L3Harris Reports 2020 Fourth-Quarter, Full-Year Results
Friday, January 29, 2021 | Comments

L3Harris Technologies reported fourth-quarter 2020 revenue of $4.7 billion, down 3.6% versus the prior year, and flat on an organic basis. Generally accepted accounting principles (GAAP) net income was $184 million, down 54% versus the prior year.

Adjusted earnings before taxes and interest (EBIT) was $864 million, up 3.5% versus the prior year, and adjusted EBIT margin expanded 120 basis points (bps) to 18.5%. GAAP earnings per share (EPS) was $0.92, down 48%, and non-GAAP EPS was $3.14, up 10% versus the prior year.

"Thanks to the hard work of our employees, we continued to deliver the benefits of the merger and ended the year with solid performance, exceeding our initial 2020 guidance for margins, EPS and free cash flow as we overcame headwinds due to the global pandemic," said L3Harris Chairman and CEO William M. Brown. "We’re clearly making progress in building a high-performance, technology-focused operating company and positioning L3Harris as a full end-to-end mission solutions prime. In 2021, we'll build on our momentum as we remain focused on meeting employee, customer and shareholder commitments."

Fourth-quarter revenue decreased 3.6% versus the prior year, primarily due to divestitures and COVID-related impacts, mainly for commercial-related sales. Organic revenue was flat for the quarter as 3.7% growth in core U.S. and international businesses, excluding commercial aviation and public safety, was offset by the anticipated COVID-related decline. At the segment level, revenue growth was driven by space and airborne systems and communication systems, offset by a decline in aviation systems primarily due to COVID-related impacts. Funded book-to-bill was 0.93 for the quarter.

Fourth-quarter GAAP EPS decreased 48% versus the prior year primarily due to charges for the impairment of intangibles, goodwill and other assets related to the commercial aviation business and other COVID-related impacts. These charges and other impacts were partially offset by operational excellence, integration benefits, cost management, a decrease in integration costs and a lower share count. Non-GAAP EPS increased 10% versus the prior year, driven by operational excellence, integration benefits, cost management and a lower share count, partially offset by COVID and divestiture-related impacts. Net income margin contracted 440 bps, and adjusted EBIT margin expanded 120 bps to 18.5% versus prior year.

Full-year revenue increased 42% versus prior year primarily due to the post-merger inclusion of L3 operations in results, partially offset by divestitures and COVID-related impacts, mainly for commercial-related sales. Full-year revenue increased 0.5% versus prior-year pro forma and 2.9% on an organic basis as 5.6% growth in core U.S. and international businesses, excluding commercial aviation and public safety, more than offset the COVID-related decline. At the segment level, revenue growth was driven by space and airborne Systems, integrated mission systems and communication systems, partially offset by a decline in aviation systems primarily due to COVID-related impacts. Funded book-to-bill was 1.04 for the year.

Full-year GAAP EPS decreased 34% versus the prior year primarily due to charges for impairment of goodwill and other assets and other COVID-related impacts, higher amortization of acquisition-related intangibles, divestitures and a higher share count. This decline was partially offset by the inclusion of L3 operations in results for the full year in 2020, compared with only the second half in 2019; operational excellence; integration benefits; cost management and a decrease in integration costs. Full-year non-GAAP EPS increased 13% versus prior year driven by operational excellence, integration benefits, cost management and a lower share count, net of COVID and divestiture-related impacts. Net income margin contracted 450 bps and adjusted EBIT margin expanded 120 bps to 18.0% versus prior year.

Fourth-quarter revenue for the communication segment increased 2.1% versus prior year and 3.4% on an organic basis from strong growth in tactical communications, primarily from the Middle East and Central Asia, as well as the continued ramp in U.S. Department of Defense (DoD) modernization. This growth was partially offset by international program timing in integrated vision solutions and lower demand within public safety due to anticipated COVID-related impacts. Fourth quarter operating income increased 14% to $296 million, and operating margin expanded 280 bps to 25.9% versus prior year from operational excellence, integration benefits and cost management. Segment funded book-to-bill was 0.95 for the quarter.

The broadband business secured a key strategic win of the U.S. Navy's Next Generation Jammer Low Band (NGJ-LB) tactical jamming system program to upgrade airborne electronic warfare capabilities for the EA-18G Growler fleet. Under this five-year, $496 million contract, the company will deliver prototype tactical jamming pods designed to extend U.S. air superiority, with a significant multi-billion-dollar follow-on opportunity.

Full-year revenue for the segment increased 33%, operating income increased 30% and operating margin contracted 60 bps versus prior year, primarily due to the post-merger inclusion of L3 operations in results. Full-year revenue increased 3.9% versus prior-year pro forma and 4.4% on an organic basis from strong growth in tactical communications, primarily from the ramp in U.S. DoD modernization that also benefited integrated vision solutions, partially offset by lower demand in public safety due to COVID-related impacts. Full-year GAAP and non-GAAP operating income increased 13%, and operating margin expanded 200 bps to 24.4% versus prior-year pro forma from operational excellence, integration benefits and cost management. Funded book-to-bill was 0.94.

In the fourth quarter of fiscal 2020, L3Harris generated $642 million in adjusted free cash flow and returned $619 million to shareholders through $440 million in share repurchases and $179 million in dividends. For the full year, the company generated $2.686 billion in adjusted free cash flow and returned $3.015 million to shareholders through $2.29 billion in share repurchases and $725 million in dividends.

The L3Harris Board of Directors approved a 20 percent increase in the company’s quarterly cash dividend rate from 85 cents per share to $1.02 per share, commencing with the dividend to be declared for the first quarter of 2021. The L3Harris board also approved a new $6 billion share repurchase authorization.

L3Harris expects revenue for 2021 to be somewhere between $18.5 billion to $18.9 billion, up organically 3% to 5%. GAAP net income margin is expected to be 10.8% to 11.1%, adjusted EBIT margin is expected to be 18.% to 18.5%. GAAP EPS is expected to be $9.80 to $10.11 and non-GAAP EPS is expected to be $12.60 to $13. The company expects operating cash flow and adjusted free cash flow of $3.1 billion to $3.2 billion and $2.8 billion to $2.9 billion, respectively.

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