L3Harris Reports Strong Second Quarter 2021 Results
L3Harris Technologies (NYSE: LHX) reported Q2 2021 revenue of $4.7 billion, a 5% increase year-over-year, with GAAP net income surging 49% to $413 million. Adjusted EBIT rose 7.3% to $869 million, and adjusted EBIT margin improved by 40 bps to 18.6%. GAAP EPS reached $2.01, up 55%, and non-GAAP EPS was $3.26, a 15% rise. The company highlights its merger's value creation, raising guidance for 2021. Segments showed organic revenue growth of 12% in Integrated Mission Systems and 4.7% in Aviation Systems, with a positive outlook for long-term value creation.
- Revenue increased 5% to $4.7 billion, with organic growth of 6.2%.
- GAAP net income surged 49% to $413 million.
- Adjusted EBIT rose 7.3% to $869 million, with an adjusted EBIT margin of 18.6%.
- GAAP EPS increased 55% to $2.01; non-GAAP EPS up 15% to $3.26.
- Segments showed strong growth, especially in Integrated Mission Systems (12%) and Aviation Systems (4.7%).
- Raised 2021 guidance: Revenue now $18.1 billion - $18.5 billion.
- Operating cash flow decreased by $82 million to $720 million.
- Aviation Systems segment revenue fell 10% year-over-year.
L3Harris Technologies, Inc. (NYSE: LHX) reported second quarter 2021 revenue of
“We are now at the 2-year mark for L3Harris and our second quarter results demonstrate the merger's value creation and operating momentum. Our accomplishments to-date and a continued focus on execution give us confidence to raise guidance for the year,” said Christopher E. Kubasik, Vice Chair and Chief Executive Officer. "As we look forward, a commitment to our strategic priorities along with our differentiated capabilities position us for further value creation over the long term."
Summary Financial Results
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Second Quarter |
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First Half |
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($ millions, except per share data) |
2021 |
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2020 |
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Change |
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2021 |
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2020 |
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Change |
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(GAAP comparison) |
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Revenue |
$ |
4,668 |
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$ |
4,445 |
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$ |
9,235 |
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$ |
9,071 |
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Net income |
$ |
413 |
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$ |
278 |
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$ |
879 |
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$ |
472 |
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Net income margin |
8.8 |
% |
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6.3 |
% |
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250 bps |
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9.5 |
% |
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5.2 |
% |
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430 bps |
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EPS |
$ |
2.01 |
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$ |
1.30 |
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$ |
4.26 |
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$ |
2.29 |
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(Non-GAAP comparison)3 |
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Revenue |
$ |
4,668 |
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$ |
4,445 |
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$ |
9,235 |
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$ |
9,071 |
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Adjusted EBIT |
$ |
869 |
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$ |
810 |
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$ |
1,731 |
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$ |
1,618 |
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Adjusted EBIT margin |
18.6 |
% |
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18.2 |
% |
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40 bps |
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18.7 |
% |
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17.8 |
% |
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90 bps |
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EPS |
$ |
3.26 |
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$ |
2.83 |
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$ |
6.44 |
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$ |
5.63 |
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Organic revenue1 |
$ |
4,668 |
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$ |
4,396 |
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$ |
9,235 |
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$ |
8,881 |
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Second quarter revenue increased
Second quarter net income margin expanded 250 bps and adjusted EBIT margin expanded 40 bps to
Segment Results
Integrated Mission Systems
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Second Quarter |
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First Half |
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($ millions) |
2021 |
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2020 |
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Change |
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2021 |
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2020 |
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Change |
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Revenue |
$ |
1,494 |
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$ |
1,331 |
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$ |
2,945 |
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$ |
2,701 |
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Operating income |
$ |
229 |
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$ |
224 |
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$ |
469 |
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$ |
425 |
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Operating margin |
15.3 |
% |
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16.8 |
% |
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(150) bps |
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15.9 |
% |
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15.7 |
% |
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20 bps |
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Second quarter revenue increased
Segment funded book-to-bill was 0.81 and 1.06 for the quarter and first half, respectively.
ISR award activity continued with over
In Maritime, the company received several key awards that strengthen its position as a leading provider of global maritime solutions, including:
-
More than
$100 million in awards for sensors and shipboard systems on the U.S. Navy's Virginia and Columbia-class submarines, increasing inception-to-date awards on the platforms to more than$700 million -
$60 million award to provide engineering support for the Medium Unmanned Surface Vehicle, a key platform in the U.S. Navy's distributed maritime operations strategy and with significant follow-on opportunity -
More than
$50 million contract to provide imaging systems on a submarine from a customer in Europe
Within Electro Optical, WESCAM sensor demand remained strong and included a sole-source IDIQ contract for up to
Space and Airborne Systems
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Second Quarter |
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First Half |
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($ millions) |
2021 |
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2020 |
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Change |
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2021 |
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2020 |
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Change |
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Revenue |
$ |
1,287 |
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$ |
1,249 |
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$ |
2,523 |
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$ |
2,441 |
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Operating income |
$ |
253 |
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$ |
235 |
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$ |
493 |
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$ |
456 |
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Operating margin |
19.7 |
% |
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18.8 |
% |
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90 bps |
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19.5 |
% |
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18.7 |
% |
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80 bps |
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Organic revenue1 |
$ |
1,287 |
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$ |
1,247 |
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$ |
2,523 |
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$ |
2,434 |
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Second quarter revenue increased
Segment funded book-to-bill was 1.02 and 1.09 for the quarter and first half, respectively.
In Space, the company received several key awards across its ground, responsive and exquisite franchises, including:
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Multiple classified revenue synergy awards totaling more than
$200 million , leading to new franchises with a total potential value of over$500 million -
An award for a telescope system in support of the U.S. Missile Defense Agency's Next Generation Interceptor program, with a potential value exceeding
$70 million - Multi-million-dollar initial award for concept formulation and design of next-generation weather imagers in support of the U.S. National Oceanic and Atmospheric Administration's future Geostationary and Extended Orbits satellite system, with significant follow-on opportunity
Within Mission Avionics and Electronic Warfare, L3Harris recorded more than
In Intel & Cyber, the company recorded over
Communication Systems
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Second Quarter |
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First Half |
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($ millions) |
2021 |
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2020 |
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Change |
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2021 |
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2020 |
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Change |
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Revenue |
$ |
1,127 |
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$ |
1,112 |
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$ |
2,239 |
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$ |
2,206 |
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Operating income |
$ |
287 |
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$ |
265 |
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$ |
568 |
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$ |
515 |
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Operating margin |
25.5 |
% |
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23.8 |
% |
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170 bps |
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25.4 |
% |
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23.3 |
% |
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210 bps |
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Organic revenue1 |
$ |
1,127 |
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$ |
1,092 |
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$ |
2,239 |
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$ |
2,173 |
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Second quarter revenue increased
Segment funded book-to-bill was 1.28 and 1.10 for the quarter and first half, respectively.
Tactical Communications received several key orders that strengthen its global leadership, including:
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$3.3 billion , five-year, single award IDIQ from the U.S. DoD to provide radio systems and communications equipment to international countries under the Foreign Military Sales process, with initial task orders totaling more than$80 million -
$76 million in orders to provide a networked communications system and tactical radios for countries in the Middle East -
$60 million for sustainment services and advanced multi-channel Falcon IV® handheld radios for a European country -
$61 million in orders from the U.S. Marine Corps for vehicular C4I and radio systems, handheld full-motion video data link production and manpack upgrades -
$19 million follow-on order for HF radios in support of the U.S. Army's network modernization program
In Public Safety, the company was awarded a
Within Broadband Communications, L3Harris received a
Aviation Systems
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Second Quarter |
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First Half |
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($ millions) |
2021 |
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2020 |
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Change |
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2021 |
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2020 |
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Change |
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(GAAP comparison) |
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Revenue |
$ |
809 |
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$ |
800 |
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$ |
1,623 |
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$ |
1,811 |
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( |
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Operating income (loss) |
$ |
35 |
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$ |
31 |
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$ |
163 |
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$ |
(146) |
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Operating margin |
4.3 |
% |
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3.9 |
% |
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40 bps |
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10.0 |
% |
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(8.1) |
% |
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1,810 bps |
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(Non-GAAP comparison)4 |
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Revenue |
$ |
809 |
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$ |
800 |
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$ |
1,623 |
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$ |
1,811 |
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( |
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Operating income |
$ |
117 |
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$ |
100 |
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$ |
245 |
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$ |
247 |
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( |
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Operating margin |
14.5 |
% |
|
12.5 |
% |
|
200 bps |
|
15.1 |
% |
|
13.6 |
% |
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150 bps |
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Organic revenue1 |
$ |
809 |
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$ |
773 |
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$ |
1,623 |
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$ |
1,661 |
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( |
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Second quarter revenue increased
Segment funded book-to-bill was 0.90 and 0.87 for the quarter and first half, respectively.
Mission Networks recorded more than
Defense Aviation received a
Cash and Capital Deployment
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Second Quarter |
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First Half |
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($ millions) |
2021 |
|
2020 |
|
Change |
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2021 |
|
2020 |
|
Change |
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Operating cash flow |
$ |
720 |
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$ |
802 |
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$ |
(82) |
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$ |
1,381 |
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$ |
1,335 |
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$ |
46 |
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Adjusted free cash flow |
$ |
685 |
|
|
$ |
785 |
|
|
$ |
(100) |
|
|
$ |
1,315 |
|
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$ |
1,318 |
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$ |
(3) |
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In the second quarter of fiscal 2021, L3Harris generated
L3Harris also completed the divestitures of the Military Training and Combat Propulsion Systems businesses, with total gross proceeds in the quarter of
In addition, L3Harris signed a definitive agreement to sell its Electron Devices business for
Guidance
L3Harris revised 2021 guidance as follows:
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Guidance (as revised) |
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Previous Guidance (April 2021) |
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Revenue5 |
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Organic revenue growth |
up |
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up |
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Adjusted EBIT margin |
~ |
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Non-GAAP EPS |
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Adjusted free cash flow6 |
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Share repurchases7 |
~ |
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~ |
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COVID
Attempts to contain and reduce the spread of COVID, such as mandatory closures, “shelter-in-place” orders and travel and quarantine restrictions, have caused significant disruptions and adverse effects on the U.S. and global economies, such as impacts to supply chains, customer demand, international trade and capital markets. L3Harris' response has involved increasing its focus on keeping its employees safe while striving to maintain continuity of operations, meet customer commitments and support suppliers. For example, the company instituted numerous types of precautions, protocols and other arrangements designed to protect employees from COVID infections and to comply with applicable regulations and has also maintained an active dialog, and in some cases developed plans, with key suppliers in an effort to mitigate supply chain risks or otherwise minimize the impacts from those risks. The U.S. Government response to COVID has included identifying the Defense Industrial Base as a Critical Infrastructure Sector and enhancing cash flow and liquidity for the Defense Industrial Base, such as by increasing progress payments and accelerating contract awards, which enabled the company to keep its U.S. production facilities largely operational in support of national security commitments to U.S. Government customers (as part of the Defense Industrial Base) and to accelerate payments to small business suppliers, which it expects to continue while the U.S. Government’s responsive actions remain in effect.
Although the company believes that a large percentage of its revenue, earnings and cash flow that is derived from sales to the U.S. Government, whether directly or through prime contractors, will be relatively predictable, in part due to the U.S. Government’s responsive actions described above, the company's commercial and international businesses are at a higher risk of adverse COVID-related impacts, and the company cannot eliminate all potential impacts to its business from supply chain risks, such as longer lead times and shortages of electronics and other components. For example, the severe decline in global air traffic from travel restrictions and the resulting downturn in the commercial aviation market and its impact on customer operations has significantly reduced demand for flight training, flight simulators and commercial avionics products in the company's Aviation Systems segment.
The company’s 2021 guidance reflects the company’s current expectations and assumptions regarding COVID-related impacts, including on the U.S. and global economies. These assumptions continue to include a measured assessment of the downturn in the commercial aerospace business and in demand for public safety solutions, as well as additional potential risks from facility shutdowns, supply chain disruptions and international activity weakness. The company’s current expectations and assumptions could change, which could negatively affect the company’s outlook. The extent of these disruptions and impacts, including on the company's ability to perform under U.S. Government and other contracts within agreed timeframes and ultimately on its results of operations and cash flows, will depend on future developments, including further COVID-related impacts and associated containment and mitigation actions taken by governmental authorities and consequences thereof, and global air traffic demand and governmental subsidies to airlines, and potential impacts to the company’s business from supply chain risks, all of which are uncertain and unpredictable, could exacerbate other risks described in the company’s filings with the SEC and could materially adversely impact the company’s financial condition, results of operations and cash flows.
Conference Call and Webcast
L3Harris will host a conference call today, August 3, 2021, at 8:30 a.m. Eastern Time (ET) to discuss second quarter 2021 financial results. The dial-in numbers for the teleconference are (U.S.) 877-407-6184 and (International) 201-389-0877, and participants will be directed to an operator. Please allow at least 10 minutes before the scheduled start time to connect to the teleconference. Participants are encouraged to listen via webcast, and view management’s supporting slide presentation, which will be broadcast live at L3Harris.com. A recording of the call will be available on the L3Harris website, beginning at approximately 12 p.m. ET on August 3, 2021.
About L3Harris Technologies
L3Harris Technologies is an agile global aerospace and defense technology innovator, delivering end-to-end solutions that meet customers’ mission-critical needs. The company provides advanced defense and commercial technologies across air, land, sea, space and cyber domains. L3Harris has approximately
Non-GAAP Measures
This press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission (“SEC”), including earnings per diluted share from continuing operations (“EPS”), adjusted earnings before interest and taxes (“EBIT”), adjusted EBIT margin and adjusted free cash flow for the second quarters and first halves of 2021 and 2020; organic revenue growth for the company, and for its Space and Airborne Systems, Communication Systems and Aviation Systems segments for the second quarter and first half of 2021; and segment operating income and margin for the Aviation Systems segment for the second quarters and first halves of 2021 and 2020; in each case, adjusted for certain costs, charges, expenses, losses or other amounts as set forth in the reconciliations of non-GAAP financial measures included in the financial statement tables accompanying this press release. A “non-GAAP financial measure” is generally defined as a numerical measure of a company’s historical or future performance that excludes or includes amounts, or is subject to adjustments, so as to be different from the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles (“GAAP”). L3Harris management believes that these non-GAAP financial measures, when considered together with the GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period. L3Harris management also believes that these non-GAAP financial measures enhance the ability of investors to analyze L3Harris business trends and to understand L3Harris performance. In addition, L3Harris may utilize non-GAAP financial measures as guides in forecasting, budgeting and long-term planning processes and to measure operating performance for some management compensation purposes. Non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, financial measures presented in accordance with GAAP. This press release also contains forward-looking non-GAAP financial measures, including expected EPS, adjusted EBIT margin, adjusted free cash flow and organic revenue growth for full-year 2021, but a reconciliation of forward-looking non-GAAP financial measures to comparable GAAP measures is not available without unreasonable effort because of inherent difficulty in forecasting and quantifying the comparable GAAP measures and the applicable adjustments and other amounts that would be necessary for such a reconciliation, including due to potentially high variability, complexity and low visibility as to the applicable adjustments and other amounts, which may, or could, have a disproportionately positive or negative impact on the company's future GAAP results, such as business divestiture-related gains and losses, and other unusual gains and losses, or their probable significance and extent of tax deductibility. The variability of the applicable adjustments and other amounts is unpredictable, and it is possible for them to significantly adversely impact the company’s future GAAP results.
Attachments: Financial statements (9 tables)
Forward-Looking Statements
Statements in this press release that are not historical facts are forward-looking statements that reflect management's current expectations, assumptions and estimates of future performance and economic conditions. Such statements are made in reliance on the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements in this press release include but are not limited to: revenue, earnings per share, adjusted free cash flow, adjusted EBIT margin and share repurchase guidance for 2021; statements regarding value creation over the long term; statements regarding anticipated timing of closing of divestitures; statements regarding expected, potential or contingent impacts or actual, potential or contingent plans or expectations related to COVID; program, contract and order opportunities and awards and the value or potential value and timing thereof; and other statements regarding outlook or that are not historical facts. The company cautions investors that any forward-looking statements are subject to risks and uncertainties that may cause actual results and future trends to differ materially from those matters expressed in or implied by such forward-looking statements. The company's consolidated results, future trends and forward-looking statements could be affected by many factors, risks and uncertainties, including but not limited to: actual impacts related to COVID; the loss of the company’s relationship with the U.S. Government or a change or reduction in U.S. Government funding; potential changes in U.S. Government or customer priorities and requirements (including potential deferrals of awards, terminations, reductions of expenditures, changes to respond to the priorities of Congress and the Administration, budgetary constraints, debt ceiling implications, sequestration, and cost-cutting initiatives); a security breach, through cyber attack or otherwise, or other significant disruptions of the company’s IT networks and systems or those the company operates for customers; the level of returns on defined benefit plan assets and changes in interest rates; risks inherent with large long-term fixed-price contracts, particularly the ability to contain cost overruns; changes in estimates used in accounting for the company’s programs; financial and government and regulatory risks relating to international sales and operations; effects of any non-compliance with laws; the company’s ability to continue to develop new products that achieve market acceptance; the consequences of uncertain economic conditions and future geo-political events; strategic transactions, including mergers, acquisitions, divestitures, spin-offs and the risks and uncertainties related thereto, including the company’s ability to manage and integrate acquired businesses and realize expected benefits, the potential disruption to relationships with employees, suppliers and customers, including the U.S. Government, and to the company’s business generally, and potential tax, indemnification and other liabilities and exposures; performance of the company’s subcontractors and suppliers; potential claims related to infringement of intellectual property rights or environmental remediation or other contingencies, litigation and legal matters and the ultimate outcome thereof; downturns in global demand for air travel and other economic factors impacting the company’s commercial aviation products, systems and services business; risks inherent in developing new and complex technologies and/or that may not be covered adequately by insurance or indemnity; changes in the company’s effective tax rate; significant indebtedness and unfunded pension liability and potential downgrades in the company’s credit ratings; unforeseen environmental matters; natural disasters or other disruptions affecting the company’s operations; changes in future business or other market conditions that could cause business investments and/or recorded goodwill or other long-term assets to become impaired; the company’s ability to attract and retain key employees and maintain reasonable relationships with unionized employees; risks related to the ability to realize all anticipated benefits of the L3Harris merger or the timing thereof or related to difficulties in integrating the businesses; and delays in, or failures in respect of, anticipated satisfaction of divestiture closing conditions or the ability to obtain regulatory approvals and satisfy other closing conditions in a timely manner or at all, and other potential uses of proceeds from divestitures. The level and timing of share repurchases will depend on a number of factors, including the company’s financial condition, capital requirements, cash flow, results of operations, future business prospects and other factors. The timing, volume and nature of share repurchases also are subject to business and market conditions, applicable securities laws, and other factors, and are at the discretion of the company and may be suspended or discontinued at any time without prior notice. Further information relating to these and other factors that may impact the company's results, future trends and forward-looking statements are disclosed in the company's filings with the SEC. The forward-looking statements contained in this press release are made as of the date of this press release, and the company disclaims any intention or obligation, other than imposed by law, to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Persons reading this press release are cautioned not to place undue reliance on forward-looking statements.
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1In this release, organic revenue growth excludes revenue attributable to each divested business for the portion of the prior-year period equivalent to the portion of the current-year period following the date the business was divested; refer to non-GAAP financial measure (NGFM) reconciliations in the tables accompanying this press release and to the disclosures in the non-GAAP section of this press release for more information.
2Funded book-to-bill is calculated as the value of new contract awards received from the U.S. Government, for which the U.S. Government has appropriated funds, plus the value of new contract awards and orders received from customers other than the U.S. Government, divided by revenue. This includes incremental funding and adjustments to previous awards, and excludes unexercised contract options or potential orders under indefinite delivery, indefinite quantity contracts. The funded book-to-bill ratio is considered a key performance indicator in the Aerospace and Defense industry as it measures how much backlog is utilized in a certain period (e.g., a ratio less than 1.0 would indicate that backlog is utilized at a greater rate than the amount of current period funded orders).
3Adjusted EBIT, adjusted EBIT margin, non-GAAP EPS and adjusted free cash flow (FCF) are NGFMs; refer to NGFM reconciliations in the tables accompanying this press release for applicable adjustments and/or exclusions and to the disclosures in the non-GAAP section of this press release for more information.
4Excludes asset impairment and other COVID-related charges and adjustments; refer to NGFM reconciliations in the tables accompanying this press release and to the disclosures in the non-GAAP section of this press release for more information.
5Revenue guidance (as revised) includes the effect of completed divestitures.
6Adjusted FCF guidance (as revised) excludes cash income taxes paid or avoided related to taxable gains and losses resulting from sales of businesses, and also reflects the types of adjustments and/or exclusions presented in the FCF and Adjusted FCF NGFM reconciliation in the tables accompanying this release; refer to the disclosures in the non-GAAP section of this press release for more information.
7Share repurchase guidance (as revised) includes the use of net proceeds from completed divestitures.
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