L3harris Technologies ((LHX)) has held its Q1 earnings call. Read on for the main highlights of the call.
The recent earnings call for L3Harris Technologies was marked by a generally positive sentiment, driven by strong international demand and strategic partnerships that are propelling the company’s growth. The call highlighted a solid financial performance with margin expansion, despite facing challenges in certain segments and a free cash flow outflow. The overall tone was optimistic, focusing on long-term growth and profitability.
Strong International Demand and Key Contract Wins
L3Harris Technologies has successfully secured a significant $1.1 billion contract with the Dutch Ministry of Defense for network modernization and software-defined radios. This contract, along with robust international demand, contributed to a 4% revenue growth in the company’s Communication and Electronic Systems (CES) segment.
Positive Financial Performance in Q1 2025
The company reported a revenue of $5.1 billion for the first quarter of 2025, with a segment operating margin of 15.6%. This marks the sixth consecutive quarter of year-over-year margin expansion. The non-GAAP EPS was $2.41, reflecting a 7% increase compared to the previous year.
Strategic Partnerships and Innovations
L3Harris announced new partnerships with Kuiper Government Solutions and Shield AI, aiming to enhance tactical communication and AI-enabled unmanned systems capabilities. These strategic alliances are expected to drive innovation and growth in key areas.
Continued Focus on Profitability
Despite divestitures, L3Harris maintained its segment operating margin guidance of mid to high 15% for 2025. This is supported by cost savings from the LHX NEXT initiative and strong program execution, underscoring the company’s commitment to profitability.
Challenges in SAS Segment
The Space and Airborne Systems (SAS) segment faced a 6% organic revenue decline, primarily due to lower volumes from program timing and reduced F-35 volume as TR3 mission computing hardware transitions from development to production.
Free Cash Flow Outflow
The company experienced a free cash flow outflow of about $70 million in the first quarter of 2025. However, this was less than half of the outflow seen in the same quarter of the previous year, indicating some improvement.
Potential Impact of Government Budget Constraints
L3Harris’s space sector is facing challenges due to government fiscal year 2025 budget constraints, which are expected to ease by 2026. These constraints are impacting short-term revenue growth.
Forward-Looking Guidance
During the earnings call, L3Harris updated its guidance for the year, expressing confidence in achieving its 2026 financial framework of $23 billion in revenue, low 16% margins, and $2.8 billion in free cash flow. Despite a free cash outflow in the first quarter, the company reiterated its 2025 free cash flow guidance of $2.4 to $2.5 billion. Adjustments were made to account for the commercial aviation solutions divestiture, with expected revenue now between $21.4 to $21.7 billion, representing a 4% organic growth at the midpoint.
In summary, the earnings call for L3Harris Technologies conveyed a positive outlook, driven by strong international demand and strategic partnerships. While challenges such as free cash flow outflow and government budget constraints were noted, the company’s focus on long-term growth and profitability remains steadfast. The updated guidance reflects confidence in achieving significant financial milestones in the coming years.