L3Harris Technologies [LHX] over the next three years projects to go from a $19 billion-plus company this year to $23 billion in sales in 2026 while also increasing operating margins and free cash flow, the company said on Tuesday.
For 2023, L3Harris is expecting sales between $19.2 billion to $19.4 billion and is guiding to about $21 billion in 2024, representing an increase of between 8 to 9 percent, the company said at an investor day. The “framework” for sales in 2026 is around $23 billion, which would be a 10 percent boost over 2021.
Operating margin at the company’s business segments is expected to be a robust 14.8 percent this year, rising to about 15 percent in 2024 and around 16 percent by 2026, L3Harris said. During the same period, free cash flow is projected to go from more than $2 billion in 2023 to around $2.2 billion in 2024 and reach $2.8 billion in 2026, it said.
Some of that growth will come from two deals the company closed this year, the purchase of Aerojet Rocketdyne and ViaSat’s [VSAT] tactical data links business. The company has also sold off some businesses, most recently its Commercial Aviation Solutions unit.
Higher sales—including organic—and operating margin in 2024 are forecast in each of the company’s segments. L3Harris has a $32 billion backlog, which gives it visibility in its long-term growth outlook.
Margin expansion will be driven by improved operating efficiencies driven by the company’s LHX NeXt initiative, which is targeted to reduce costs by 6 percent over the next few years, and a tighter focus on higher margin bid opportunities. Through LHX NeXt, L3Harris plans to consolidate real estate and information technology data centers, standardize enterprise resource planning, and reduce its IT application portfolio and spending.
The company is also outsourcing indirect procurement, optimizing indirect labor, including using artificial intelligence tools, and reducing spending on suppliers.
For the time being, mergers and acquisitions will not be a focus.
“Nearly five years ago, we combined two mid-sized aerospace and defense companies to create a new competitor in the industry,” Chris Kubasik, chairman and CEO of L3Harris, said in a statement. “Since then, we have been shaping our portfolio into a national security and technology-focused company aligned with growing end markets across all domains. We intend to discontinue our M&A program for the foreseeable future to prioritize strengthening our balance sheet and returning all excess capital to shareholders.”
Earlier this week, L3Harris indicated that further divestitures may be in the works. The company has formed a committee among four of its board members to review the portfolio, operations, and cost structure.
Capital deployment priorities from 2024 through 2026 include investing in the business in areas such as research and development, and capital expenditures, paying down debt, and returning excess cash to shareholders.