L3Harris Technologies [LHX] on Tuesday reported strong second quarter financial results with a double-digit gain in earnings and solid organic growth and the company announced the sale of two defense electronics businesses in deals that signaled the end is near with divestitures of non-core units.
Net income increased 49 percent to $413 million, $2.01 earnings per share (EPS), from $278 million ($1.30 EPS) a year ago, with the gains driven by cost savings synergies, operational improvements, higher sales, pension and tax benefits. Per share results were also higher on a lower share count.
Adjusting for acquisition costs, divestitures, and pension adjustments, earnings of $3.26 EPS beat consensus estimates by 8 cents per share.
Sales in the quarter increased 5 percent to $4.7 billion from $4.4 billion a year ago, with organic revenue, which excludes previous divestitures, up just over 6 percent.
Christopher Kubasik, vice chair and CEO of L3Harris, is putting more focus on the company’s international business and said that two years ago about 19 to 20 percent of sales were from international customers and so far in 2021 about 22 percent is from foreign customers.
Sales and operating income were higher across the company’s four segments.
L3Harris also said it has agreed to sell two of its defense units, Electron Devices and Narda Microwave-West, to the private equity firm Arlington Capital Partners
for $185 million in cash. Arlington Capital said it will combine the two businesses into a new company called Stellant Systems.
The pending divestitures are expected to close before the end of 2021 and combined with a “few others” being processed, “our portfolio shaping program announced in 2019 is largely complete,” Kubasik said on the company’s earnings call. The divestitures have amounted to 10 percent of sales, he said.
Sale proceeds from the divestitures will be used to reward shareholders, Kubasik said. The company now plans to repurchase about $3.4 billion worth of its stock this year, up from prior guidance of around $2.3 billion, he said.
Later in the call, Kubasik said that even with the divestiture process wrapping up, the company still isn’t in “a rush” to begin acquiring new businesses. L3Harris will keep its options open and will look at “a must have” but there are no “glaring needs or gaps” in its ability to serve its markets, he said.
L3Harris raised the low end of its prior adjusted earnings guidance by a dime to between $12.80 and $13 EPS for 2021 and lowered the sales outlook by $400 million to between $18.1 billion and $18.5 billion to account for divestitures.
Orders in the quarter were equal to sales and adjusted free cash flow was $685 million. For the year, L3Harris still expects to generate between $2.8 billion and $2.9 billion in adjusted free cash flow.