L3Harris Technologies Q4 Earnings Call Highlights

Key Points

• L3Harris finished 2025 with a record order book (book-to-bill 1.3; backlog > $38 billion) and is reshaping its portfolio, including selling 60% of its Civil Space Propulsion & Power business and planning a Missile Solutions IPO in H2 2026.
• The Department of War will invest a $1 billion preferred security into Missile Solutions that converts at a 20% discount to the IPO price with detachable warrants, a primarily economic stake intended to accelerate missile production capacity while the business remains consolidated in L3Harris' financials.
• Financials and outlook: 2025 revenue was $21.9 billion (+5% organic), non‑GAAP EPS rose 11% to $10.73 and FCF was $2.8 billion; 2026 guidance calls for $23.0–23.5 billion revenue (~7% organic), low‑16% segment operating margin, about $3.0 billion free cash flow, GAAP EPS of $11.30–11.50, and a new three-segment structure (SMS, CSD, MSL).

L3Harris Technologies NYSE: LHX used its fourth-quarter 2025 earnings call to highlight what management described as its “best year ever,” pointing to record orders, expanding margins, and strong cash generation alongside significant portfolio actions aimed at increasing focus on faster-growing defense priorities.

Management highlights record orders and portfolio moves

CEO Chris described 2025 as a year marked by “speed and discipline,” citing improved on-time delivery, investment to expand production capacity, and “strong demand signals” from customers. The company ended the year with what it called a record order book, reporting an overall book-to-bill ratio of 1.3 and backlog of more than $38 billion.

Chris also outlined several strategic actions taken to reshape the portfolio and operating structure. The company recently announced the sale of a majority stake in its Civil Space Propulsion and Power business, with 60% to be sold to AE Industrial Partners. Separately, L3Harris reorganized from four segments to three and announced plans to pursue an initial public offering of its Missile Solutions business in the second half of 2026.

Missile Solutions IPO plan and Department of War investment

A key topic on the call was the planned IPO of Missile Solutions, which management said would create a “$4 billion+ revenue, majority-owned public company” with “sustainable double-digit growth.” Chris said the business will deliver critical propulsion systems and other missile-related technologies, including Air-Launched Effects, IR seekers, and weapon release systems.

CFO Ken detailed the Department of War’s planned investment in Missile Solutions as a $1 billion preferred security invested directly into the business. He said the security converts at a 20% discount to the IPO price and includes detachable warrants “priced at a premium.” Ken added that the Department of War is expected to hold a single-digit equity ownership stake, and that Missile Solutions will remain a consolidated segment in L3Harris’ financial statements after the planned offering.

In Q&A, management emphasized that the government stake is “solely economic,” and described the partnership as intended to accelerate missile production capacity, including large solid rocket motors and certain tactical rocket motor programs. Chris said construction began last year to expand capacity, and linked that expansion to interceptor programs such as THAAD, PAC-3, and Standard Missile. Executives also said the structure allows capacity investments to proceed while long-term contracts are negotiated.

Fourth-quarter wins, demand signals, and international growth

Management cited several awards during and after the quarter, including:

• A $2.2 billion award from South Korea for next-generation airborne early warning missionized business jets
• An international weather satellite program for approximately $200 million
• Multiple international tactical communications and software-defined radio orders totaling more than $200 million
• An SDA contract valued at about $850 million to deliver 18 satellites for the Tranche 3 Tracking Layer
• Selection after quarter-end to deliver multi-aircraft special mission business jets for an international customer with a potential value of more than $2 billion, including an initial order of over $700 million expected to be booked in the first quarter of 2026

Chris said the SDA award reinforced the company’s position in space-based missile defense, noting L3Harris has been awarded contracts across all four tranches. He said continued technology maturation and production synergies from the Tranche 3 award position the company well for the HBTSS award.

On international tactical communications, Chris said demand remained strong and that the company expects to deliver “more international software-defined radios in 2026 than we will in 2025,” supported by localization efforts, in-country partnerships, and selective technology transfer.

2025 results and segment performance

Ken reported 2025 revenue of $21.9 billion, up 5% organically, with growth in all four legacy segments. Adjusted segment operating margin was 15.8%, up 40 basis points, and non-GAAP EPS rose 11% to $10.73. Adjusted free cash flow increased more than 20% to $2.8 billion, driven by earnings growth, working capital management, and benefits from tax planning strategies and tax reform.

For the fourth quarter, revenue was $5.6 billion, up 6% organically, with segment operating margin of 15.7% (up 40 basis points) and non-GAAP EPS of $2.86 (up 10% year-over-year).

Ken highlighted segment-level performance as follows:

• CS (2025): $5.7 billion revenue, 25.2% margins; 4% growth and 50 basis points of margin expansion. Q4 revenue of $1.5 billion, up 3%.
• IMS (2025): $6.6 billion revenue, 8% organic growth; 12.2% margins. Q4 revenue of $1.7 billion, up 11% organically, while Q4 operating margin fell 270 basis points to 11.1%, largely reflecting the CAS divestiture and unfavorable program performance in maritime.
• SAS (2025): $6.9 billion revenue; 12.3% margins. Q4 revenue of $1.7 billion, up slightly, with management citing a government shutdown that delayed awards and limited additional revenue growth. Q4 operating margin rose 290 basis points to 13.7% on stabilized performance in classified space programs and LHX NeXt benefits.
• Aerojet Rocketdyne (2025): revenue in excess of $2.8 billion with 12% organic growth; 12.5% margins. Q4 organic growth was 12% with margin expanding 130 basis points to 11.8%.

2026 guidance, new segment structure, and capital spending

For 2026, the company guided to revenue of $23.0 billion to $23.5 billion, representing 7% organic growth at the midpoint. Segment operating margin is expected to be in the low 16% range, and free cash flow is expected to be $3.0 billion. Ken said the company plans to increase CapEx to approximately $600 million, while still targeting the free cash flow goal through growth, profitability, and working capital discipline.

L3Harris also said it is transitioning diluted EPS guidance from a non-GAAP to a GAAP basis, with 2026 GAAP diluted EPS expected to be $11.30 to $11.50.

Ken provided initial expectations for the new three-segment structure:

• Space and Mission Systems (SMS): approximately $11.5 billion revenue; operating margin in the mid-10% range.
• Communications and Spectrum Dominance (CSD): approximately $8.0 billion revenue; operating margin about 25%.
• Missile Solutions (MSL): approximately $4.4 billion revenue; margins in the mid-12% range, with EBITDA of about $620 million for modeling purposes.

Executives said 2026 guidance reflects an “appropriate risk posture” early in the year and includes a full year of the Space propulsion and power systems business while the company works toward closing the previously announced transaction expected in the second half of the year.

Management said it will provide a new 2028 financial framework at an Investor Day scheduled for February 25 in New York City.

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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