L3Harris(US:LHX)2025-07-24 15:30Financial Data and Key Metrics Changes - The company reported a record $8.3 billion in orders for the quarter, resulting in a book-to-bill ratio of 1.5, indicating strong demand and execution [13][14] - Revenue for the quarter was $5.4 billion, reflecting a 6% organic growth year-over-year, marking the highest organic growth in six quarters [14][15] - Non-GAAP EPS was $2.78, up 16% year-over-year, while pension-adjusted EPS was $2.42, up 22% year-over-year [14][15] - Free cash flow was $574 million, driven by increased operating income and improved working capital performance [14] Business Line Data and Key Metrics Changes - Communication Systems (CS) revenue was $1.4 billion, up 2%, with an operating margin of 24.4% [15] - Integrated Mission Systems (IMS) revenue was $1.6 billion, up 6% organically, with an operating margin of 13.2%, up 120 basis points [15][16] - Space and Airborne Systems (SAS) revenue was $1.8 billion, up 7% organically, with an operating margin of 12.3%, down 30 basis points [16] - Aerojet Rocketdyne achieved 12% organic growth with a book-to-bill ratio of 2.0, driven by increased production volume across key missile programs [17] Market Data and Key Metrics Changes - NATO members are increasing defense spending to 5% of GDP, translating into meaningful orders for the company and supporting sustained international growth [10][11] - The U.S. administration's fiscal year 2026 budget request includes approximately $1 trillion in national defense funding, with significant allocations for areas where the company is well-positioned [7][8] Company Strategy and Development Direction - The company is focused on aligning its portfolio with national security priorities, emphasizing resilient communications, space superiority, and missile modernization [31][32] - The LHX NEXT program aims to drive enterprise transformation and operational improvements, with expectations for sustained revenue growth and cash generation [25][26] - The company is investing in manufacturing capacity and expanding its workforce to meet increasing demand for solid rocket motors and missile solutions [21][30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving the 2026 financial framework of $23 billion in revenue and a 16% segment operating margin, driven by alignment with long-term defense priorities [29][30] - The company anticipates continued strong demand across all segments, with a focus on delivering timely solutions to address current and future threats [24][32] Other Important Information - The company is on track to achieve $1 billion in cost savings over three years, currently tracking 40% ahead of target [6] - The integration of Aerojet Rocketdyne has been completed, resulting in doubled production rates and reduced costs [6][17] Q&A Session Summary Question: Can you explain the comment about monetizing legacy end-of-life assets? - Management clarified that monetizing legacy assets is part of the LHX NEXT strategy, focusing on aligning investments with growth areas [36][39] Question: What impact do you see from increased defense spending in Europe? - Management noted solid international growth opportunities, particularly in telecommunications and software-defined radios, as European countries seek interoperability and resilience [48][49] Question: How do you expect bookings to trend through the rest of the year? - Management expressed optimism for a solid second half, with expectations for a growing backlog and potential for outsized growth driven by large awards [71][73] Question: Can you provide a breakdown of the $8.3 billion in bookings by segment? - Management indicated strong book-to-bill ratios across all segments, with Aerojet Rocketdyne showing nearly a 2.0 book-to-bill ratio [76][79] Question: Are you signing contracts that are riskier due to the desire to move fast? - Management assured that they are not taking on riskier contracts, emphasizing that many awards are follow-on contracts with reasonable terms [84][86]