L3Harris Technologies Reports First-Quarter Financials
Tuesday, May 05, 2020 | Comments

L3Harris Technologies reported first quarter revenue of $4.6 billion, up 168% and 5% versus prior-year GAAP and pro forma, respectively.

Net income was $194 million, down 20% and 52% versus prior-year GAAP and pro forma, respectively. Adjusted earnings before interest and taxes (EBIT) was $808 million, up 17% versus prior-year adjusted pro forma, and margin increased 170 basis points (bps) to 17.5%.

"In these unprecedented times, we have remained focused on protecting the health and safety of our employees while meeting the mission-essential requirements of our customers,” said William M. Brown, chairman and CEO. “We are also focused on supporting our suppliers and the communities where we live and work. And, though we’re off to a solid start to the year, we are taking a more measured approach to guidance as a result of the uncertain environment caused by the pandemic. Our liquidity and ability to drive cash generation remain strong, and we continue to execute well against our strategic priorities, including merger integration and investing for the future."

Communications systems revenue increased 89% and operating income increased 50% versus prior-year GAAP, primarily because of the post-merger inclusion of L3 operations in results. On a pro forma basis, revenue increased 5% versus the prior year as the ramp in U.S. Department of Defense (DoD) modernization programs in tactical communications was partially offset by timing of sales for international tactical radios and prior-year strength in public safety.

Operating income in the communications systems increased 11% to $250 million, and margin expanded 120 bps versus prior-year pro forma to 22.9%, from operational efficiencies and integration benefits, partially offset by less favorable mix.

In response to COVID-19, the U.S. government response included identifying the defense industrial base as a critical infrastructure sector. As part of the defense industrial base, L3Harris is able to keep its U.S. production facilities largely operational in support of national security commitments to U.S. government customers and to announce that it will accelerate more than $100 million in payments to small business suppliers in 45 states.

Although the company believes that the large percentage of its revenue, earnings and cash flow that is derived from sales to the U.S. government, whether directly or through prime contractors, will be relatively predictable, in part because of the responsive actions taken by the U.S. government, the company’s commercial and international businesses are at higher risk of adverse impacts related to the COVID-19 pandemic. For example, the severe decline in global air traffic from travel restrictions and the resulting downturn in the commercial aviation market and its impact on customer operations has significantly reduced demand for flight training, flight simulators and commercial avionics products in the company’s aviation systems segment.

The company’s updated 2020 guidance reflects the company’s current expectations and assumptions regarding disruptions and other impacts related to the COVID-19 pandemic and associated containment actions, including on the U.S. and global economies. These assumptions include a measured assessment of the downturn in the commercial aerospace business and in demand for public-safety solutions, as well as additional potential risks from facility shutdowns, supply chain disruptions and international activity weakness.

The company expects revenue in a range of $18.3 billion to $18.6 billion, up organically 3% to 5% on an adjusted pro forma basis and reduced from previous range of up 5% to 7%. This primarily reflects downturn in the commercial aerospace business, as well as some weakness in international and public-safety demand and risks from supply chain disruptions.

The company expects operating cash flow and adjusted free cash flow unchanged at $2.8 billion to $2.9 billion and $2.6 billion to $2.7 billion, respectively. L3Harris also expects about $1.7 billion in share repurchases, inclusive of proceeds from divestitures announced year to date.

L3Harris also completed the previously announced sale of its airport security and automation business to Leidos for $1 billion. With annual revenues of about $500 million, L3Harris’ Security and Detection Systems and MacDonald Humfrey Automation solutions are used by the aviation and transportation industries, regulatory and customs authorities, government and law enforcement agencies, and commercial and other high-security facilities.

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