- Orders1 of $5.2 billion; book-to-bill of 1.0x
- Revenue of $5.3 billion, up 13%
- Operating margin of 9.0%; adjusted segment operating margin1
of 15.6%
- Diluted earnings per share (EPS) of $1.92; non-GAAP EPS1 of
$3.24
- 2024 revenue guidance range increases from $20.8B - $21.3B
to $21.0B - $21.3B
- 2024 adjusted segment operating margin1 guidance increases
from >15% to 15.2% - 15.4%*
- 2024 Non-GAAP EPS guidance range increases from $12.70 -
$13.05 to $12.85 - $13.15*
L3Harris Technologies (NYSE: LHX) reported second quarter 2024
diluted EPS of $1.92, on second quarter revenue of $5.3 billion.
Second quarter 2024 non-GAAP diluted EPS1 was $3.24, as compared to
non-GAAP diluted EPS1 of $2.97 for the second quarter of 2023, a 9%
increase. A reconciliation of non-GAAP results are detailed in
tables beginning on page 11.
"We delivered another strong quarter of financial results with
improved margins, reflecting our commitment to operational
excellence and a relentless focus on execution that delivers value
to our customers and shareholders," said Christopher E. Kubasik,
Chair and CEO.
Kubasik added, "As we celebrate the five year anniversary of the
L3 and Harris merger, I'm proud of the progress we've made as the
industry's Trusted Disruptor. Our first half results reflect
progress toward achieving our 2026 financial framework. We are
raising our revenue, margin and EPS guidance for the year,
underscoring the tangible results of our LHX NeXt initiative, which
is focused on streamlining our operations and enhancing our
efficiency while transforming the company."
* A reconciliation is not available. See the note on page 2 and
Non-GAAP Financial Measures on page 6 for more information.
SUMMARY FINANCIAL RESULTS AND 2024 GUIDANCE
Second Quarter
Year to Date
2024 Guidance*
($ millions, except per share data)
2024
2023
Change
2024
2023
Change
Revenue
Space & Airborne Systems
$
1,707
$
1,715
$
3,458
$
3,370
Integrated Mission Systems
1,729
1,735
3,398
3,435
Communication Systems
1,346
1,289
2,640
2,452
Aerojet Rocketdyne
581
—
1,123
—
Corporate eliminations
(64
)
(46
)
(109
)
(93
)
Revenue
$
5,299
$
4,693
13
%
$
10,510
$
9,164
15
%
$21.0B - $21.3B
(Prior: $20.8B - 21.3B)
Operating income
Space & Airborne Systems
$
215
$
168
28
%
$
431
$
355
21
%
Integrated Mission Systems
206
162
27
%
396
347
14
%
Communication Systems
329
325
1
%
639
591
8
%
Aerojet Rocketdyne
75
—
n/a
147
—
n/a
Unallocated items
(349
)
(255
)
(759
)
(500
)
Operating income
$
476
$
400
19
%
$
854
$
793
8
%
Operating margin
9.0
%
8.5
%
50 bps
8.1
%
8.7
%
(60) bps
Adjusted segment operating income1
$
825
$
694
19
%
$
1,613
$
1,332
21
%
Adjusted segment operating margin1
15.6
%
14.8
%
80 bps
15.3
%
14.5
%
80 bps
15.2% - 15.4%
(Prior: > 15%)
Effective tax rate (GAAP)
5.9
%
5.6
%
30 bps
4.1
%
7.4
%
(330) bps
Effective tax rate (non-GAAP1)
12.9
%
13.3
%
(40) bps
13.0
%
13.4
%
(40) bps
EPS
$
1.92
$
1.83
5
%
$
3.40
$
3.60
(6
%)
Non-GAAP EPS1
$
3.24
$
2.97
9
%
$
6.30
$
5.82
8
%
$12.85 - $13.15
(Prior: $12.70 - $13.05)
Cash from operations
$
754
$
414
82
%
$
650
$
764
(15
%)
Adjusted free cash flow1
$
714
$
342
109
%
$
558
$
657
(15
%)
~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 7 for more information.
Revenue: Second quarter revenue increased 13%, primarily
driven by the acquisition of Aerojet Rocketdyne (AR) and 1% total
organic growth from increased demand for tactical and broadband
communication products in our Communication Systems (CS) segment.
Growth was also driven by continued demand in Space Systems and
classified Intel & Cyber programs within the Space &
Airborne Systems (SAS) Segment. This growth was offset by lower
volumes in our Airborne Combat Systems business. In the Integrated
Mission Systems (IMS) segment, growth in Maritime programs was
offset by lower volumes associated with our Commercial Aviation
business, the divestiture of which is pending closure.
* A reconciliation is not available. See the note on page 2 and
Non-GAAP Financial Measures on page 6 for more information.
Operating Margin:
GAAP: Second quarter operating
margin increased 50 bps to 9.0% driven by improved operational
performance, partially offset by the impact of increased corporate
unallocated items, including intangible amortization from mergers
and acquisitions and LHX NeXt implementation costs.
Adjusted segment operating margin1:
Expanded 80 bps to 15.6% due to improved operational and program
performance across the SAS, IMS and CS segments, including LHX NeXt
driven cost savings.
EPS:
GAAP: Second quarter EPS increased
5% to $1.92 due to an increase in operating income, partially
offset by the impact of intangible amortization from mergers and
acquisitions, LHX NeXt implementation costs and higher interest
expense.
Non-GAAP1: Increased 9% to $3.24
driven by higher adjusted segment operating income1, partially
offset by higher interest expense.
The largest differences between GAAP and Non-GAAP EPS are
attributable to intangible amortization and LHX NeXt implementation
costs.
Cash Flows:
Cash from Operations: Second
quarter cash from operations was $754 million driven by net income
growth and improved working capital performance.
Adjusted free cash flow1: Delivered
$714 million in adjusted free cash flow1 driven by net income
growth, improved working capital performance and adjustments for
acquisitions and severance related costs.
SEGMENT RESULTS AND GUIDANCE:
SAS
Second Quarter
Year to Date
2024 Guidance*
($ millions)
2024
2023
Change
2024
2023
Change
Revenue
$
1,707
$
1,715
—
%
$
3,458
$
3,370
3
%
~$7,000
Operating margin
12.6
%
9.8
%
280 bps
12.5
%
10.5
%
200 bps
low 12%*
(Prior ~12%)
Revenue: Second quarter revenue was flat year-over-year,
resulting from continued growth in Space Systems and classified
program growth in Intel and Cyber, which was offset by lower
volumes in our Airborne Combat Systems business and lower revenues
from the divestiture of the antenna business. Excluding this
divestiture, organic revenue increased 1%.
Operating Margin: Second quarter operating margin
increased 280 bps largely due to the absence of a non-cash charge
that impacted 2023, improved operational and program performance,
including the impact of the LHX NeXt cost savings initiative.
* A reconciliation is not available. See the note on page 2 and
Non-GAAP Financial Measures on page 6 for more information.
IMS
Second Quarter
Year to Date
2024 Guidance*
($ millions)
2024
2023
Change
2024
2023
Change
Revenue
$
1,729
$
1,735
—
%
$
3,398
$
3,435
(1
)%
$6,500 - $6,700
(Prior $6,400 - $6,600)
Operating margin
11.9
%
9.3
%
260 bps
11.7
%
10.1
%
160 bps
mid 11%*
(Prior low-mid 11%)
Revenue: Second quarter revenue was flat, as higher
volumes on Maritime programs were offset by lower volume in our
Commercial Aviation business.
Operating Margin: Second quarter operating margin
increased 260 bps from improved program performance, including the
impact of LHX NeXt cost savings.
CS
Second Quarter
Year to Date
2024 Guidance*
($ millions)
2024
2023
Change
2024
2023
Change
Revenue
$
1,346
$
1,289
4
%
$
2,640
$
2,452
8
%
$5,300 - 5,400
Operating margin
24.4
%
25.2
%
(80) bps
24.2
%
24.1
%
10 bps
mid 24%*
(Prior low-mid 24%)
Revenue: Second quarter revenue increased 4%, primarily
from higher volumes in Broadband Communications and increased
Department of Defense (DoD) sales in Tactical Communications.
Operating Margin: Second quarter operating margin
decreased 80 bps primarily from higher domestic tactical radio mix
and timing of software sales, partially offset by LHX NeXt cost
savings and the favorable impact of legal settlements.
AR
Second Quarter
Year to Date
2024 Guidance*
($ millions)
2024
2023
Change
2024
2023
Change
Revenue
$
581
$
—
$
1,123
$
—
$2,400 - $2,500
Operating margin
12.9
%
—
%
13.1
%
—
%
high 11%*
Revenue and Operating Margin: Second quarter results are
attributed to program execution across Missile Solutions and Space
Propulsion and Power Systems.
* A reconciliation is not available. See the note on page 2 and
Non-GAAP Financial Measures on page 6 for more information.
SUPPLEMENTAL INFORMATION:
2024*
2023
Other Information
Current
Prior
Actuals
FAS/CAS operating adjustment
~$30 million
~$30 million
$110 million
Non-service FAS pension income
~$310 million
~$310 million
$310 million
Net interest expense
~$660 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
Flat - up slightly
190.6
Capital expenditures
~2% sales
~2% sales
2% sales
Ad Hoc Business Review Committee: The company entered
into a Cooperation Agreement in December 2023 requiring, among
other items, the formation of an Ad Hoc Business Review Committee
(BRC) to independently review the company’s execution toward
shareholder value creation opportunities. Earlier this month, the
BRC provided its recommendations and informed the full Board of
Directors that it had completed its review. With the work now
complete, the ad hoc BRC has been dissolved per its charter.
* A reconciliation is not available. See the note on page 2 and
Non-GAAP Financial Measures on page 6 for more information.
Non-GAAP Financial Measures
This earnings release contains Non-GAAP Financial Measures
("NGFMs") (as listed on page 16) within the meaning of Regulation G
promulgated by the Securities and Exchange Commission (SEC).
Management believes excluding the adjustments listed on page 16 for
the purposes of calculating certain NGFMs is useful to investors
because these costs do not reflect our ongoing operating
performance; however there is no guarantee that items excluded from
NGFMs 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
12 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, July 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
July 26, 2024.
About L3Harris Technologies
L3Harris Technologies is the Trusted Disruptor in the defense
industry. With customers’ mission-critical needs always in mind,
our employees deliver end-to-end technology solutions connecting
the space, air, land, sea and cyber domains in the interest of
national security. Visit L3Harris.com for more information.
Forward-Looking Statements
Statements in this earnings 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 earnings release
include but are not limited to: potential divestitures and their
timing; 2024 guidance; 2026 financial framework; anticipated LHX
NeXt initiative costs and savings targets and their impacts;
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
earnings release are made as of the date of this earnings 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 earnings 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/second-quarter-2024-results
1Key terms and Non-GAAP measures - see definitions at the end of
this earnings release
Key Terms and Non-GAAP Definitions
Description
Definition
Amortization of acquisition-related
intangibles and additional cost of revenue related to the fair
value step-up in inventory sold
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 is the 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.
Asset group and business
divestiture-related losses, net and impairment of goodwill and
other assets
In 2023, includes a gain on sale of our
Visual Information Solutions business, impairment of contract
assets and other assets related to the restructuring of a customer
contract and impairment of in-process research and development
associated with a facility closure. In 2024, includes loss on sale
and impairment of goodwill recognized in connection with the sale
of our antenna and related businesses and a loss associated with
the pending divestiture of our Commercial Aviation Solutions
business.
LHX NeXt implementation costs
Costs associated with reducing costs and
transforming the Company and its 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 ($1M in 2Q24 and $65M in
2Q24 YTD) 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
($47M in 2Q24 and $110M in 2Q24 YTD), 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 earnings release
and to the disclosures in the non-GAAP section of this earnings
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 unallocated items; 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; asset group and business
divestiture-related losses (gains), net, impairment of goodwill and
other assets; and LHX NeXt implementation costs. Refer to the
disclosures in the non-GAAP financial measures section of this
earnings release for more information. Adjusted segment operating
income and margin is reconciled in table 5.
Non-GAAP EPS
Non-GAAP EPS represents EPS (net income
per diluted 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; asset group and
business divestiture-related losses (gains), net, impairment of
goodwill and other assets; and LHX NeXt implementation costs. Refer
to the disclosures in the non-GAAP financial measures section of
this earnings 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.
Non-GAAP income before income taxes
Non-GAAP income before income taxes
represents income before income taxes, 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; asset group
and business divestiture-related losses (gains), net, impairment of
goodwill and other assets; and LHX NeXt implementation costs. Refer
to the disclosures in the non-GAAP financial measures section of
this earnings release for more information.
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; asset group and business
divestiture-related losses (gains), net, impairment of goodwill and
other assets; and LHX NeXt implementation costs. Refer to the
disclosures in the non-GAAP financial measures section of this
earnings 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/20240725558614/en/
Investor Relations Contact: Daniel Gittsovich,
321-724-3170 investorrelations@l3harris.com
Media Relations Contact: Sara Banda, 321-306-8927
media@l3harris.com
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