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L3Harris Technologies (LHX) Beats on Q2 Earnings, Tweaks View

Zacks Equity Research

L3Harris Technologies, Inc.’s LHX second-quarter 2020 adjusted earnings came in at $2.83 per share, which surpassed the Zacks Consensus Estimate of $2.62 by 8%. The bottom line also increased 13% from the year-ago quarter’s $2.51.

Including one-time items, the company reported GAAP earnings of $1.30 per share compared with $2.21 in the year-ago quarter.

The year-over-year downside in GAAP earnings can be attributed to divestiture-related charges, COVID-19-related impacts and amortization of merger-related intangibles.

Total Revenues

In the quarter under review, the company’s revenues came in at $4,445 million, lagging the Zacks Consensus Estimate of $4,460 million by 0.4%. However, revenues surged 138% on a year-over-year basis, driven by post-merger inclusion of L3 operations.

L3Harris Technologies Inc Price, Consensus and EPS Surprise

L3Harris Technologies Inc Price, Consensus and EPS Surprise
L3Harris Technologies Inc Price, Consensus and EPS Surprise

L3Harris Technologies Inc price-consensus-eps-surprise-chart | L3Harris Technologies Inc Quote

Segmental Performance

Integrated Mission Systems: Net sales at the segment came in at $1,331 million. On a pro forma basis, revenues were up 7.3%,driven by growth in Electro Optical and Maritime units.

Operating income, on a pro-forma basis, came in at $224 million compared with $162 million in the year-ago quarter. Moreover, operating margin expanded 370 basis points (bps) to 16.8%.

Space and Airborne Systems: The segment recorded net sales of $1,249 million in the second quarter, up 23% year over year. On a pro-forma basis, revenues increased 4.1% year over year driven by a ramp up in modernization on the F-35 platform in Avionics and classified growth in Intel and Cyber.

Operating income increased to $235 million from $228 million in the year-ago quarter. Operating margin contracted 20 bps to 18.8%.

Communication Systems: Net sales at the segment rose 83% to $1,112 million. On a pro- forma basis, revenues increased 2.4% year over year due to ramp up in U.S. DoD modernization programs in Tactical Communications and Integrated Vision Systems.

Operating income increased to $265 million from $239 million in the year-ago quarter. Operating margin expanded 180 bps to 23.8%.

Aviation Systems: Net sales at the segment came in at $800 million, down 17% on a pro-forma basis, on account of COVID-19-related impacts in the commercial aviation business.

Operating income decreased to $31 million from $109 million. Operating margin contracted a huge 740 bps to 3.9%.

Financial Position

As of Jul 3, 2020, L3Harris had $1,947 million in cash and cash equivalents compared with $824 million as of Jan 3, 2020.

Long-term debt as of Jul 3, 2020 was $6,273 million compared with $6,694 million as of Jan 3, 2020.

Net cash inflow from operating activities amounted to $1,335 million at the end of second-quarter 2020 compared with the year-ago cash inflow of $716 million.

2020 View

L3Harris made some changes to its 2020 guidance. The company continues to expect organic revenues to grow in the range of 3-5% and projects revenues in the range of $18.2-$18.6 billion. The Zacks Consensus Estimate for revenues of $18.6 billion is in line with the higher end of the company provided range.

Adjusted earnings per share for 2020 arestill projected in the range of $11.15-$11.55. The Zacks Consensus Estimate for earningsof $11.28 lies below the midpoint of the company’s guidance.

However, the company has decreased its GAAP EPS guidance to the range of $6.03-$6.43 from the previous guidance of $6.95-$7.35.

Operating cash flow and adjusted free cash flow are still expected in the range of $2.8-$2.9 billion and $2.6-$2.7 billion, respectively.

Zacks Rank

L3Harris currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recent Defense Releases

Teledyne Technologies TDY reported second-quarter 2020 adjusted earnings of $2.43 per share, which surpassed the Zacks Consensus Estimate of $2.01 by 20.9%.

Lockheed Martin LMT reported second-quarter 2020 adjusted earnings of $6.13 per share, which surpassed the Zacks Consensus Estimate of $5.71 by 7.4%.

Hexcel Corporation HXL reported second-quarter 2020 adjusted earnings of 8 cents per share, which missed the Zacks Consensus Estimate of 20 cents by 60%.

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