L3Harris Technologies Inc (LHX) stock took flight on Friday, soaring higher after the company delivered impressive third-quarter financial results that surpassed analyst expectations. The defense contractor’s strong performance ignited investor enthusiasm, sending shares up by a significant margin.
L3Harris reported revenue of $5.3 billion for the third quarter, representing an 8% year-over-year increase, and comfortably exceeding the consensus estimate of $5.28 billion. The company also posted adjusted earnings per share (EPS) of $3.34, beating analysts’ forecasts of $3.26. This impressive performance highlighted the company’s robust financial health and its ability to capitalize on strong demand within key segments.
The company’s Integrated Mission Systems (IMS) segment reported a 6.6% revenue increase, fueled by strong demand for aircraft missionization and munitions electronics. Meanwhile, the Communication Systems (CS) segment experienced a 10% growth, driven by robust orders for software-defined radios from NATO. Aerojet Rocketdyne (AR) also continued its positive momentum with a 31% year-over-year growth, despite missing consensus estimates by 5.8%.
L3Harris’ strong third-quarter performance was not just about exceeding earnings expectations; it also demonstrated the company’s commitment to operational excellence and cost-saving initiatives. Analyst Michael Ciarmoli of Truist Securities highlighted the positive impact of the company’s NeXt program, which is expected to generate cost savings of $600 million in 2024, surpassing the initial forecast of $400 million. The accelerated savings timeline supports L3Harris’ goal of achieving $1 billion in savings a year ahead of schedule.
The company’s robust order book also reflects its strong market position. Third-quarter orders surged 44% year-over-year, resulting in a 1.4x book-to-bill ratio and boosting the backlog to $33.6 billion. Notable orders included a $600 million contract for the Next Gen Jammer, a $1.2 billion IDIQ for P-8A, approximately $1 billion for software-defined radios, and a contract for the Glide Phase Interceptor.
L3Harris’ strong performance led to an upward revision of its full-year 2024 guidance. The company now expects adjusted segment operating margins to reach approximately 15.5%, up from the previous guidance of 15.3%. Revenue guidance was also raised by $50 million to a midpoint of $21.2 billion, and adjusted EPS increased by $0.05 to $13.05 at the midpoint. The company’s free cash flow guidance remained at approximately $2.2 billion.
Analysts are bullish on L3Harris’ future prospects, citing the company’s strong order book, cost-saving initiatives, and expansion into new markets. RBC Capital analyst Ken Herbert highlighted the company’s impressive third-quarter adjusted EPS of $3.34, surpassing both estimates and consensus. He also noted the strong adjusted free cash flow (FCF) of $728 million, which exceeded expectations. Herbert expressed optimism about L3Harris’ ability to capitalize on growth opportunities and achieve margin expansion in the coming years.
L3Harris’ strategic initiatives, such as its recent agreement with Palantir Technologies Inc, are also contributing to its market expansion efforts. The company’s focus on innovation and strategic partnerships positions it for continued success in the evolving defense sector.
With a strong financial foundation, a robust order book, and a commitment to growth and efficiency, L3Harris is well-positioned to navigate the complexities of the defense industry and achieve its strategic goals.