L3HARRIS TECHNOLOGIES, INC. /DE/ Q1 FY2025 earnings call

• Discussed the impact of the administration's transformative changes, including a full-year continuing resolution and potential $1 trillion 2026 presidential budget request. Highlighted initiatives like Golden Dome and the company's positioning to support it, along with investments in space factories. - Mentioned partnerships with Kuiper Government Solutions, Shield AI, and Palantir, emphasizing collaborative efforts in areas like resilient comms and AI-enabled unmanned systems. - Outlined the LHX NEXT initiative focused on delivering $1.2 billion in gross run rate savings, including cost optimization and enterprise transformation. - Noted strong first quarter results with $5.1 billion revenue, flat organic growth, segment operating margin of 15.6% (sixth consecutive quarter of margin expansion), non-GAAP EPS of $2.41 (up 7% year-over-year), and returned nearly $800 million to shareholders.

CES delivered revenue of $1.3 billion, up 4% driven by strong international demand, with operating margin increasing 50 bps to 25.5%. IMS revenue was $1.6 billion, down 2% but operating margin was 12.8%, up 40 bps. SAS revenue was $1.6 billion, down 6% organically, with operating margin 10.9%, down 40 bps. AR had 9% organic growth in revenue, with operating margin declining 10 bps to 12.1%.

• Updated revenue guidance to $21.4 to $21.7 billion (midpoint 4% organic growth), reflecting elimination of CAS divestiture revenue. - Maintained segment operating margin guidance of mid to high 15% supported by LHX NEXT cost savings. - Non-GAAP EPS expected to be $10.30 to $10.50. - Reaffirmed free cash flow guidance of $2.4 to $2.5 billion. - Reaffirmed communication systems revenue outlook of $5.6 to $5.7 billion with increased profitability to 25%. - Adjusted IMS revenue guidance due to CAS divestiture and FOS business transfer, with operating margin expected in the high 11% range. - Maintained space and airborne systems revenue guidance of $6.9 to $7.1 billion, expecting government fiscal year 2025 space sector constraints to abate by 2026. - AR revenue guidance now approximately $2.8 billion with mid 12% range margins.

• Dynamic external environment with uncertainties around defense budget details and implementation of DOD priorities. - Challenges in some program areas, though the company is proactively managing the portfolio. - Uncertainty around the full impact of procurement reform and its implications for the industrial base.

Q: Concern over US-European ally relations and European comms prospects.

A: Christopher E. Kubasik noted orders booked and discussions with customers, emphasizing superior technology and multi-year programs driving confidence.

Q: Details on Golden Dome.

A: Kenneth L. Bedingfield and Christopher E. Kubasik discussed investments in missile warning/tracking, alignment with customer needs, and Aerojet's position on solid rocket motors and interceptors.

Q: SAS challenges and classified programs.

A: Kenneth L. Bedingfield and Christopher E. Kubasik discussed challenges in classified programs nearing completion, with expectation of future growth and profitability.

Q: Airborne business prospects.

A: Christopher E. Kubasik noted F-35 as a near-term headwind with growth expected in 2026 and strong portfolio positioning across aircraft.

Q: Aerojet Rocketdyne outlook.

A: Kenneth L. Bedingfield discussed strong business, capacity expansion, and opportunities in missile solutions, interceptors, and space propulsion.

Q: 2026 growth outlook.

A: Kenneth L. Bedingfield and Christopher E. Kubasik discussed growth drivers including orders booked, space sector recovery, F-35 abatement, and partnerships, with confidence in reaching 7% organic growth in 2026.

Q: F-35 enhancements and L3Harris's role.

A: Christopher E. Kubasik stated L3Harris is well-positioned to support F-35 enhancements through TR3 and retrofit work.

Q: Procurement reform and industrial base.

A: Christopher E. Kubasik discussed passion for procurement reform, benefits of speed and agility, low-hanging fruits, and implications for the industrial base.

Q: International growth and portfolio shaping.

A: Kenneth L. Bedingfield discussed international growth drivers and Christopher E. Kubasik noted no significant portfolio shaping planned, with focus on core competencies.

Q: SDA program updates.

A: Christopher E. Kubasik discussed SDA program performance, with tranche zero in orbit, tranches one and two moving along, and alignment with Golden Dome architecture.