(Reuters) -Huntington Ingalls reported better-than-expected quarterly earnings on Thursday on the back of demand for aircraft carriers but profit margins were below company estimates, sending shares down despite geopolitical tensions.

Shares fell 12% during trading on Thursday.

WHY IT IS IMPORTANT

Demand for submarines and aircraft carriers is surging, fueled by China's expanding naval footprint and high global tensions, benefiting shipbuilding giants such as Huntington Ingalls.

CONTEXT

Huntington is the only major pure-play defense company that has outperformed S&P 500 index, helped by a well-supported navy shipbuilding budget, including inflation-related price increases.

GRAPHIC

BY THE NUMBERS

The largest U.S. military shipbuilding company's first-quarter revenue rose 4.9% from a year earlier to $2.81 billion, ahead of analysts' estimate of $2.79 billion.

Huntington reported quarterly diluted earnings of $3.87 per share, beating analysts' average estimate of $3.53, as per LSEG.

WHAT'S NEXT

The company reaffirmed its 2024 shipbuilding revenue target to be between $8.8 billion and $9.1 billion.

However, shipyard labor retention remains a stubborn problem. Shipbuilding is also under pressure due to program delays, most notably on General Dynamics and Huntington's Virginia Class submarine program which is being developed for the U.S. Navy.

These delays impact the timelines and budgets of future defense contracts for the company.

(Reporting by Pratyush Thakur in Bengaluru and Mike Stone in Washington; Editing by Krishna Chandra Eluri and Chris Reese)