L3Harris Results Summary

If you look at the typical news outlet headlines, there are headlines framing LHX as cutting guidance for their primary storyline and also on the flip side, LHX Q1 earnings beat. Instead of framing it in a way that news outlets are told they need to, let’s look at the numbers.

L3Harris reports in both GAAP & Non-GAAP financial measures on the basis that both are important to investors when considered together. Robinhood for example, will only pay attention to their Non-GAAP quarter results when you pull $LHX up from your phone.

  • 1Q20 revenue $4.6 billion; up 168% and 5% versus prior-year GAAP and pro forma, respectively; funded book-to-bill of 1.11
  • 1Q20 GAAP earnings per share from continuing operations (EPS) of $0.99, down 51% versus prior-year GAAP and down 43% versus prior-year pro forma
  • 1Q20 non-GAAP EPS of $2.80, up 21% versus prior-year adjusted pro forma
  • 1Q20 operating cash flow of $533 million; adjusted free cash flow of $533 million

The non-GAAP EPS of $2.80 beat analyst expectations by $0.18 from $2.62 consensus. Revenue also beat analyst expectations at $4.6B versus $4.59B. Overall, it was a solid quarter for L3Harris. As discussed in my prior post, the company recently went through a merger. A part of the GAAP measures where the company has missed, includes goodwill charges (typically associated with buying a company) as well as other intangibles related to the merger. I do not see this as a negative long term.

Having experienced working for a company which underwent a growth merger, L3Harris mentioned the merger write downs were partially offset by gains in productivity and integration savings. Both gains in productivity are a key aspect that L3Harris is continuing to estimate moving forward in their 2020 full year guidance. Although revising full year guidance down from $11.55 EPS to $11.35 EPS in 2020, the “synergy” productivity gains as McKinsey & Co. likes to call it, will continue and has the potential to exceed estimates.

Business Segment Breakdown

Integrated Mission Systems

Space & Airborne Systems

Communication Systems

Aviation Systems

LHX Outlook

What we see above from the business segment breakout is solid margin expansion. L3Harris, a company deemed essential through the COVID-19 crisis, at the moment does not seem to see significant impact. It does not mean there will not be impact, but it reflects a company growing in challenging times and gaining synergies that are hitting the bottom line. Keep in mind, a majority of L3Harris revenues are based from the US government. You can see the rest of the investor presentation to view other figures here.

In times of great uncertainty, L3Harris Technologies may be a good stable option for long term investors. As we move forward, I plan to keep my eye on business segment margins, impacts of COVID-19 on L3Harris employees/manufacturing, and the realization of the merger synergies in 2020. One thing I did not mention and potentially another reassurance measure is the amount of L3Harris jobs available. Checking to see if a company is hiring can also support the thesis that a company is doing well or growing. In future posts, I would like to dive into great business segment product details to increase the knowledge of L3Harris Technologies. For now, Q1 2020 is off to a solid start.

For more, see the CNBC interview with CEO William Brown

*Author holds investment position in LHX. This is not financial advice, investments are at your own risk