Huntington Ingalls CEO Talks Shop, Post Spinoff Life With The WSJ

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Amidst talk of defense budget cuts and sequesters, Northrop Grumman (NOC) spun off of its naval shipbuilding unit Huntington Ingalls (HII). Despite the doom and gloom setting for the defense industry, the stock has appreciated quite nicely since its March 2011 debut, up close to 90%. The company has recently faced cost overruns while building the newest aircraft carrier, but overall the company has been able to improve operating margins and grow. Huntington’s CEO Mike Petters recently sat down with the WSJ in order to discuss the outlook for the industry and the unique position of his company. While the entire interview is worth reading, one of the questions focused on post-spinoff life:

WSJ: What freedoms do you have as an independent company that you lacked as part of a larger organization?

Mr. Petters: If you’re trying to build an incentive program for a large [defense] organization, you create a set of incentives that focuses on the Beltway. We’re able to create a set of incentives that allows us to focus on Navy and Coast Guard shipbuilding. We no longer have to compete against a project from the [Northrop Grumman] space division. That allows us to be more agile.

Anyone who has worked for a large corporation and seen these ‘internal competition’ dynamics at work can attest that this is one of the best arguments in favor of spinoffs. With more focused and incentivised management at the top, it is no surprise that many spinoffs outperform.

Disclosure: Author holds no position in any stock mentioned

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