finally, an agreement has been reached on VCS Block VI and the next Columbia submarine contracts. These contracts represent critical demand signals and stability, not just for our workforce but for the thousands of suppliers across the country who provide parts for these submarines. Turning to activities in Washington. The President submitted its fiscal year 2027 budget request in April, which is now under consideration by Congress. As bills progress through both chambers, we continue to see bipartisan support for our programs reflected in the defense authorization and appropriation bills in the House and the Senate. The House appropriations bill adds funding for the submarine industrial base to invest in critical areas, including supplier capacity and capability, strategic outsourcing, workforce training, technology and infrastructure. We await the Senate appropriations position and final outcomes will depend on eventual respective conference committee negotiations. Now to summarize my remarks, with a solid second quarter and are beginning to see positive momentum from continued investments in shipbuilding in the maritime industrial base. We are focused every day on meeting our operational commitments to the Navy and delivering 5 ships over the next 12 months. And now I'll turn the call over to Brian for his remarks on Ingalls.

Thank you, Chris, and good morning, everyone. With 13 ships currently in construction, Ingalls Shipbuilding has had a productive first half of the year. The shipyard is building 6 destroyers, 3 LPDs, 2 LHAs and supporting work on DDG 1000 and DDG 1002, [Audio Gap] we are also purchasing material and doing preproduction work for an additional dozen ships under contract. Today, I'll provide an update on our ship delivery progress our distributed shipbuilding strategy and our continued focus on workforce readiness. On the destroyer program, we ended 2025 and with the successful delivery of DDG 128 Ted Stevens. The ship sailed away in the second quarter of 2026, marking the 36 DDG-51 Arle Bert class destroyer and second Flight III destroyer, Ingalls has delivered to the fleet. This year, we also loaded fuel and lit off generators on DDG 129 Geremia Denton as we prepare for her planned delivery in 2027. Across the destroyer line, we continue to make steady progress. We launched an crisaned DDG-131, George Neil, achieved store release and 100% well complete on DDG 133 SAM 9 and loaded men-machinery on DDG 135 [indiscernible]. We also reached 25% but well complete on DDG 135 and have received all 4 units from our distributed shipbuilding partners. DDG 137, John F. Lehman received 2 additional outsourced units and celebrated her first milestone, start fab, capitalizing on the growing value of this production approach. On the amphib programs, LPD 30 Harrisburg powered up main engines in the second quarter and is progressing towards delivery this year. On LPD-31, Pittsburgh, the forward and deck houses were landed, and we laid the keel of LPD 32 Philadelphia. On LHA-8 Buggenville, we continue to ramp up the test program as we prepare for her planned delivery in 2027. We also completed sea trials for DDG-1000, USS Zoom Walt and achieved crew move board earlier this year. And finally, in April, Ingalls was awarded the Frigate lead yard support contract to procure long lead time material, execute design work, and begin preconstruction activities for the first ship. Ingalls is also continuing to increase production capability through new technology investments and additional distributed shipbuilding partners along the Gulf Coast. This strategy allows selected units to be built off-site and integrated in Pascagoula, creating a dual production path that supports greater throughput. Inside our shipyard, we remain focused on workforce development by pairing targeted hiring with advanced training and onboarding technologies we are working to build a stronger workforce pipeline, increased readiness and improve retention. Supporting these efforts we successfully reached an updated collective bargaining agreement with our union partners in March, and we are seeing early indications that the higher wages have a positive impact on our ability to hire and retain skilled shipbuilders. In summary, the Ingalls team is focused on delivering 3 ships over the next 12 months increasing production pace through distributed shipbuilding and strengthening the workforce required to deliver on our commitments. Now I'll hand the call over to Tom for some remarks on our financial results. Tom?

Thanks, Brian, and good morning. Let me start by discussing our second quarter results, and then I'll provide some color on our expectations for the remainder of 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 second quarter revenues of approximately $3.4 billion increased 10.9% compared to the same period last year. The higher revenue was attributable to stronger year-over-year growth at both shipyards. Ingall's revenues were $845 million and increased by 16.7% compared to the second quarter 2025, driven primarily by higher volumes in amphibious assault ships. Newport News revenues of $1.8 billion increased by 15.3% compared to the second quarter of 2025. And driven by higher volumes across aircraft carriers and submarines. Together, share building revenue was $2.7 billion, up 15.7% year-over-year. Mission Technologies revenues of $760 million decreased by 3.9% compared to the second quarter of 2025, primarily due to lower volumes in all domain operations in Global Security, partially offset by higher volumes in Warfare Systems and Unmanned Systems. This result is modestly better than the guidance we had given for the quarter, as the prior year results included approximately $45 million of revenue related to a nonrecurring contract resolution. Excluding that impact, Mission Technologies revenues grew modestly year-over-year on an organic basis. Moving on to Slide 6. Segment operating income of $224 million and segment operating margin of 6.6% in the second quarter of 2026 compared to $172 million and 5.6% in the second quarter of 2025. At Ingalls, segment operating income was $58 million and operating margin was 6.9% compared to $54 million and 7.5% in the second quarter of last year. The increase in segment operating income was driven by higher volumes in amphibious assault ships partially offset by favorable contract adjustments in surface combatants in the second quarter of 2025. The second quarter net cumulative adjustment at Ingalls was a negative $2 million and none of the adjustments were individually significant. At Newport News, segment operating income was $111 million, an operating margin of 6% compared to $82 million and 5.1% in the second quarter of 2025. The increase in segment operating income was primarily driven by contract adjustments and incentives in aircraft carriers and the higher volumes I described earlier, partially offset by lower performance in aircraft carriers. For the second quarter of 2026, Newport News Shipbuilding's net cumulative adjustment was positive $8 million. The quarterly result did include meaningful positive and negative adjustments within the carrier refueling and complex overhaul program as we incorporated change settlements and realign risk and expectations across that program. As Chris mentioned, we reached agreement on the submarine contracts. The contract definitization is contemplated in our third quarter guidance. Moving on, Mission Technologies segment operating income was $55 million and operating margin was 7.2% compared to $36 million and 4.6% in the second quarter of 2025. The increase in segment operating income was primarily due to higher equity income from nuclear and environmental joint ventures. For the second quarter of 2026, Mission Technologies' net cumulative adjustment was a positive $4 million. None of the adjustments in the quarter were individually significant. Consolidated operating income for the quarter was $210 million, and operating margin was 6.1%, compared to $163 million and 5.3% in the same period last year. The increase in operating income was driven by the favorable segment operating income that I just reviewed, partially offset by higher noncurrent state income tax expense and the operating FAS/CAS adjustment. Net earnings in the quarter were $208 million, and diluted earnings per share were $5.27, up from $152 million and $3.86 in the same period last year. The effective tax rate in the second quarter was 18.1%. This was below the guidance of 21% that we previously provided, primarily due to favorable tax impacts related to stock award settlement activity. Turning to Slide 7. Cash used in operations was $31 million in the quarter. Net capital expenditures were $119 million or 3.5% of revenues. Free cash flow results in the quarter came in below the forecast we provided on the last earnings call, largely due to timing of receipts and disbursements between quarters. There's no change to our free cash flow expectation for the year, which I will provide some more color on in a moment. During the quarter, we did not repurchase any shares. We did pay a cash dividend of $1.38 per share or $55 million in aggregate. Turning to liquidity and the balance sheet. We ended the quarter with a cash balance of $12 million and liquidity of approximately $1.7 billion. Moving on to our outlook on Slide 8. We are increasing our expectation for shipbuilding revenue for the year as well as bringing up the bottom end of the shipbuilding operating margin range for 2026. We now expect shipbuilding revenue between $10.2 billion and $10.4 billion and expect shipbuilding operating margin in the range between 6% and 6.5%. We are reiterating all other aspects of our guidance for 2026, including the expectations for Mission Technologies revenue of between $3 billion and $3.2 billion and Mission Technologies segment operating margins of approximately 5%. I'll note that we continue to see the new battleship and frigate programs as meaningful upside opportunities to our medium-term outlook. That we will need additional details before we can include those in our guidance outlook. Moving on to the third quarter look ahead outlined on Slide 8. We expect shipbuilding revenue of approximately $2.6 billion and shipbuilding operating margin that is similar to the second quarter result of 6.3%. For Mission Technologies, we expect revenues will be similar to the second quarter results of $760 million and operating margin of approximately 4%, inclusive of strategic investments that we expect to make in our unmanned capability and production capacity. We expect free cash flow in the third quarter to be approximately $100 million. This does mean that we expect significant free cash flow generation in the fourth quarter to meet our guidance for the full year of between $500 million and $600 million. We are reiterating that outlook and do expect meaningful positive cash impacts from contract advances and incentives as well as favorable cash tax impacts in the fourth quarter. Regarding the effective tax rate, we believe it is prudent to use our tax rate of 21% for the third quarter, but we still believe 17% is appropriate for 2026 and with an expected research and development tax credit expected in the fourth quarter at the end of the year. To close, it was another good quarter as we continue to make steady progress and execute against our 2026 operational initiatives. We are pleased to improve the shipbuilding expectations for the year and remain focused on executing our plan. With that, I'll turn the call back over to Christie to manage Q&A.

Thanks, Tom. [Operator Instructions] Operator, I will turn it over to you to manage the Q&A. .

[Operator Instructions]Your first question comes from the line of John Godyn with Citi.

Obviously, a great kind of margin quarter. You raised shipbuilding margins and you're tracking in line with the full year guidance. I was hoping you could shed some light on how to think about shipbuilding margins through the remainder of the year just by quarter. And at the same time, it would be helpful to step through any of the remaining milestones just to calibrate everybody's expectations on timing.

Sure, John. I think Tom indicated where we think we're going to be in Q3. And then if you look at the full year, you can kind of see how we're thinking about margin for the balance of the year. But from a from a milestone standpoint, delivery of 30 will be towards the end of the year. It will go to trials here in Q3. 79 is actually going to go to trials here in a couple of weeks or a week or 2. We expect that to proceed and that's on schedule. 800 towards the end of the year, some real critical milestones coming up in the summer here or the later part of the summer related to 800. So those are the remaining milestones, laying the keel of 81 on schedule towards the back half of the year, but I don't anticipate a lot of margin related to that. So -- those are the 26 milestones. 27 is all still in place, and we're proceeding on those as well.

Okay. Got it. And clearly, executing well operationally, trends are moving in the right direction. But are there any additional data points you can share on improving throughput, productivity, reducing costs just to help paint a picture of how far you've come and how much more there is to go?

Yes, we've made real good progress, right? We had 14% last year in throughput. We expect 15% this year. Newport News has had a great start of the year over the first 2 quarters relative to throughput, primarily on the submarine programs. Ingalls had a bit of a slow start this year related to labor and labor growth and that's really tied to getting their labor agreement done in March. I actually, fortunately enough, have Brian here, Blanchette, for Ingalls Building. He can talk about what they're doing from a labor standpoint and how the ships are progressing through the factory there.

Thanks, Chris. As Chris said, we signed an updated collective bargaining agreement at the end of the first quarter, and it was really a win-win-win agreement, good for the workforce, good for us, good for the Navy. And we saw immediate benefit from a retention standpoint but there's a little bit of a lag from a hiring standpoint just as Newport News saw when they did some wage adjustments last year. But we're starting to see some good positive indicators on hiring. We have all of our pipeline programs are going really well. Our apprentice school is near full capacity the next class that we take in, in the next month or so, should put us there. Our high school programs are going great, had an excellent signing day ceremony in the spring and our biggest class ever for that. So we're excited about where we're headed. As Chris said, it was a bit of a slow start, but we're positive about the second half of the year.

Yes. I can add to that we are delivering 5 ships over the next 12 months. I said that in my script as well, 3 of those in Ingalls. So it's critical we get through those on schedule to get those ships to the Navy, but also critically, you going to rotate those crews to the next ships in the production line. So that's also very important.

Your next question comes from the line of Noah Poponak with Goldman Sachs.

The updated -- a few questions on the updated guidance. So the new shipbuilding range -- revenue range implies the back half 3Q and 4Q combined are kind of flat year-over-year. Maybe you can help us out with why you'd be flat in the back half versus the double-digit growth in the first half. And specifically, I think it implies 3Q is up about 6% and 4Q is down about 6%, what drives 4Q down? And then on the shipbuilding margin forecasting it kind of flattish sequentially. Could you talk a little bit more about the moving pieces there because I thought you had explained previously that whenever you captured the contracts on the next batch of subs, there were maybe payments associated with that, plus the retroactive catch-up of having had booked long lead at very low margin. If you could help out with those things.

I appreciate that. On the revenue side, as you mentioned and said in the remarks, we did upscale the expectations for shipbuilding by $0.5 billion, both the low end and the top end it is true when you do the math of that actual is now in Q1, Q2, plus the guide for Q3, where that could land in Q4. That ranges from the $10 billion, $4 billion across the whole year, the Q4 that would be anywhere from $2.5 million to $2.7 million, and you're right, if you look at it compared to where we just finished up almost at $2.7 million with the guided [ 26% ] and then compared to Q4 of last year, it seems like it's flat, if anything, kind of pulls back a little bit. But a couple of points to come back on that. One, in Q4 of last year was a big material quarter for both sides, but specifically that at Ingalls. So that's a positive guide. And then also, there's probably a little conservative in there. We want to see both the material. The labor continue to inflect upward at Ingalls. The material as plan to come in here. I wouldn't overly focus the year-over-year guide being flat or maybe slightly negative to Q4 but the fact that the matter that we've had 4 now quarters in a row, both for HII and in shipholding 4 quarters to row of double-digit growth. So we're out in front of our 6% medium-term guide. And I feel really comfortable about that. I think we just want to see it occur and happen. And again, it's a tough comp against Q4 to 2025 in shipbuilding. On the margin side there, again, it's the same story, where given the same 6.3% for Q3, kind of guidance that we just came through for 6.3% for this quarter. You heard last night that we did get the sub-awards which bring meaningful revenue, more commitment in statement of work and CapEx and incentive opportunities in that. So I would tell you that a piece of Q2 had incentives in there. We did not want to wait -- we had an agreement with the Navy to get started on those incentives. So the Q2 has a piece of the incentives baked into it. And going forward, there's additional incentives that come about with the ward in Q3. I would tell you it's on the early side. You can imagine just putting that on contract, adjusting the booking rates, more contract value, much statement work, more capital commitment, and then the time to actually -- even though there's capital incentives on there, there's time and contract incentives, we need time to actually meet the milestones, meet the criteria and be able to kind of book that and eventually get the cash at the end of the year. So I'm quite comfortable with that. Perspective again, just like I gave you on the revenue. On the margin side, if you look at the march-up that we've had whether we talk about where we've been in quarterly shipbuilding from 5.5% in Q4 of last year to 5.7% in Q1 of this year to now 6.3%. That's the nice incremental march that we've kind of forecasted that was coming about as the portfolio would change over and with these subcontract boat awards. And then just from a fiscal perspective, we've seen 5.2% [ rosinshipbuilding ] in '24, 5.9% in 2025. And now raising the guidance from 5.5% to 6.5% to now 6.0% to 6.5%, a midpoint of 6.25%, again, a progression both quarterly and annually on how the company is moving forward here as we -- the investments are paying off input, output, top line is growing, incremental improvement on the bottom. So I'm quite comfortable with both the quarter itself and where we're projecting the end of the year is going to be.

Okay. Great. Tom, I appreciate all that detail. Yes, I guess just should we think of last night's contracts as in the outlook you're providing today or incremental to the outlook you're providing today? Because I guess you're technically giving us this post the contracts, but you're also, I assume, not formulating your earnings report and guidance only the night prior.

Yes. So I'll square that up for you. As I mentioned earlier, in the Q2 results already was a cadre of the incentives, right? We had an agreement, and that was booked in Q2. And then with the awards last night, there's additional incentives that come about that and that's rolled into the guidance in Q3. We had an expectation of understanding. We've been saying for a while that first and goal of getting the mods -- over the goal actually have mods in hand, that's occurred last night, but both the actuals that we had with the agreement in Q2 are in place and rolled in there. And then with the anticipation of what was going to be awarded, which was in line with our expectations, that was already baked into the forecast as we go forward.

Your next question comes from the line of Scott Mikus with Melius Research.

Very nice results, and congrats on the submarine contract. I have a couple of quick clarifications on it. Of the $76.6 billion of contract mods, how much of that goes to Newport News versus [ electric boat ] if you have a ballpark figure there? And is there a reason why it was only 9 Virginias instead of 10?

Yes. So on the Part 1 there, yes, $76.6 billion what comes to Newport News is approximately $25 billion of that and about $5.5 billion on the Columbia program. The rest of that is related with the Block VI contract award, obviously, goes on the VCS contract. And then the capital incentives that benefit both the Virginia class, the Columbia class and Newport News operations in totality, those incentives are spread over various contracts. Relative to...

Yes, the 9 ships there is material for the 10 ship bought as well, I believe. So that's not going to impact production of the class. It's more of a funding mechanism.

So there's 10 ships of material, right? And then there's 9 shipsets cost-wise for the integration and testing and delivery of the boat, right? And the 10th ship could be used for spares or could eventually be pushed up with the go line as another integrated chip?

Okay. That's helpful context. And then, Chris, you've done a lot of work increasing the outsourcing through distributed shipbuilding. With your outsourcing partners so far, how has the quality of work been? Has it been in line with expectations, better than hoped? Or maybe are there areas for improvement? Just curious how that's going.

Yes. Well, we have a long history of outsourcing in both shipyards. So we've unfortunately made mistakes in the past. We've learned from that in each shipyard. We've rolled those lessons learned into our process for outsourcing, again, in both shipyards. Now it's not perfect. We still have some issues. But all in all, in each, we've had pretty positive results. We do find issues, we have our QA and our engineering team out there right away. We have in process inspections to ensure that we execute with our outsourced partners. So it's not been perfect, and we need to continue our outsourcing, and we've been pretty successful over the last 2 years doing that, and we will continue to do additional outsourcing related to distributed shipbuilding. So it's been positive. There have been issues we've had to deal with, we jumped right on them, and we remediate the issue. But all in all, it's been very positive.

Piggy back on the back of that 2 here, as you know, our ships are follow-on ships in production, both Newport News and Ingalls provides the engineering package and the package of parts as well. So it's not first of class or first new builds. The vendors are at times doing for the first time, but we have program project management oversight, quality and engineering support. And then when they're finishing their products, it's more of a pilot range that we pilot initial construction or fabrication. And then as they're able to prove out and get good quality and their own cost and schedule, then we provide more work packages.

Maybe Brian could talk about their process and how they evaluate distributed shipbuilding partners.

Yes. As Chris said, we worked really hard to incorporate all the lessons learned from past efforts and we've worked hand-in-hand with our Navy partners down on the Gulf Coast. So it isn't a throat over-the-fence kind of mentality. We're there, as Tom said, hand-in-hand with our suppliers. We have incremental checkpoints, just like we would for ourselves, both with our inspectors and our Navy inspectors. And the fruits in the pudding, we just directed our first [ 2-gram ] blocks as we talked about in our release we just put out from our distributed shipbuilding partners and they were incorporated into the ship as expected. And so it takes staying on top of it and working hand-in-hand with the suppliers, but we're really positive about the results so far.

Your next question comes from the line of Gautam Khanna with TD Cowen.

Congrats on the submarine contracts by the way. Yes. I was curious just -- was there anything about the terms once it was finalized that surprised you or made you think the 9% to 10% eventual goal at shipbuilding is not consistent with the terms of the submarine contracts that were agreed to last night?

No, no, nothing, nothing different or special about the terms. It was a lot of work. It's a very big contract. The Navy, the EB and the Newport News team worked very hard to get it over the goal line. But it's very consistent with what we expect from a profitability standpoint. So nothing really special. Obviously, we had to incorporate kind of lessons learned for coming through COVID and the economic environment we dealt with there. So I do obviously expect it to perform better than those contracts. But I think it's very consistent with the long-term margin profile that we expect.

Okay. That's great to hear. And because we're all kind of asking the same question on what the size of the EAC was in Q2 related to it and/or will be in Q3. Is there any way you can give us some way to assess how big that was related to signing these contracts? And then also the cash impact, presumably, there are advances and the like that are in the guidance for the year. So any quantification would be helpful.

There's a lot of moving parts in that. Obviously, as I said earlier, very topically more contract value, more statement or capital commitment incentives on the contract. So -- it's early, and we normally don't provide that type of visibility into the contract right now as we go forward here.

There's always timing issues related to incentives under the contract but we've included all that within our guidance.

Maybe just to put a finer point on it, should we expect a bigger not knowing what the absolute numbers are. Should we expect a bigger adjustment favorably in Q3 versus Q2 related to the contracts being signed?

So, I'll take that. Yes. The contract itself is in very early stages. It's -- so we've got to make progress on the revenue side, see how performance plays out. These milestones and responsibility we have to obviously, to execute the contract and cost of schedule and relative to the incentives and things we have to do and evidence completion on that. So I would expect that we would just like we saw an incremental improvement here, we find our footing once we establish -- the contract has been awarded, we'll establish our baseline, we'll get that out. And then we're off to the races. It's just managing performance every 13 weeks and making our commitments on those contracts. So I think it's aligned. The guidance kind of incorporates that. You can see after a meaningful kind of step-up in ship holding at 5.7% to 6.3%, we're telling you, 6.3% for Q4, you can do the high and low against that at now 6% to 6.5%. And steady performance and staying on schedule. It's a piece of the portfolio at Newport News gets us to the top end. And if we were to run into some headwinds on the existing contracts that we're trying to get those completed and pushed back. There's always the possibility of some step backs in those. But we did clip off half the bottom range here. And we feel good here with just a little less than half a year ago, now standing at 6% to 6.5% for shipbuilding at year's end.

Your next question comes from the line of Doug Harned with Bernstein.

I'd like to go back to Noah's question, I was trying to understand the shipbuilding lines because this is -- I mean this is an industry you don't get a lot of surprises. So the fact that you took guidance up by a pretty large amount, $500 million quarter-over-quarter. And how much of that was due to this new award? And how much might be due to something else like change in the milestone or something like that.

Well, top line was related, and I'll let Tom talk about the award, but the top line related just confidence that we're going to execute in our programs over the balance of the year. Throughputs 12% and materials proceeding, the milestones are staying in place. So from my perspective, that's just confidence in execution under our programs. Now obviously, we've got a large contract award and Tom, I don't think it's going to give you specific numbers in that regard because we had that in our guidance or we knew that we're going to get that under contract anyway, but Tom can comment on the top line.

It's much more, Doug, on the former here right now, it's the run rates that we're seeing both at Newport News and Ingalls. We see good inflection on hiring and in-sourcing, outsourcing at both yards and then expectation on at Ingalls that, as Chris said earlier, a little flat at the beginning of the year. But what we're seeing in throughput and capacity, in-sourcing, outsourcing, job shop labor and then just the actual numbers, as I mentioned earlier, we've seen HII have double-digit growth across the company, across 3 divisions, but specifically in shipbuilding and follow suit as well, 18%, 19.6%, 19.7% and now 15.8%, respectively, quarter-over-quarter -- year-over-year on a quarterly basis here. So there's a good fit there. We're doing what we -- we're executing. Yes. Is the question out there?

Yes, on that, Tom. So 1 of the -- I mean, 1 of the things that you've brought in has been -- some of that came out of that previous Block V awards for the last 2 ships was additional support for labor sort of higher labor wage rates. And so I guess 2 things on that. One is that is that's presumably a contributor to the near-term revenue growth when that flows through the additional labor cost flows through. Can you comment on that? How important that has been in taking these revenue numbers up, and I know you're getting supported Ingalls too, for this. So first, how important it is on the revenue side, that should be a pass-through. But the second part, how that's helping you improve your performance and your throughput.

Yes. So relative to the revenue growth, obviously, there's a timing of that. Newport News per se the go line of Q2 of last year. So in the comparison, that's already kind of baked in. The Ingalls just went over the go line in the February time frame. And meaningfully, it's just working itself through the revenue side now. So I still say organically, the growth is happening because of higher material and high labor we have more ships inflow, more people either in the yards and/or more work being outsourced. So that's what's really driving that I'm with you that as that takes hold and the comparisons year-over-year, it will be baked into higher wages, but that's less than half of the growth rate differential of what's happening right now. It's just more capacity and throughput through both yards.