L3Harris Technologies Reports Strong First Quarter 2024 Results, Increases 2024 Profitability Guidance

Rhea-AI Summary

L3Harris Technologies reported strong first quarter 2024 results with orders of $5.5 billion, a book-to-bill ratio of 1.06x, revenue up 17%, operating margin of 7.3%, and EPS of $1.48. The company increased its 2024 adjusted segment operating margin guidance to >15% and non-GAAP EPS guidance to $12.70 - $13.05. The CEO highlighted solid revenue growth, higher operating margins, and strong demand for national security solutions.

Positive

• Orders of $5.5 billion and a book-to-bill ratio of 1.06x showcase strong demand.
• Revenue increased by 17% to $5.2 billion, with organic growth of 5%.
• Operating margin stood at 7.3%, showing operational efficiency.
• EPS was $1.48, while non-GAAP EPS reached $3.06, indicating profitability.
• 2024 adjusted segment operating margin guidance raised to >15%.
• 2024 non-GAAP EPS guidance range increased to $12.70 - $13.05.
• Net income attributable to L3Harris was $283 million, with diluted EPS of $1.48.
• Non-GAAP net income was $584 million, with non-GAAP diluted EPS of $3.06.
• CEO emphasized progress, increased profitability guidance, and confidence in financial framework.
• Revenue growth driven by acquisitions and organic growth in key segments.
• Operating margin improvements across segments, except for slight decline due to implementation costs.
• Positive outlook with higher adjusted segment operating income and lower effective tax rate on non-GAAP income.
• Cash flow from operations and adjusted free cash flow were lower due to working capital timing.
• Segment-wise results and guidance show growth in revenue and operating margins.
• Strong performance in Space & Airborne Systems, Integrated Mission Systems, Communication Systems, and Aerojet Rocketdyne segments.
• Overall positive financial outlook for the company with strong growth prospects.
• Investors and stakeholders can expect continued growth and profitability based on the reported results.

Negative

• Operating margin decreased by 150 bps due to higher LHX NeXt implementation costs.
• Cash flow used in operations was ($104) million due to working capital timing.
• Adjusted free cash flow showed a use of ($156) million, down versus the prior year period.
• Non-GAAP financial measures exclude certain costs that might impact future periods.
• Reconciliation of non-GAAP financial measures to GAAP measures is not available for forward-looking guidance.
• Some segments experienced declines in revenue compared to the prior year period.
• Higher interest expense and lower pension income affected GAAP EPS for the quarter.
• Lower cash flow from operations and adjusted free cash flow compared to the prior year period.
• Some segments faced challenges in revenue growth and operating margins.
• Uncertainty around future GAAP results due to the variability of certain financial measures.

Insights

Financial Analyst

L3Harris Technologies' first quarter revenue surged by 17%, which is not merely a reflection of business growth but also a result of their acquisition of Aerojet Rocketdyne. This strategic move has expanded their market reach, particularly in the defense sector, which aligns well with current national security priorities. However, investors should keep an eye on the integration costs and how they impact the bottom line. The reported increase in non-GAAP EPS by 7% suggests operational efficiencies are being harnessed effectively. Yet, the GAAP EPS decline of 16% raises concerns about the sustainability of these earnings improvements. The rise in operating margin in all segments except Integrated Mission Systems indicates robust demand for their offerings and possibly improved cost management. However, the sizeable use of cash in operations and negative adjusted free cash flow may hint at challenges in working capital management, which investors should monitor closely as it could affect the company's liquidity in the short term.

Market Research Analyst

The defense industry is increasingly competitive, with technological advancements and innovation being key drivers. L3Harris's double-digit revenue growth can be attributed to their 'Trusted Disruptor' strategy, which emphasizes the importance of innovative solutions in high-growth areas like Space and Airborne Systems. Their focus on operational rigor and structural enhancements, through the LHX NeXt initiative, is a proactive approach to maintaining their competitive edge. Investors should appreciate the company's adaptability to the dynamic defense sector landscape. However, the decrease in Intelligence, Surveillance and Reconnaissance (ISR) aircraft procurement within the Integrated Mission Systems segment flags a potential area of concern. It's important for investors to understand how L3Harris plans to navigate this dip and whether they can pivot to alternative revenue streams in this segment to maintain overall growth momentum.

Defense Industry Analyst

L3Harris Technologies' emphasis on mission-critical solutions resonates strongly with current defense spending trends, where space capabilities and cyber resilience are at the forefront. The investments in Space Systems and classified programs within their Space & Airborne Systems segment are timely, as both commercial and government interest in space exploration and security continue to climb. While the acquisition of Aerojet Rocketdyne has evidently contributed to revenue growth, it's important to evaluate how effectively L3Harris can assimilate Aerojet's operations to realize the full potential of the acquisition. The impressive operating margin performance in the Communication Systems segment is indicative of the high demand for communication solutions amidst a heightened global security environment. Defense spending patterns suggest that L3Harris's diversified portfolio positions the company well to leverage future defense budgets and contracts.

• Orders¹ of $5.5 billion; book-to-bill of 1.06x
• Revenue of $5.2 billion, up 17%, up 5% organically¹
• Operating margin of 7.3%; Adjusted segment operating margin¹ of 15.1%
• Earnings per share (EPS) of $1.48; Non-GAAP EPS¹ of $3.06
• 2024 adjusted segment operating margin¹ guidance increases from ~15% to >15%*
• 2024 non-GAAP EPS guidance range increases from $12.40 - $12.80 to $12.70 - $13.05*

MELBOURNE, Fla.--(BUSINESS WIRE)-- L3Harris Technologies, Inc. (NYSE: LHX) reported first quarter 2024 net income attributable to L3Harris of $283 million, or diluted earnings per share (EPS) of $1.48, on first quarter revenue of $5.2 billion. First quarter 2024 non-GAAP¹ net income attributable to L3Harris was $584 million, or non-GAAP¹ diluted EPS of $3.06. A reconciliation of non-GAAP results are detailed in tables beginning on page 10.

"We're off to a strong start to 2024, reporting solid revenue with higher operating margin across all four segments and our Trusted Disruptor strategy continues to drive demand for innovative, resilient and mission-critical solutions aligned with national security needs. We delivered double-digit top line growth while continuing to drive improvements to operational and program performance," said Christopher E. Kubasik, Chair and CEO.

Kubasik continued, "Given the strength of our first quarter, we are increasing 2024 profitability guidance, while reaffirming revenue and free cash flow commitments. With our progress, we remain confident in the financial framework that we laid out at investor day which is driven by operational rigor and structural enhancements from our LHX NeXt initiative."

* A reconciliation is not available. See the note on page 2 and Non-GAAP Financial Measures on page 5 for more information.

SUMMARY FINANCIAL RESULTS AND 2024 GUIDANCE

		First Quarter									2024 Guidance*
	($ millions, except per share data)		2024				2023			Change	Current	Prior
	Revenue
	Space & Airborne Systems	$	1,751			$	1,655
	Integrated Mission Systems		1,669				1,700
	Communication Systems		1,294				1,163
	Aerojet Rocketdyne		542				—
	Corporate eliminations		(45	)			(47	)
	Revenue	$	5,211			$	4,471			17%	$20.8B - $21.3B	$20.7B - $21.3B
	Operating income
	Space & Airborne Systems	$	216			$	187
	Integrated Mission Systems		190				185
	Communication Systems		310				266
	Aerojet Rocketdyne		72				—
	Unallocated items		(410	)			(245	)
	Operating income	$	378			$	393			(4)%
	Operating margin		7.3	%			8.8	%		(150) bps
	Adjusted segment operating income1
	Space & Airborne Systems	$	216			$	187
	Integrated Mission Systems		190				185
	Communication Systems		310				266
	Aerojet Rocketdyne		72				—
	Adjusted segment operating income1	$	788			$	638			24%
	Adjusted segment operating margin1		15.1	%			14.3	%		80 bps	> 15%	~15%
	Effective tax rate (GAAP)		1.7	%			9.1	%		(740) bps
	Effective tax rate (non-GAAP1)		13.1	%			13.4	%		(30) bps
	EPS	$	1.48			$	1.76			(16)%
	Non-GAAP EPS1	$	3.06			$	2.86			7%	$12.70 - $13.05	$12.40 - $12.80
	Cash from operations	$	(104	)		$	350			(130)%
	Adjusted free cash flow1	$	(156	)		$	315			(150)%	~$2.2B	~$2.2B

*When we provide our expectation for adjusted segment operating margin, effective tax rate on non-GAAP income, non-GAAP EPS and adjusted free cash flow on a forward-looking basis, a reconciliation of these non-GAAP financial measures to the corresponding GAAP measures is not available without unreasonable effort due to the unavailability of items for exclusion from the GAAP measure. We are unable to address the probable significance of this information, the variability of which may have a significant impact on future GAAP results. See Non-GAAP Financial Measures on page 5 for more information.

Revenue: First quarter revenue increased 17%, primarily from the acquisition of Aerojet Rocketdyne (AR) and organic growth from continued growth in Space and classified programs within Space & Airborne Systems (SAS) segment and growth from tactical, broadband communication and vision products within the Communication Systems (CS) segment. These increases were partially offset by a decline in Intelligence, Surveillance and Reconnaissance (ISR) aircraft procurement activity within the Integrated Mission Systems (IMS) segment compared with the first quarter 2023.

Operating Margin:

GAAP: First quarter operating margin decreased 150 bps to 7.3% driven by higher LHX NeXt implementation costs and intangible amortization from the Aerojet Rocketdyne acquisition.

Adjusted segment operating margin¹: Expanded 80 bps to 15.1% due to improved operational and program performance across the SAS, IMS and CS segments and partially driven by LHX NeXt savings.

* A reconciliation is not available. See the note on page 2 and Non-GAAP Financial Measures on page 5 for more information.

EPS:

GAAP: First quarter EPS decreased 16% to $1.48 due to increased LHX NeXt implementation costs, intangible amortization from the Aerojet Rocketdyne acquisition, increased interest expense and lower pension income, partially offset by improved operating performance and a lower effective tax rate.

Non-GAAP¹: Increased 7% to $3.06 driven by higher adjusted segment operating income¹ and a lower effective tax rate on non-GAAP income, partially offset by lower pension income and higher interest expense.

Cash Flows:

GAAP: First quarter cash used in operations was ($104) million due to working capital timing.

Adjusted free cash flow¹: Use of ($156) million, down versus the prior year period due to working capital and capital expenditure timing.

SEGMENT RESULTS AND GUIDANCE:

Space & Airborne Systems (SAS)

		First Quarter										2024 Guidance
	($ millions)		2024				2023			Change		Current	Prior
	Revenue	$	1,751			$	1,655			6%		~$7,000	$6,900 - $7,100
	Operating margin		12.3	%			11.3	%		100 bps		~12%*	mid-high 11%*

Revenue: First quarter revenue increased 6%, primarily from continued growth in Space Systems and classified program growth in Intel and Cyber.

Operating Margin: First quarter operating margin increased 100 bps largely due to improved operational and program performance, particularly in Space Systems reflecting progress on development programs and maturing capabilities resulting in net favorable program matters. Operating margin also benefited from higher volume which was partially offset by mix.

Integrated Mission Systems (IMS)

		First Quarter										2024 Guidance
	($ millions)		2024				2023			Change		Current	Prior
	Revenue	$	1,669			$	1,700			(2)%		$6,400 - $6,600	$6,400 - $6,600
	Operating margin		11.4	%			10.9	%		50 bps		low-mid 11%*	low-mid 11%*

Revenue: First quarter revenue decreased 2%, primarily from lower ISR aircraft procurement activity compared with first quarter 2023.

Operating Margin: First quarter operating margin increased 50 bps from improved program performance, including stabilizing programs resulting in fewer negative Estimate as Completion (EAC) adjustments, partially offset by less favorable product mix.

* A reconciliation is not available. See the note on page 2 and Non-GAAP Financial Measures on page 5 for more information.

Communication Systems (CS)

		First Quarter										2024 Guidance
	($ millions)		2024				2023			Change		Current	Prior
	Revenue	$	1,294			$	1,163			11%		$5,300 - 5,400	$5,300 - 5,400
	Operating margin		24.0	%			22.9	%		110 bps		low-mid 24%*	low-mid 24%*

Revenue: First quarter revenue increased 11%, primarily from higher volumes in Tactical Communications, Integrated Vision Systems and Broadband Communications.

Operating Margin: First quarter operating margin increased 110 bps primarily from the benefit of higher volume and improved operational performance in Integrated Vision Systems, partially offset by higher domestic tactical radio mix.

Aerojet Rocketdyne (AR)

		First Quarter										2024 Guidance
	($ millions)		2024				2023			Change		Current	Prior
	Revenue	$	542			$	—					$2,400 - $2,500	$2,400 - $2,500
	Operating margin		13.3	%			—	%				high 11%*	high 11%*

Revenue and Operating Margin: First quarter results are attributed to program execution across Missile Solutions and Space Propulsion and Power Systems.

SUPPLEMENTAL INFORMATION:

			2024			2023
	Other Information		Current	Prior		Actuals
	FAS/CAS operating adjustment		~$30 million	~$40 million		$110 million
	Non-service FAS pension income		~$310 million	~$260 million		$310 million
	Net interest expense		~$650 million	~$650 million		$543 million
	Effective tax rate on GAAP income					1.9%
	Effective tax rate on non-GAAP income1*		13.0% - 13.5%	13.0% - 13.5%		13.0%
	Average diluted shares		flat - up slightly	flat - up slightly		190.6
	Capital expenditures		~2% sales	~2% sales		2% sales

* A reconciliation is not available. See the note on page 2 and Non-GAAP Financial Measures on page 5 for more information.

Non-GAAP Financial Measures

This press release contains Non-GAAP Financial Measures ("NGFMs") (as listed on page 15) within the meaning of Regulation G promulgated by the Securities and Exchange Commission (SEC). Management believes excluding the adjustments listed on page 15 for the purposes of calculating certain non-GAAP measures is useful to investors because these costs do not reflect our ongoing operating performance; however there is no guarantee that items excluded from non-GAAP financial measures will not reoccur in future periods. These adjustments, when considered together with the unadjusted 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. Management also believes that these adjustments to our NGFMs enhance the ability of investors to analyze L3Harris business trends, to understand L3Harris performance and to evaluate our initiatives to drive improved financial performance. We utilize NGFMs as guides in forecasting, budgeting and long-term planning processes and to measure operating performance for compensation purposes. NGFMs should be considered in addition to, and not as a substitute for, financial measures presented in accordance with GAAP. See “Reconciliation of Non-GAAP Financial Measures” beginning on page 10 for detail on the adjustments to our NGFMs. We also provide our expectation of forward-looking NGFMs. A reconciliation of forward-looking NGFMs 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 could have an unpredictable and potentially disproportionate impact on future GAAP results, such as the impact of Aerojet Rocketdyne, costs associated with LHX NeXt, potential divestitures and their timing, other unusual gains and losses and extent of tax deductibility.

Conference Call and Webcast

L3Harris Technologies will host a call tomorrow, April 26, 2024, at 8:30 a.m. Eastern Time (ET).

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. Participants are encouraged to listen via webcast, which will be broadcast live at L3Harris.com/investors. A recording of the call will be available on the L3Harris website, beginning at approximately 12 p.m. ET on April 26, 2024.

About L3Harris Technologies

L3Harris Technologies is the Trusted Disruptor in the defense industry. With customers’ mission-critical needs always in mind, our ~50,000 employees deliver end-to-end technology solutions connecting the space, air, land, sea and cyber domains in the interest of national security.

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: 2024 guidance; 2024-2026 capital deployment priorities; anticipated LHX NeXt program costs and savings targets and their impacts on operational performance, margin expansion and accelerating adjusted free cash flow growth; supplemental financial information for 2024; and other statements regarding the business outlook and financial performance guidance 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, including but not limited to: competitive markets and U.S. Government spending priorities; changes in the mix of fixed-price, cost-plus and time-and-material type contracts and the impact of a significant increase in or sustained period of increased inflation; the termination, impact of regulations, failure to fund, or negative audit findings for U.S. Government contracts; uncertain economic conditions; the consequences of future geo-political events; the impact of government investigations; the risks of doing business internationally; disruptions to our supply chain; the attraction and retention of key employees; the ability to develop new products and services and technologies that achieve market acceptance; natural disasters or other significant business disruptions; inability to achieve the expected results of LHX NeXt; indebtedness and ability to make payments on, repay or service indebtedness; unfunded defined benefit plans liability; the level of returns on defined benefit plan assets, changes in interest rates and other market factors; changes in effective tax rate or additional tax exposures; the ability to obtain export licenses or make sales to foreign governments; unforeseen environmental issues; the outcome of litigation or arbitration; potential claims related to infringement of intellectual property rights or environmental remediation or other contingencies; expanded operations, including related to handling of dangerous materials; risks related to other strategic transactions, including pending and contemplated divestitures. 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.

Financial Tables

To see the entire earnings tables, please see: https://www.l3harris.com/resources/first-quarter-2024-results

1Key terms and Non-GAAP measures - see definitions at the end of this earnings release

Non-GAAP Terms and Definitions

Description	Definition
Amortization of acquisition-related intangibles	Consists of amortization of identifiable intangible assets acquired in connection with business combinations. Amortization charges are recorded over the estimated useful life of the related acquired intangible asset, and thus are generally recorded over multiple years.
Additional cost of revenue related to the fair value step-up in inventory sold	Difference between the balance sheet value of inventory from the acquiree and the acquisition date fair value.
Merger, acquisition, and divestiture-related expenses	Transaction and integration expenses associated with TDL and AR acquisitions. Also, includes external costs related to pursuing acquisition and divestiture portfolio optimization, non-transaction costs related to divestitures and salaries of employees in roles established for and dedicated to planned divestiture and acquisition activity.
Impairment of goodwill and other assets	In 2023, charges for the impairment of contract assets and other assets related to the restructuring of a customer contract.
LHX NeXt implementation costs	Costs associated with transforming multiple functions, systems and processes to increase agility and competitiveness. Costs related to the LHX NeXt initiative are expected to continue through 2025, and are expected to include workforce optimization costs ($64M in 1Q24) and incremental IT expenses for implementation of new systems, third-party consulting expenses and other related costs, including costs related to personnel dedicated to this project ($63M in 1Q24), totaling $400M. We expect gross run-rate savings of $1B exiting year 3.
Orders	Represents the total value of funded and unfunded contract awards received from the U.S. Government, plus the total value of funded and unfunded contract awards received from customers other than the U.S. Government. This includes incremental funding and adjustments to previous awards, and excludes unexercised contract options and potential orders under ordering-type contracts, such as indefinite delivery, indefinite quantity (IDIQ) contracts.
Organic revenue	Organic revenue excludes the impact of completed divestitures and first year revenue associated with acquisitions; 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. Organic revenue is reconciled in table 4.
Adjusted segment operating income and margin	Adjusted segment operating income and margin on a consolidated basis represents operating income and margin (GAAP measures) excluding the FAS/CAS operating adjustment, corporate expenses and other unallocated items. Refer to the disclosures in the non-GAAP financial measures section of this press release for more information. Adjusted segment operating income and margin is reconciled in table 5.
Non-GAAP net income attributable to L3Harris Technologies, Inc.	Non-GAAP net income attributable to L3Harris Technologies, Inc. represents net income attributable to L3Harris Technologies, Inc., a GAAP measure, adjusted for amortization of acquisition-related intangibles; additional cost of revenue related to the fair value step-up in inventory sold; merger, acquisition, and divestiture-related expenses; impairment of goodwill and other assets; LHX NeXt implementation costs, and the income tax and noncontrolling interest portion of the adjustments. Refer to the disclosures in the non-GAAP financial measures section of this press release for more information. Non-GAAP net income attributable to L3Harris Technologies, Inc. is reconciled in table 7.
Non-GAAP EPS	Non-GAAP EPS represents EPS (net income per common share attributable to L3Harris Technologies, Inc. common shareholders, a GAAP measure) adjusted for amortization of acquisition-related intangibles; additional cost of revenue related to the fair value step-up in inventory sold; merger, acquisition, and divestiture-related expenses; impairment of goodwill and other assets; and LHX NeXt implementation costs. Refer to the disclosures in the non-GAAP financial measures section of this press release for more information. Non-GAAP EPS is reconciled in table 7.
Adjusted Free Cash Flow (FCF)	Adjusted FCF represents net cash provided by operating activities (a GAAP measure) less capital expenditures (additions to property, plant and equipment less proceeds from sale of property, plant and equipment, net), cash used for merger, acquisition, and severance. Adjusted FCF is reconciled in table 8.
Cash used for merger, acquisition, and severance	Cash related to merger and acquisition expenses as discussed in the "merger, acquisition, and divestiture-related expenses" heading above and cash related to severance costs included in our LHX NeXt implementation costs.
Effective tax rate on non-GAAP income	Effective tax rate on non-GAAP income represents the effective tax rate (tax expense as a percentage of income before income taxes, a GAAP measure) adjusted for the tax effect associated with amortization of acquisition-related intangibles; additional cost of revenue related to the fair value step-up in inventory sold; merger, acquisition, and divestiture-related expenses; impairment of goodwill and other assets; and LHX NeXt implementation costs. Refer to the disclosures in the non-GAAP financial measures section of this press release for more information. Non-GAAP effective tax rate is reconciled in table 6.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240424421451/en/

Investor Relations Contact:

Mark Kratz, 321-724-3170

investorrelations@l3harris.com



Media Relations Contact:

Sara Banda, 321-306-8927

media@l3harris.com

Source: L3Harris Technologies

FAQ

What were L3Harris Technologies' first quarter 2024 revenue and net income figures?

L3Harris reported first quarter 2024 revenue of $5.2 billion and net income of $283 million.

What is L3Harris' ticker symbol?

L3Harris Technologies' ticker symbol is LHX.

How much did L3Harris increase its 2024 adjusted segment operating margin guidance by?

L3Harris increased its 2024 adjusted segment operating margin guidance to >15%.

What was L3Harris' first quarter 2024 EPS and non-GAAP EPS?

L3Harris reported EPS of $1.48 and non-GAAP EPS of $3.06 for the first quarter 2024.

What was the book-to-bill ratio for L3Harris in the first quarter 2024?

L3Harris had a book-to-bill ratio of 1.06x in the first quarter 2024.