HII Stock Slides as Huntington Ingalls Confronts Execution Challenges

Defense contractor Huntington Ingalls Industries saw its HII stock tumble 11% in early 2025 after reporting disappointing fourth-quarter results and signaling that operational difficulties won’t be resolved quickly. The company, which operates Newport News Shipbuilding in Virginia—America’s premier facility for aircraft carrier and submarine production—faces a confluence of pressures that have caught investors’ attention for the wrong reasons.

The shipbuilder reported earnings of $3.15 per share on $3 billion in quarterly revenue, missing Wall Street expectations and marking a 5.7% decline year-over-year. A $74 million negative profit adjustment linked to labor shortages and supply chain disruptions highlighted just how much inflationary pressures are biting into margins. This is the heart of Huntington Ingalls’ problem.

The Contract Paradox: Why Long-Term Deals Became Long-Term Liabilities

Huntington Ingalls holds one of the most enviable positions in aerospace and defense—a $48.7 billion backlog of government contracts virtually guaranteed by Pentagon procurement needs. The challenge? Many of these contracts were locked in before the pandemic reshaped global economics.

When labor costs and raw material prices skyrocketed post-2020, contractors couldn’t simply walk away. Instead, they’ve been trying to renegotiate “cost-plus” arrangements with the Pentagon—deals where price increases for materials and labor get passed through to the government with agreed-upon margins. So far, those renegotiation efforts have largely stalled in Washington.

Since many ships won’t be delivered for years, there’s no quick relief in sight. Management announced plans to cut roughly $250 million in gross costs during 2025, but the benefit to HII stock holders will be dampened by the fact that cost reductions get partially passed back to the government under their existing contract terms.

The Investment Question: Stability Versus Risk

On paper, HII stock might look compelling. The company maintains consistent profitability, generates positive free cash flow, and sports a dividend yielding above 3%. Huntington Ingalls possesses genuine competitive advantages—few companies globally can design and build the massive carriers and submarines that dominate its portfolio. The Pentagon will continue buying ships for decades.

Yet headwinds lurk beneath the surface. If the U.S. military increasingly pivots toward smaller, unmanned vessels over the giant platforms Huntington Ingalls specializes in, new competitors could emerge and erode the company’s market dominance. Additionally, the episodic nature of shipbuilding—where specialized workers are needed in fits and starts as vessels move through production—makes it difficult for the contractor to build and retain the kind of permanent, experienced workforce that smaller, continuous-production manufacturers enjoy.

For investors considering HII stock, the calculus isn’t straightforward. While the company won’t disappear and remains a Pentagon favorite, better-diversified defense plays may offer more attractive risk-reward profiles without the execution headwinds currently weighing on Huntington Ingalls.