L3Harris Technologies (LHX) Financials

L3Harris Technologies (NYSE: LHX) showed a much weaker start to fiscal 2026, with Q1 operating cash flow turning negative even as earnings remained solid. Revenue and profit were still respectable, but the quarter was weighed down by a large swing in working capital and continued cash outflows to shareholders.

Quarterly performance versus the prior quarter

• Revenue rose to $5.74 billion in Q1 2026 from $5.65 billion in Q4 2025, showing modest top-line growth.
• Gross profit increased to $1.40 billion, and operating income improved to $652 million from $393 million in the prior quarter.
• Net income increased to $512 million from $300 million sequentially, and EPS improved to $2.72 from $1.59.
• The company continued to return capital, including $238 million in dividends and $296 million in share repurchases during the quarter.
• Cash and equivalents increased to $590 million from $339 million at the end of Q3 2025, but this came after a quarter with a large overall cash decline.
• Long-term debt fell to $9.19 billion from $10.99 billion in Q3 2025, reflecting continued debt reduction.
• Operating cash flow swung to negative $95 million from positive $1.96 billion in Q4 2025, a major deterioration.
• The biggest issue was working capital, with negative $974 million in changes in operating assets and liabilities.
• Free cash flow was pressured by $99 million of capital spending and continued shareholder payouts, contributing to a $479 million drop in cash and equivalents during the quarter.
• Financing cash flow was negative again, as buybacks, dividends, and debt repayment together outweighed operating generation.

Year-over-year trend: better earnings, but a softer cash profile than early 2025

Compared with Q1 2025, revenue grew from $5.13 billion to $5.74 billion, and net income improved from $386 million to $512 million. That suggests the business is still growing and remains profitable. However, operating cash flow was far weaker than the prior-year quarter, when LHX generated negative $42 million but had a much smaller cash-flow gap and less severe working-capital pressure than the latest quarter.

Balance sheet and liquidity

L3Harris ended Q1 2026 with $41.38 billion in assets and $21.70 billion in liabilities, versus $19.68 billion in common equity. The balance sheet remains sizable, but leverage is still meaningful, with $11.36 billion of total debt split between short- and long-term borrowings.

What stands out for investors

• LHX remains profitable and is still delivering mid-single-digit revenue growth.
• Debt was reduced meaningfully versus the prior quarter.
• Operating income and net income both improved sequentially.
• The company continues an active capital-return policy through dividends and buybacks.
• Cash flow quality is the main concern right now, since earnings did not translate into operating cash in Q1 2026.
• Working capital swings can create volatility, but the latest quarter was large enough to overshadow earnings strength.
• If operating cash flow stays weak, maintaining buybacks, dividends, and debt reduction could become harder.

Bottom line: L3Harris is still growing profitably, but Q1 2026 was a reminder that earnings and cash flow can diverge sharply. For retail investors, the key watch item is whether operating cash flow rebounds in the next few quarters and whether working capital normalizes.