01—Abstract
Summary
Summary of the 10-Q filed May 3, 2018. Cited figures are marked; the original filing is the authoritative source.
L3Harris Technologies, Inc. (LHX) reported its third-quarter and year-to-date results for the period ending March 30, 2018.
For the quarter, revenue increased by 5% to $1.57 billiona compared to the prior year quarter, driven by growth across all segments, notably Electronic Systems and Communication Systems. However, operating income saw a decline of 7% due to increased Engineering, Selling, and Administrative (ESA) expenses, largely attributed to exit costs from a commercial line of business. Despite this, income from continuing operations surged by 24% to $203 million, leading to a 27% increase in diluted earnings per share to $1.67, benefiting from a lower effective tax rate due to the Tax Cuts and Jobs Act and a significant voluntary pension contribution.
For the first three quarters of fiscal year 2018, revenue grew by 4% to $4.52 billionb. While operating income remained flat year-over-year, income from continuing operations increased by 8% to $509 million, and diluted earnings per share rose by 11% to $4.19.
A notable factor affecting cash flow was a $300 millionc voluntary pension contribution, which reduced operating cash flow significantly year-over-year, despite improved net income. The company maintained a strong liquidity position with $443 million in cash and cash equivalents and an undrawn revolving credit facility.
02—Key points
Key Highlights
- Revenue for the third quarter increased 5% year-over-year to $1.57 billion, driven by growth in all business segments.
- Income from continuing operations for the quarter saw a substantial 24% increase to $203 million.
- Diluted Earnings Per Share (EPS) from continuing operations increased 27% to $1.67 for the quarter.
- Engineering, Selling, and Administrative (ESA) expenses increased by 19% for the quarter, impacting operating income, largely due to a $45 million charge for exiting a commercial business line.
- Net cash provided by operating activities for the first three quarters decreased significantly by 53% to $230 million, primarily due to a $300 million voluntary pension contribution.
- The company's effective tax rate decreased significantly in the current quarter (5.6% vs. 29.6% in the prior year quarter) due to the Tax Cuts and Jobs Act and other factors.
- Long-term debt increased, partly due to the issuance of new floating rate notes and repayment of existing term loans, while the company maintained a strong liquidity position with $443 million in cash and cash equivalents.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2019, L3HARRIS Technologies, Inc. kept $0.13.
- Revenue$1.56B100.0%
- Cost of revenue−$1.03B65.8%
- Gross profit$534.0M34.2%
- Operating costs−$278.0M17.8%
- Operating income$256.0M16.4%
- Interest, other & tax−$60.0M3.8%
- Net income$196.0M12.5%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2019filed May 3, 2018Financial Statements
Q1 FY2019 against Q1 FY2018
| Line item | Q1 FY2019Q1 FY2018 | Change |
|---|---|---|
| Revenue | $1.56B$1.49B | +4.9% |
| Cost of Revenue | $1.03B$958.00M | +7.3% |
| Gross Profit | $534.00M$531.00M | +0.6% |
| Operating Expenses | $331.00M$256.00M | +29.3% |
| Operating Income | $256.00M$275.00M | −6.9% |
| Interest Expense | $41.00M$42.00M | −2.4% |
| Net Income | $196.00M$163.00M | +20.2% |
| EPS (Basic) | $1.65$0.70 | +135.7% |
| EPS (Diluted) | $1.62$0.69 | +134.8% |
| Shares Outstanding (Basic) | 118.40M122.60M | −3.4% |
| Shares Outstanding (Diluted) | 121.00M124.50M | −2.8% |
05—Questions
Frequently Asked Questions
What was the primary driver for the increase in Engineering, Selling, and Administrative (ESA) expenses in the third quarter?
The primary driver for the increase in ESA expenses during the third quarter was a $45 million charge related to the company's decision to transition and exit a commercial air-to-ground radio communications line of business.
How did the Tax Cuts and Jobs Act impact L3Harris's financial results in this quarter?
The Tax Cuts and Jobs Act, enacted in late 2017, led to a significant reduction in the U.S. statutory corporate income tax rate. This resulted in a favorable adjustment to the company's deferred tax balances and a lower effective tax rate for the quarter (5.6% compared to 29.6% in the prior year quarter), positively impacting income from continuing operations.
What is the reason for the significant decrease in net cash provided by operating activities for the first three quarters?
The substantial decrease in net cash provided by operating activities for the first three quarters was primarily due to a $300 million voluntary contribution made to the company's U.S. qualified pension plans during the quarter ended March 30, 2018. This large cash outlay significantly impacted operating cash flow compared to the prior year.
What is the status of the company's share repurchase program?
As of March 30, 2018, L3Harris had an unused authorization of approximately $776 million under its share repurchase program, which does not have a stated expiration date. The company repurchased $197 million worth of shares during the first three quarters of fiscal 2018.
06—Continue