Business Overview and History L3Harris Technologies, Inc. was formed in 2019 through the transformative merger between L3 Technologies and Harris Corporation, creating a new defense powerhouse with combined annual revenue of over $17 billion. This merger brought together two companies with long and distinguished histories in the defense and aerospace industries.
Harris Corporation, founded in 1895 as an electrical equipment repair shop in Ohio, grew over the course of a century into a major defense contractor. The company made significant strides in communications systems, electronic systems, and technical services for government and commercial customers. Notable achievements include the development of the Falcon II tactical radio in the 1990s and the strategic acquisition of Exelis Inc. in 2015, which bolstered Harris' capabilities in electronic warfare, air traffic management, and geospatial systems.
L3 Technologies, on the other hand, originated in 1997 through the merger of Loral Corporation's defense electronics and system integration businesses. It quickly established itself as a leader in specialized products, systems, and services for military, homeland security, and commercial aviation customers. L3's growth strategy included numerous strategic acquisitions, such as the purchases of Vertex Aerospace in 2002 and the Army's Flight Simulation business in 2006.
The integration of L3 and Harris faced some initial challenges, including the need to consolidate facilities and rationalize the workforce. However, the combined company successfully leveraged its expanded capabilities, strong customer relationships, and commitment to innovation to overcome these hurdles. Throughout its history, L3Harris and its predecessor companies have demonstrated resilience and agility in adapting to the evolving defense and government contracting landscape, including changes in procurement processes, security requirements, and budgetary priorities.
Today, L3Harris operates through four main business segments: Space and Airborne Systems (SAS), Integrated Mission Systems (IMS), Communication Systems (CS), and Aerojet Rocketdyne (AR). These segments collectively offer a wide range of products and services, including space payloads, sensors, classified intelligence and cyber systems, tactical and broadband communications, and advanced propulsion technologies.
Financial Performance and Ratios In the fiscal year 2024, L3Harris reported total revenue of $21.32 billion, a 10% increase from the previous year. The company's net income attributable to L3Harris Technologies, Inc. stood at $1.50 billion, reflecting a year-over-year growth of 22%. L3Harris' operating cash flow for the fiscal year 2024 was $2.56 billion, while its free cash flow reached $2.15 billion, representing a 14% increase compared to the prior year.
The company's financial ratios paint a picture of its strong financial position. As of the end of fiscal 2024, L3Harris had a current ratio of 1.08, indicating a healthy ability to meet its short-term obligations. The debt-to-equity ratio stood at 0.06, demonstrating a low level of leverage and a sound capital structure. Additionally, the company's return on equity (ROE) was 7.90%, showcasing its efficiency in utilizing shareholder capital.
In terms of liquidity, L3Harris reported cash and cash equivalents of $615 million. The company has access to a $1.5 billion 364-day senior unsecured revolving credit facility and a $2 billion 5-year senior unsecured revolving credit facility, with no outstanding borrowings as of January 3, 2025. The quick ratio stands at 0.90, further emphasizing the company's strong liquidity position.
Operational Highlights and Key Wins Throughout 2024, L3Harris continued to solidify its position as a trusted disruptor in the defense industry. The company's Space and Airborne Systems (SAS) segment made significant progress, including the successful completion of the customer's engineering design review for 18 space vehicles under the Space Development Agency's (SDA) Tranche 2 tracking layer program. This milestone achievement reflects L3Harris' expertise in delivering advanced space vehicles equipped with cutting-edge infrared payloads to detect, track, and target hypersonic threats.
In the Communication Systems (CS) segment, L3Harris won a $1 billion IDIQ award from the U.S. Navy to provide resilient communications technology to U.S. and allied forces. This contract will enable the company to deliver software-defined Link 16 terminals, which are critical for secure and resilient collaboration across air, ground, maritime, and space platforms.
The Integrated Mission Systems (IMS) segment also performed strongly, with revenue growing 9% year-over-year and operating margin expanding by 150 basis points. This robust performance was driven by strong program execution and a favorable product mix.
Aerojet Rocketdyne (AR), L3Harris' newest addition following the 2023 acquisition, delivered double-digit growth in its missile solutions business, further solidifying the company's position as a global leader in large solid rocket motor design and manufacturing.
Partnerships and Strategic Initiatives Collaboration and innovation are at the core of L3Harris' Trusted Disruptor strategy. In 2024, the company made significant strides in advancing its partnerships with organizations such as Palantir Technologies and venture capital-backed startups. These partnerships are focused on developing AI-enabled solutions and emerging technologies, accelerating a culture of innovation and speed within the company.
Additionally, L3Harris' LHX NeXt initiative, launched in 2023, has been a resounding success. In 2024, the company exceeded its gross cost savings target by 2x, reaching $800 million. This strong performance provides confidence in L3Harris' ability to accelerate and exceed its overall cost savings target of $1.2 billion by the end of 2025, a year ahead of schedule.
Risks and Challenges Like any major defense contractor, L3Harris faces various risks and challenges. The company's heavy reliance on U.S. Government contracts, which accounted for 76% of its revenue in fiscal 2024, exposes it to potential changes in government spending priorities and policies. Additionally, the company's fixed-price development contracts carry inherent risks, as cost overruns or delays could impact profitability.
Geopolitical tensions and the evolving threat landscape also pose risks to L3Harris' operations. The company's international business, which represents 21% of its total revenue, is subject to various risks, including currency fluctuations, complex regulatory environments, and potential political instability in certain regions.
Outlook and Future Prospects Looking ahead, L3Harris remains optimistic about its growth prospects. The company has provided guidance for fiscal 2025, projecting revenue in the range of $21.8 billion to $22.2 billion, representing organic growth of 4% at the midpoint. Segment operating margin is expected to be in the mid to high 15% range, supported by continued LHX NeXt cost savings and strong program execution.
For fiscal 2025, L3Harris has provided detailed segment guidance: - SAS revenue is expected to grow to a range of $6.9 billion to $7.1 billion, with operating margin in the low 12% range. - IMS revenue is projected at $7 billion to $7.2 billion, with operating margin in the low 12% range. - CS revenue is anticipated to be $5.6 billion to $5.7 billion, with margins in the high 24% range. - Aerojet Rocketdyne is expected to reach approximately $2.5 billion, with margins in the mid-12% range.
The company also expects free cash flow of $2.4 billion to $2.5 billion and non-GAAP EPS of $10.55 to $10.85, representing growth of 10% at the midpoint.
Looking further ahead, L3Harris has updated its 2026 financial framework, increasing the segment operating margins they expect to achieve to low 16% in 2026. The company is continuing to target $23 billion of sales in 2026, representing a 5% organic CAGR, and $2.8 billion in 2026 cash, representing a double-digit CAGR.
The incoming administration's focus on modernizing the national defense ecosystem presents significant opportunities for L3Harris. The company's agility, speed, and commitment to innovation position it well to adapt to the changing landscape and seize new opportunities that align with the nation's strategic objectives.
Segment Performance L3Harris operates through four main business segments, each contributing significantly to the company's overall performance:
Space and Airborne Systems (SAS): This segment provides full mission solutions across space, airborne, and cyber domains. In fiscal 2024, SAS segment revenue was $6.87 billion, with operating income of $812 million and an operating margin of 11.8%.
Integrated Mission Systems (IMS): IMS delivers differentiated mission capabilities and prime systems integration. In fiscal 2024, IMS segment revenue was $6.84 billion, with operating income of $838 million and an operating margin of 12.2%.
Communication Systems (CS): CS enables warfighters across all domains with resilient communication solutions. In fiscal 2024, CS segment revenue was $5.46 billion, with operating income of $1.32 billion and an operating margin of 24.3%.
Aerojet Rocketdyne (AR): Acquired in July 2023, AR provides propulsion, power, and armament products and systems. In its first full year as part of L3Harris, AR generated revenue of $2.35 billion, with operating income of $294 million and an operating margin of 12.5%.
Market Position and Industry Trends L3Harris Technologies has firmly established itself as a Trusted Disruptor in the defense industry. The company supports government customers in more than 100 countries, with the largest customers being various departments and agencies of the U.S. Government, their prime contractors, and international allies.
The global defense industry is expected to grow at a CAGR of approximately 3-5% over the next 5 years, driven by increasing global security threats, modernization of military forces, and growing demand for advanced technologies. L3Harris is well-positioned to capitalize on these trends, given its diverse portfolio of cutting-edge technologies and strong customer relationships.
In terms of geographic markets, 79% of L3Harris' revenue in fiscal 2024 was derived from the United States, with the remaining 21% from international markets. No single foreign country accounted for more than 5% of total revenue, highlighting the company's strong domestic focus while maintaining a significant global presence.
Conclusion L3Harris Technologies, Inc. has firmly established itself as a Trusted Disruptor in the defense industry. With its diversified portfolio of cutting-edge technologies, strategic partnerships, and a relentless focus on operational excellence, the company is poised to continue shaping the future of national security and modern warfare. As it navigates the evolving competitive landscape, L3Harris remains committed to delivering innovative solutions that empower its customers and create value for its shareholders. The company's strong financial performance, robust backlog of $34.2 billion, and clear strategic vision provide a solid foundation for sustained growth and success in the years to come.