L3Harris Reports Fourth-Quarter, Second-Half Results
Tuesday, February 04, 2020 | Comments

L3Harris Technologies reported fourth-quarter 2019 revenue of $4.8 billion, up 10% compared with prior-year combined revenue.

GAAP earnings per diluted share (EPS) from continuing operations decreased 6% to $1.77, and non-GAAP EPS increased 28% versus prior-year combined EPS to $2.85. Net income increased 77% to $399 million, and adjusted earnings before interest and taxes (EBIT) increased 28% versus the prior year to $835 million, with margin expansion of 240 basis points (bps) to 17.3%.

"We ended the year on a high note, capping a strong second half with double-digit revenue growth, margin expansion in every segment and robust free cash flow while returning $1.8 billion to shareholders," said William M. Brown, chairman and chief executive officer (CEO). "With a well-funded defense budget, integration progressing ahead of schedule and momentum building on operational excellence, we are well positioned to generate strong earnings and free cash flow growth in 2020 and beyond."

Revenue increased 10% for the quarter, second half and full year versus prior year combined revenue, with strong growth across Integrated Mission Systems, Space and Airborne Systems and Communication Systems. GAAP EPS increased 1% for the second half and increased 13% for the year, driven by higher volume from the L3Harris merger, strong operational performance, the gain on the sale of the Harris Night Vision business in the third quarter, integration savings and higher pension income, partially offset by integration costs, including facility consolidation, and a step-up in deal-related amortization.

Communications Systems segment revenue increased 10% due to a ramp in U.S. Department of Defense (DoD) modernization programs in tactical communications and integrated vision solutions, as well as increased demand from state and federal customers in public safety. Operating income increased 14% to $259 million, and margin expanded 80 bps to 23.1% because of strong operational performance and integration savings, partially offset by mix.

Tactical communications received several significant awards to support U.S. DoD modernization and combat evolving international threats, including:
· $96 million from the U.S. Special Operations Command (SOCOM) for the first full-rate production order under the $390 million Next Generation Tactical Communications multichannel handheld indefinite delivery, indefinite quantity (IDIQ) program — a key milestone in SOCOM's multi-year modernization strategy;
· A $50-million sole-source order from the U.S. Marine Corps for next-generation manpacks as part of its High Frequency Radio II modernization program;
· $38 million from the U.S. Army for next-generation radios and related equipment, which was the second low rate production order under the U.S. Army's $3.9 billion 2-Channel Leader Radio IDIQ program;
· A $170-million contract with $58 million in initial funding from a country in the Middle East to provide Falcon III and single-channel ground and airborne radio systems (SINCGARS) radios for an armored vehicle platform; and
· A $100 million IDIQ contract from SOCOM to upgrade its existing fleet of very small aperture terminals (VSAT), extending their service life.

The company also strengthened its position in unmanned aerial communication systems with a follow-on production order to supply airborne datalink hardware for the MQ-9 Reaper, increasing the total awarded IDIQ contract value to $44 million.

Second half segment revenue increased 10%, operating income increased 16%, and operating margin expanded 100 bps to 22.9%. Full-year segment revenue increased 11% with a funded book-to-bill of 1.06. Segment operating margin expanded 100 bps to 22.3%.

In the fourth quarter of calendar 2019, L3Harris generated $831 million in adjusted free cash flow and returned $915 million to shareholders through $750 million in share repurchases and $165 million in dividends. For the year, the company generated $2.46 billion in combined adjusted free cash flow, up 28% versus prior-year combined adjusted free cash flow.

As a result of strong momentum and performance in 2019, L3Harris provided the following guidance for 2020:
· Organic revenue up 5% to 7% from combined full-year calendar 2019 revenue
· GAAP EPS in a range of $8.35 to $8.75 and non-GAAP EPS in a range of $11.35 to $11.75
· Operating cash flow in a range of $2.8 to $2.9 billion and adjusted free cash flow in a range of $2.6 to $2.7 billion

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