L3Harris Technologies [LHX] on Thursday posted strong first quarter earnings on lower corporate, divestiture, and business transformation costs, and higher operating earnings despite a slight drop in sales.
Net income jumped 35 percent to $386 million, $2.04 earnings per share (EPS), from $285 million ($1.48 EPS) a year ago.
Excluding merger and divestiture expenses, a divestiture-related loss, and costs associated with the company’s LHX NeXt transformation, adjusted earnings of $2.41 EPS were up 7 percent and topped consensus estimates by a dime. Adjusted segment operating margin rose 50 basis points to 15.6 percent.
Costs associated with LHX NeXt are declining and the initiative is wrapping up the cost optimization phase and will transition to enterprise transformation, entailing artificial intelligence-enabled and digital transformations solutions, and further supply chain optimization to “become leaner and more agile,” Ken Bedingfield, chief financial officer of L3Harris, said on the company’s earnings call.
Sales declined 2 percent to $5,1 billion versus $5.2 billion a year ago, due to the divestitures last year of an antenna business and an ordnance business, and one less work week in the quarter. Excluding the portfolio adjustments, organic revenue was flat as gains in the Communications Systems and Aerojet Rocketdyne segments were offset by declines at Integrated Mission Systems, and Space and Airborne Systems (SAS).
Continued challenges on classified fixed-price development programs within the Space Systems business of SAS weighed on sales and earnings. Bedingfield described the losses on the contracts as “kind of tens of millions of dollars of negative adjustments across a couple of programs.” He added that the programs will be in the clear later this year or in early 2026, noting they are important for “our country and the warfighter, and we see it as a strong growth area in the future.”
Orders were light at $4.3 billion, which the company shrugged off as being normal during a presidential transition period. Backlog declined 3 percent to $33.2 billion from the end of 2024.
L3Harris updated its outlook for 2025 to account for the recent divestiture of its Commercial Aviation Solutions business, which represents about a $525 million hit to sales and 55 cents EPS headwind to adjusted earnings this year. Improved performance and capital deployment options will partially offset the earnings hit by about 25 cents.
Sales are projected to be between $21.4 billion and $21.7 billion, $400 million lower than prior guidance. Adjusted earnings are forecast between $10.30 and $10.50 EPS versus between $10.55 and $10.85 previously. Free cash flow guidance remains at $2.4 billion to $2.5 billion. Free cash was negative $72 million in the quarter.
The company does not expect “meaningful” impacts from tariffs, Bedingfield said.
The company is confident in its previous “framework” for 2026 sales of $23 billion. Chris Kubasik, chairman and CEO of L3Harris, highlighted the Trump administration’s potential $1 trillion defense budget request for fiscal year 2026, a $1.1 billion award in April from the Dutch Defense Ministry for network modernization and software-defined radios, a classified award also in April worth more than $350 million, and another $200 million international award, as future growth drivers.
Kubasik said that international demand and interest in the company’s products remains strong despite concerns from allies and partners about the Trump administration’s commitments to alliances and security pacts.
Bedingfield also highlighted that the company’s work on the Technology Refresh 3 for the F-35 fighter is transitioning from development to a gradual ramp up in production, which will benefit sales in 2026. He said the space business will also return to growth next year with additional opportunities being the Space Development Agency’s (SDA) expected award later this year of the third tranche of missile tracking satellites and the administration’s Golden Dome for America homeland missile defense effort.
L3Harris’s missile tracking satellites are part of earlier tranches of the SDA Proliferated Warfighter Space Architecture, including its Hypersonic and Ballistic Tracking Space Sensor (HBTSS), which tracks advanced missile threats and provides fire control data to missile interceptors. President Trump’s directive in January establishing Golden Dome calls for accelerating HBTSS and L3Harris has said it is ready for production (Defense Daily
, April 9).
If L3Harris can get a production “order here quickly, we can have the U.S. covered while the president is still in office,” Kubasik said of HBTSS on the call.
Bedingfield also highlighted the Aerojet Rocketdyne segment, which he heads, as being well positioned for Golden Dome opportunities given its role supplying solid rocket motors and other propulsion-related systems for missile interceptors, target vehicles for the Missile Development Agency that it is looking to accelerate, and in-space propulsion.