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A month has gone by since the last earnings report for L3Harris (LHX). Shares have added about 1.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is L3Harris due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
L3Harris Technologies Q2 Earnings Top, Revenues Rise Y/Y
L3Harris Technologies second-quarter 2021 adjusted earnings came in at $3.26 per share, which surpassed the Zacks Consensus Estimate of $3.17 by 2.8%. The bottom line also increased 15% from the year-ago quarter’s $2.83.
Including one-time items, the company reported GAAP earnings of $2.01 per share compared with the year-ago quarter’s $1.30.
This year-over-year upside in earnings was driven by higher volume, operational excellence, integration benefits and a lower share count, along with net divestiture-related gains and lower acquisition-related amortization.
During the reported quarter, the company’s revenues came in at $4,668 million, exceeding the Zacks Consensus Estimate of $4,640 million by 0.5%. Moreover, revenues improved 5% on a year-over-year basis, driven by solid growth across key end-markets as well as growth in all four segments.
Integrated Mission Systems: Net sales at the segment came in at $1,494 million, up 12% driven by strong growth in ISR and Maritime businesses.
Operating income came in at $229 million compared with the year-ago quarter’s $224 million. However, operating margin contracted 150 basis points (bps) to 15.3%.
Space and Airborne Systems: The segment recorded net sales of $1,287 million in the second quarter, up 3% year over year. This upside resulted from the ramp-up of missile defense and other responsive programs in Space, as well as classified growth in Intel & Cyber.
Operating income increased to $253 million from $235 million registered in the year-ago quarter. Operating margin expanded 90 bps to 19.7%.
Communication Systems: Net sales at the segment inched up 1.3% to $1,127 million. This year-over-year growth was aided by international demand in Tactical Communications, as well as strong growth in Global Communications Solutions and Integrated Vision Solutions.
Operating income increased to $287 million from the year-ago quarter’s $265 million. Operating margin expanded 170 bps to 25.5%.
Aviation Systems: Net sales at the segment came in at $809 million, up 1.1% year over year. This upside was driven by recovering training and avionics product sales within the commercial aerospace business and higher FAA volume in Mission Networks.
Adjusting operating income increased to $117 million from $100 million in the year-ago quarter. Adjusted operating margin expanded 200 bps to 14.5%.
As of Jul 2, 2021, L3Harris had $2,029 million in cash and cash equivalents compared with $1,276 million as of Jan 1, 2021.
Long-term debt as of Jul 2, 2021 was $7,061 million compared with $6,943 million as of Jan 1, 2021.
Net cash inflow from operating activities amounted to $1,381 million at the end of second-quarter 2021 compared with the year-ago cash inflow of $1,335 million.
During the second half of 2021, L3Harris generated $1315 million in adjusted free cash flow and returned $1,057 million to shareholders through $850 million in share repurchases and $207 million in dividends.
L3Harris currently expects to generate revenues of $18.1-$18.5 billion, compared with the prior guidance range $18.5-$18.9 billion, during 2021. The Zacks Consensus Estimate for revenues, pegged at $18.69 billion, lies above the company’s newly guided range.
The company’s 2021 earnings are now projected to be in the range of $12.80-$13.00 per share, compared with the previous guidance of $12.70-$13.00. The Zacks Consensus Estimate for EPS, pegged at $12.99, lies above the mid-point of the guided range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, L3Harris has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, L3Harris has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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