L3Harris Technologies Q3 Earnings Call Highlights

Key Points

• Strong Q3 performance: Revenue rose 7% to $6.1 billion, organic revenue increased 9%, GAAP EPS jumped 33% to $3.28, and free cash flow surged 195% to approximately $1.3 billion.
• Record bookings boosted backlog: L3Harris secured $19.3 billion in orders, including $11 billion tied to PAC-3 and THAAD programs, lifting backlog to $53.2 billion. The company plans to invest $3 billion to expand missile-production capacity.
• Outlook raised, while longer-term cash expectations declined: 2026 revenue guidance increased to $23.5 billion–$23.7 billion and EPS guidance rose to $12.25–$12.35, but the 2028 free-cash-flow target was reduced to $3 billion from $3.5 billion due to higher investment and other funding requirements.

L3Harris Technologies NYSE: LHX reported third-quarter 2026 results marked by higher revenue, earnings and cash generation, while record bookings lifted its backlog to $53.2 billion. The defense contractor also raised the low end of its full-year revenue outlook and increased its earnings-per-share guidance.

Chief Executive Officer Sam Mehta said organic revenue rose 9% despite the quarter having one fewer week than the prior-year period. GAAP diluted earnings per share increased 33% year over year to $3.28, while free cash flow climbed 195% to approximately $1.3 billion.

“These results not only affirm the strong execution of our strategy, but more importantly, form the foundation of an extremely exciting future,” Mehta said.

Bookings and Backlog Reach Record Levels

L3Harris recorded $19.3 billion in orders during the quarter, producing a book-to-bill ratio of 3.2 times. Backlog increased 27% sequentially and 47% from the prior year to $53.2 billion, according to Chief Financial Officer Ken Sharp.

The largest awards were $11 billion in contracts related to PAC-3 and THAAD missile programs. Mehta said the company expects increased deliveries on both programs, including a plan to triple THAAD solid rocket motor deliveries in 2027 compared with 2026.

The company is investing $3 billion to expand missile capacity, with approximately one-quarter of that investment directed toward supply-chain capacity. Its Arkansas Advanced Propulsion Facilities are expected to increase large solid rocket motor manufacturing capacity sixfold, Mehta said.

L3Harris said its backlog is aligned with four strategic growth areas:

• Missiles and missile products;
• Space;
• Resilient communications and electronic warfare; and
• Multi-domain sensing.

Mehta said the company is using automation and artificial intelligence to improve manufacturing efficiency. In one example, L3Harris reduced manual quality-inspection time for PAC-3 solid rocket motors to 6.5 hours from 21 hours per motor. The company doubled PAC-3 motor deliveries from last year to this year and expects to double them again in 2027.

Segment Performance

Total third-quarter revenue was $6.1 billion, up 7% from a year earlier, while organic revenue grew 9%. Sharp said the prior-year period included an additional week that contributed about $200 million in revenue, implying double-digit organic growth excluding the calendar effect.

International revenue increased 18% and accounted for 24% of total sales, up roughly 300 basis points over the past year, according to Sharp.

Space & Mission Systems revenue rose 10% to $3.1 billion, supported by higher volume in space, missile-warning and tracking programs, satellite programs, intelligence, surveillance and reconnaissance aircraft, air-traffic-control modernization, and F-35 control systems. Segment operating margin improved 20 basis points to 10.9%.

Communications & Spectrum Dominance revenue rose 3% to $2 billion, driven by international demand for software-defined radios and the ramp of VAMPIRE counter-unmanned-aircraft systems. Segment operating margin expanded 50 basis points to 25.2% on favorable program performance and mix.

Sharp said a limited number of component supply disruptions, including constraints involving printed circuit board materials, reduced Communications & Spectrum Dominance growth during the third quarter. He said the company resolved much of the supplier challenge by quarter-end and expects stronger revenue growth in the fourth quarter.

Missile Solutions revenue increased 5%, while organic revenue excluding the divested commercial space propulsion business rose 17%, primarily due to higher volumes on missile programs. Segment margin declined 30 basis points to 12% because of mix.

Cash Flow, Capital Deployment and Outlook

Operating cash flow rose to $1.4 billion from $546 million in the prior-year quarter. Capital expenditures totaled $179 million, or 3% of revenue, reflecting elevated investment in missile production capacity. Year-to-date free cash flow was $1.8 billion, and L3Harris reaffirmed its full-year free-cash-flow target of $3 billion.

The company ended the quarter with $3 billion in cash and short-term investments and expects to generate about $1 billion of free cash flow in the fourth quarter. It plans to repay $800 million in debt, which would bring projected year-end cash to $3.2 billion.

Sharp said net debt leverage has declined to approximately 1.9 times from 4.3 times over the past several years. Looking into 2027 and 2028, the company expects to have more than $5 billion in excess cash after funding missile-capacity investment, regular capital expenditures and dividends.

L3Harris identified investment in the business as its first capital-allocation priority, followed by dividends, potential additional debt reduction and targeted share repurchases. Sharp said the company does not expect to undertake large-scale mergers and acquisitions in the foreseeable future.

For 2026, L3Harris raised the low end of its revenue outlook by $300 million and now expects revenue of $23.5 billion to $23.7 billion, implying organic growth of 9% to 10%. It reaffirmed segment operating margin guidance of the low-16% range and increased expected earnings per share to $12.25 to $12.35 from a prior range of $11.80 to $12.00.

The company increased its full-year Space & Mission Systems revenue outlook by $200 million to $11.9 billion, while reducing Communications & Spectrum Dominance revenue guidance by $100 million to $7.9 billion.

2028 Framework and Missile Solutions IPO Review

L3Harris reaffirmed its 2028 organic-growth target of 8% but revised its segment-margin expectation to approximately 16% from 16.3%. It also reduced expected 2028 free cash flow to $3 billion from $3.5 billion.

Sharp said the revised cash-flow outlook reflects an expected $250 million in cash funding for company 401(k) contributions rather than issuing shares, lower segment-margin assumptions and accelerated capital-expenditure timing for missile investments. He said the $3 billion target would still represent more than 100% cash conversion.

Mehta said the company remains focused on executing its existing portfolio rather than pursuing major organizational changes. “Now it’s time to probably stop with as many moving pieces and focus on the business we have to drive better performance,” he said.

Regarding a potential initial public offering of the Missile Solutions business, Mehta said the company’s criteria have not materially changed. L3Harris is monitoring contract conditions, execution, market valuations and capital-market conditions, and currently plans to reassess the opportunity around the middle of 2027. Sharp said the company is required to pursue an IPO but is not required to complete one.

About L3Harris Technologies (NYSE:LHX)

L3Harris Technologies, Inc is a technology and defense company that develops products and systems for government and commercial customers. Its offerings support aerospace, defense, space, communications, intelligence, surveillance and reconnaissance, electronic warfare, missile defense, and aviation missions.

The company provides secure communications equipment, tactical radios, sensors, avionics, electronic warfare systems, missile and air defense technologies, space payloads and systems, and other mission-critical solutions.

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