LHX

L3Harris Technologies, Inc. - Q2 2026 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the second quarter and year-to-date period ended July 3, 2026. L3Harris Technologies, Inc. operates as a defense and aerospace technology provider, reporting results across three segments: Space & Mission Systems (SMS), Communications & Spectrum Dominance (CSD), and Missile Solutions (MSL). The company streamlined its reporting structure from four to three segments effective in fiscal 2026.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Q2 2026 revenue increased 8% ($455 million) and YTD revenue increased 10% ($1,067 million) compared to the prior year. Growth was driven by higher volumes across all segments, new program ramps, and increased international deliveries.
• Profitability: Operating income rose 15% in Q2 and 19% YTD. Gross margin improved due to volume and favorable Estimate at Completion (EAC) adjustments ($43 million in Q2, $82 million YTD).
• Investment Gains: Non-service pension income and other items increased significantly due to net investment gains of $73 million in Q2 2026 (compared to $6 million in Q2 2025), driven by equity method investments and changes in fair value of equity interests.
• Divestitures: The company completed the sale of the Commercial Aviation Solutions (CAS) disposal group in March 2025. A new Space Technology disposal group is held for sale, expected to close in the second half of 2026.

Guidance, Outlook, and Strategic Developments

• Strategic Investment: On April 17, 2026, L3Harris entered into a $1 billion investment agreement with the U.S. Department of War (DoW) for its Missile Solutions subsidiary (Aerojet Rocketdyne). This involved issuing Series A Convertible Preferred Stock and warrants. Net proceeds of $973 million were received to fund missile manufacturing expansion. This transaction created a mezzanine equity balance of $968 million and a "deemed dividend" of $14 million impacting EPS.
• Capital Allocation: The company repurchased 1.5 million shares for $525 million YTD 2026, with $1.7 billion remaining in authorization. The quarterly dividend was increased to $1.25 per share.
• Outlook: Management expects capital expenditures for fiscal 2026 to be approximately $600 million. The company anticipates the U.S. Government fiscal year 2027 appropriations cycle may be delayed, potentially leading to a continuing resolution starting October 1, 2026.
• Risks: Key risks include U.S. Government spending priorities, supply chain disruptions, inflation, and the outcome of the DoW investment milestones which affect the redemption value of the preferred stock.

Investor Verification Checklist

• DoW Investment Terms: Verify the specific milestones required for the $1 billion DoW investment to convert to equity or trigger redemption, as this impacts future capital structure and earnings.
• Investment Gains Sustainability: Assess the sustainability of the $73 million Q2 investment gain, which significantly boosted non-operating income, and review the composition of equity method investments.
• Space Technology Divestiture: Monitor the timeline and final valuation of the Space Technology disposal group sale, currently held for sale with assets of $1.01 billion.
• Backlog Conversion: Confirm the 40% backlog conversion rate over the next 12 months given the $42 billion total backlog and potential government funding delays.
• Debt Maturities: Review the $1.815 billion current portion of long-term debt, specifically the $550 million 3.85% notes due Dec 2026 and $1.25 billion 5.40% notes due Jan 2027.