L3Harris Technologies Q2 Earnings Call Highlights

Key Points

• L3Harris reported strong Q2 results: Revenue rose 8% to $5.9 billion, GAAP EPS increased 28% to $3.13, and free cash flow climbed 37% to $771 million. Orders totaled $7.3 billion, lifting backlog above $42 billion.
• The company raised its 2026 outlook for revenue to $23.2 billion–$23.7 billion and diluted EPS to $11.80–$12.00, while maintaining its $3 billion free-cash-flow target. Strong Space & Mission Systems performance and international sales were key drivers.
• L3Harris is investing heavily in missile production, including a $2 billion capacity expansion and agreements tied to THAAD and PAC-3 production, but delayed a potential missile-business IPO until mid-2027 because market conditions do not reflect its expected value.

L3Harris Technologies NYSE: LHX reported higher second-quarter revenue, earnings and cash flow, citing broad-based growth across its three business segments and increased international sales. The defense contractor also raised its full-year 2026 revenue and earnings-per-share outlook while maintaining its free-cash-flow forecast.

Chief Financial Officer Ken Sharp said quarterly revenue totaled $5.9 billion, up $455 million, or 8%, from a year earlier. Orders were $7.3 billion, resulting in a 1.2-times book-to-bill ratio, while trailing-12-month book-to-bill was 1.3 times. Backlog increased by more than $1 billion to $42 billion.

International sales rose $254 million, or more than 20%, during the quarter. International business represented 23% of total revenue, an increase of about 250 basis points from the prior year, Sharp said.

GAAP earnings per share were $3.13, up 28% year over year. Segment operating income increased 9% to reflect revenue growth, improved program performance and a net gain on segment investments, partly offset by higher research-and-development spending. Segment operating margin was 16%, up 10 basis points.

Operating cash flow was $879 million and free cash flow was $771 million, each up 37% from the prior-year period. Year-to-date free cash flow reached $584 million, $124 million ahead of the comparable 2025 period.

Guidance Raised on Space Momentum

Sharp said L3Harris raised its full-year revenue outlook to a range of $23.2 billion to $23.7 billion, representing organic growth of 8% to 10%. Both the high and low ends of the prior range were increased by $200 million. The company attributed the revenue increase primarily to stronger Space & Mission Systems performance and its AMDT-3 satellite constellation win with the U.S. Space Force.

The company now expects diluted earnings per share of $11.80 to $12.00, an increase of $0.40 at both ends of its prior range. The updated outlook includes an approximately $0.20 per-share headwind from the planned divestiture of a majority interest in its commercial space propulsion business, which the company expects to close in August.

L3Harris maintained its forecast for segment operating margin in the low 16% range and reaffirmed its full-year free-cash-flow target of $3 billion. It also reduced expected net interest expense by $30 million to approximately $560 million, reflecting a higher cash balance.

• Space & Mission Systems revenue guidance was increased by $200 million to $11.7 billion.
• Communications & Spectrum Dominance margin guidance was raised to the mid-25% range from approximately 25%.
• Missile Solutions guidance was adjusted to account for the commercial space propulsion transaction.

Segment Performance and International Demand

Space & Mission Systems revenue grew 7% to about $3 billion, supported by higher volume in intelligence, surveillance and reconnaissance; missionized aircraft; classified space; F-35 control systems; and air-traffic-control modernization. Segment operating margin declined 60 basis points to 9.8%, largely because the prior-year quarter included a $75 million gain on a product-line sale that did not recur.

Communications & Spectrum Dominance generated revenue of $1.9 billion, up 4%, as international volume, electronic warfare and data-links revenue increased. Its operating margin rose 230 basis points to 26.9%, driven by stronger international revenue, partly offset by increased R&D investment.

Missile Solutions revenue increased 14% year over year. Revenue in the operations L3Harris plans to retain rose 16%, partially offset by slower growth in the commercial space propulsion business being divested. Segment operating margin was substantially unchanged from a year earlier.

Chief Executive Officer Chris Kubasik said the company sees a $9 billion multi-year pipeline across missile warning, missile defense and classified space missions. Since the fourth quarter, L3Harris has secured $2.4 billion in new space-related contracts, he said.

Missile Expansion and IPO Delay

Kubasik highlighted investments in missile production capacity following the Aerojet acquisition and subsequent formation of the Missile Solutions business. He said deliveries are up more than 60% since the acquisition, substantially all delinquent deliveries have been eliminated, and operational efficiency has improved 22%.

The company has committed $2 billion for missile capacity, including facilities, equipment and supply-chain investments. It is expanding production capacity by nearly 1 million square feet and expects its new automated GMLRS facility to begin operating next month. Kubasik said the site is designed to more than double capacity and reduce manufacturing time by 50%.

Shortly after the quarter ended, L3Harris signed a seven-year framework agreement for THAAD and PAC-3 production that represents about $12 billion in future production revenue and $2 billion in future profit, according to Kubasik. He said the company is working with Lockheed Martin to quadruple THAAD production and nearly triple PAC-3 production.

Sharp said the Missile Solutions business is expected to grow in the high teens for at least the next several years, with the propulsion business projected to grow more than 20%. L3Harris is negotiating more than $20 billion in new missile contracts, Kubasik said, which could potentially triple missile backlog.

However, the company has postponed a potential initial public offering of its missile business until mid-2027. Kubasik said current market conditions do not reflect the value L3Harris believes it is building, while much of the cash that would have been needed from an IPO is not expected to be required until late 2027 through 2029.

With expected divestiture proceeds, current cash and forecast free cash flow, Sharp said L3Harris expects to have about $4 billion of cash on hand before potential debt reduction or additional share repurchases. The company said its priorities include investing in its businesses, considering tuck-in assets, reducing debt and returning capital to shareholders.

About L3Harris Technologies (NYSE:LHX)

L3Harris Technologies NYSE: LHX is an American aerospace and defense company formed in 2019 through the combination of L3 Technologies and Harris Corporation. Headquartered in Melbourne, Florida, the company designs, manufactures and supports a broad range of technology solutions for government and commercial customers, with a particular emphasis on defense, intelligence and public safety applications.

The company's offerings span communications systems, avionics, electronic warfare, intelligence, surveillance and reconnaissance (ISR) sensors, space systems and mission integration.

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