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Buoyed by higher operating income across its business segments and improved sales, L3Harris Technologies [LHX] on Thursday posted strong overall financial results in the second quarter.
Net income jumped 25 percent to $458 million, $2.44 earnings per share (EPS), from $367 million ($1.92 EPS) a year ago. Adjusted earnings of $2.78 per share, which excludes acquisition costs, losses from divestitures, costs related to the ongoing LHX NeXt business transformation effort, and taxes related to these various items, handily topped consensus estimates by 27 cents EPS.
Implementation of LHX NeXt will be complete by the end of 2025 and then become part of the company’s “normal business cadence,” Chris Kubasik, chairman and CEO of L3Harris, said on the company’s earnings call. The original cost savings goal of the transformation effort was to cut $1 billion of operating costs by the end of 2026, but the reduction will be at least $1.4 billion this year, giving the company confidence it will hit its 2026 target of 16 percent adjusted segment operating margin, he said.
Through the first half of 2025, adjusted segment operating margin is 15.8 percent.
The transformation effort is aimed at digitizing core operations and creating a new operating system all enabled by artificial intelligence tools. These changes “are not only improving execution and decision making, but they’re also building a more scalable, efficient foundation for growth,” Ken Bedingfield, L3Harris chief financial officer, said on the call. “We’re already seeing results from improved operational performance to new business wins, and we expect these transformation efforts to drive sustained revenue growth and cash Generation over the long term.”
Sales in the quarter grew 2 percent to $5.4 billion from $5.3 billion a year ago. Excluding divestitures of two businesses, organic revenue increased 6 percent, the highest in the past six quarters, Kubasik said.
All four operating segments posted higher organic revenue although Integrated Mission Systems (IMS) was down slightly overall due to the divestiture earlier this year of the Commercial Aviation Solutions business unit (Defense Daily, March 31). Aerojet Rocketdyne, the company’s rocket engine and motor segment, led the sales gains achieving a record $698 million on increased production related to missiles, munitions, and the ramp up of a new program.
Since closing the acquisition of Aerojet two years ago, deliveries and production rates have doubled and quality has improved, Kubasik said.
Orders in the quarter were a record $8.3 billion, and backlog stood at $35.4 billion, up 4 percent from $34.2 billion at the end of 2024.
Based on strong results in the first half of 2025 and an improved outlook for the second half, the company raised its financial guidance. Earnings are now forecast to be between $10.40 and $10.60 EPS, an increase of a dime as performance improvements are partially offset by impacts from new tax legislation.
The new sales projection is about $21.75 billion, up from the prior range of $21.4 billion to $21.7 billion due to intelligence, surveillance and reconnaissance work at IMS, and space work at the Space and Airborne Systems segment, Bedingfield said.
L3Harris expects to generate about $2.65 billion in free cash flow, up from prior projections of $2.4 billion to $2.5 billion. The company also increased its outlook for free cash flow in 2026 to $3 billion versus the prior framework of $2.8 billion.
