L3Harris Technologies [LHX] on Monday reported higher earnings despite lower sales in its fourth quarter, aided by ongoing performance initiatives and an easier comparison versus a year ago when the company suffered various charges related to the downturn in the commercial aerospace market and COVID-19 impacts.

Net income in the quarter jumped 163 percent to $484 million, $2.46 earnings per share (EPS), from $184 million (92 cents EPS) a year ago.

Adjusting for various pension items, impairment charges and integration costs related to the merger of Harris Corp. and L3 Technologies, income fell 3 percent to $836 million ($3.30 EPS) from $864 million ($3.14 EPS), topping consensus estimates by four cents per share. The per share results were higher primarily on a lower share count, and performance and cost management efforts, more than offsetting impacts from divestitures and supply chain constraints due to COVID-19.

Sales in the quarter fell 7 percent to $4.4 billion from $4.7 billion a year ago, largely due to the divestment of some businesses. Organic revenue declined a percent on slower sales in the Communications and Aviation Systems segments, in part due to supply chain issues but also award delays and contract roll-offs.

Overall, in 2021 sales declined 2 percent to $17.8 billion from $18.2 billion in 2020 due to the divestitures, while organic revenue edged up 2 percent on aircraft missionization work for a NATO country, maritime and space work, electro-optical deliveries, and classified intelligence and cyber.

Net income for the year rose 64 percent to $1.8 billion ($9.09 EPS) from $1.1 billion ($5.19 EPS). Adjusted income was up 3 percent to $3.4 billion ($12.95 EPS) from $3.3 billion ($11.60 EPS) a year ago. Free cash flow was $758 million in the fourth quarter and $2.7 billion for the year.

For 2022, L3Harris expects sales to be between $17.3 billion and $17.8 billion, up 1 to 3 percent organically, about a percent lower than analysts were projecting. Sales related to the company’s participation in the F-35 fighter program will be lower than expected in 2022 as some development efforts wind down before picking up again beginning in 2023 as these items transition to production. Adjusted earnings are forecast to be between $13.35 and $13.65 EPS, with the high end of the range matching analysts’ estimates.

Driving the improved earnings are the higher sales, continued performance initiatives, and a lower share count, partially offset by impacts from the divestitures and supply chain constraints.

The supply chain issues will continue through the first half of 2022 but are expected to abate somewhat in the second half of the year with improvements continuing early in 2023, Christopher Kubasik, L3Harris vice chair and CEO, said on the company’s earnings call.

Free cash flow this year is expected to be between $2.2 billion and $2.3 billion, including $600 million to $700 million in research and development taxes. L3Harris is also expected to spend about $1.5 billion on share repurchases but could increase this to $2 billion if Congress changes current law to allow the R&D taxes to be deferred.

Kubasik said the company continues to have an “appetite” for acquisitions, with any future deals likely in the range of $500 million to $1.5 billion. A veteran of L3Technologies, which frequently acquired small companies as part of its growth strategy, Kubasik said, “I’m probably not a huge fan of lots of little $50 [million], $70 [million], $100 million deals. It just causes a lot of challenges with integration and such. I think the multi-billion, $5 billion and beyond, there aren’t many targets.”

Regarding the Federal Trade Commission’s decision last week to seek to block Lockheed Martin

’s [LMT] proposed $4.4 billion acquisition of propulsion supplier Aerojet Rocketdyne [AJRD], Kubasik said the government is intervening because that is a vertical acquisition. This doesn’t’ apply to L3Harris’ acquisition interests, he said.

“I think it’s business as usual from my perspective, for L3Harris relative to our portfolio and the things we might consider down the road,” Kubasik said. Later in the call, he said, “I think at some point, there’s a reluctance to have really big guys get bigger so, I kind of like where I am relative to the real big guys.”

Kubasik also said that depending on the presidential administration in power, the government’s interests around industry consolidation could change.