L3Harris Technologies, Inc. Q2 FY2025 earnings call

The company is positioned well due to robust global threat-driven opportunities and a trusted disruptor strategy. Highlights include: On F-35, systems are ahead of need; LHX NeXt is tracking 40% ahead of the $1 billion cost savings target; Aerojet Rocketdyne integration complete with doubled deliveries and reduced cost of poor quality; second quarter results showed strong execution with highest organic growth in 6 quarters and record book-to-bill; secured ~$200 million orders for software-defined radios in Germany; broke ground on solid rocket motor facilities; secured major space propulsion award; progress on Titan program with Palantir; support for FAA Newark Airport telecom infrastructure; and delivery of missionized Global 6500 for ISR.

Consolidated results for the second quarter: Orders reached a record $8.3 billion with a 1.5 book-to-bill. Revenue was $5.4 billion, reflecting 6% organic growth. Segment operating margin was 15.9%. CS delivered revenue of $1.4 billion, up 2%, with an operating margin of 24.4%. IMS revenue was $1.6 billion, up 6% organically, with an operating margin of 13.2%. SAS revenue was $1.8 billion, up 7% organically, with an operating margin of 12.3%. Aerojet Rocketdyne delivered 12% organic growth and a 2.0 book-to-bill, achieving the highest revenue quarter on record.

2025: Increased revenue guidance by $200 million, expecting 5% organic revenue growth. Maintaining segment operating margin guidance of mid to high 15% supported by LHX NeXt cost savings. Raising non-GAAP EPS guidance by $0.10. Increasing free cash flow guidance to approximately $2.65 billion. IMS revenue guidance increased $100 million, SAS revenue guidance increased $100 million. 2026: Expecting $23 billion in revenue, low 16% segment operating margin, and raising free cash flow guidance to $3 billion.

Forward-looking statements involve risks, assumptions, and uncertainties that could cause actual results to differ materially. Potential risks include changes in defense spending allocation, program execution challenges, and international market fluctuations.

Q: Explain the comment about monetizing legacy end-of-life assets and the runway left on LHX NeXt cost reductions.

A: Kenneth L. Bedingfield stated it's about portfolio strategy, monetizing product lines not aligned with growth areas. LHX NeXt will continue cost savings with facility consolidations, with implementation largely complete by the end of 2025.

Q: Impact of increased defense spending in Europe.

A: Christopher E. Kubasik said there are solid international growth opportunities, particularly in telecommunications, software-defined radios, and missionized business jets.

Q: Growth and margin improvement ranking by segment.

A: Kenneth L. Bedingfield said Aerojet likely to be the fastest grower, with margin improvement coming from LHX NeXt and solid program performance.

Q: HBTSS constellation and tranche 3.

A: Christopher E. Kubasik said HBTSS is expected to be under contract by year-end, and 2026 guidance isn't hinged on a single award.

Q: Bookings breakdown.

A: Kenneth L. Bedingfield said there was strong book-to-bill across segments, with Aerojet having a 2.0 book-to-bill, and solid performance across SAS, IMS, and CS.

Q: Risk in fast-moving contracts.

A: Christopher E. Kubasik assured no riskier contracts are being signed, with work being on follow-on and classified projects.

Q: Growth of TDL and Aerojet Rocketdyne.

A: Christopher E. Kubasik said TDL is accretive, and Aerojet Rocketdyne has significant growth opportunities in missile solutions and space propulsion.

Q: Growth beyond 2026 for tactical radios.

A: Christopher E. Kubasik said monitoring the PBR process, with international opportunities to offset any domestic headwinds.

Q: Wolf Pack announcement.

A: Christopher E. Kubasik said it's an innovative pre-Aerojet acquisition development with potential for growth.

Q: LHX NeXt savings and space demand.

A: Kenneth L. Bedingfield said no significant change in LHX NeXt savings pass-through, and Christopher E. Kubasik noted space has growth potential with various roles in the orbital plane