01—Abstract
Summary
Summary of the 10-Q filed October 26, 2018. Cited figures are marked; the original filing is the authoritative source.
L3Harris Technologies (formerly Harris Corporation) reported strong financial performance for the first quarter of fiscal year 2019, ending September 28, 2018.
Revenue increased by 9% year-over-year to $1.54 billiona, driven by robust growth across all three business segments: Communication Systems, Electronic Systems, and Space and Intelligence Systems. Net income from continuing operations saw a significant jump of 31% to $216 million, resulting in a diluted EPS of $1.78, also up 31%. The company also demonstrated improved operational efficiency, with gross margin increasing by 8% and engineering, selling, and administrative expenses as a percentage of revenue decreasing.
Net cash provided by operating activities increased by 23% to $117 millionb, reflecting strong operational execution. Notably, the company announced a significant development post-quarter: an all-stock merger of equals with L3 Technologies, Inc., expected to close mid-calendar year 2019, which will create a combined entity named L3 Harris Technologies, Inc. This merger is poised to reshape the company's market position in the aerospace and defense sector.
02—Key points
Key Highlights
- Revenue increased 9% to $1.54 billion in the first quarter of fiscal 2019 compared to the prior year.
- Income from continuing operations surged by 31% to $216 million, translating to a 31% increase in diluted EPS to $1.78.
- All three business segments—Communication Systems, Electronic Systems, and Space and Intelligence Systems—reported revenue growth.
- Net cash provided by operating activities improved by 23% to $117 million, indicating stronger cash generation.
- The company announced a significant merger of equals with L3 Technologies, Inc. to form L3 Harris Technologies, Inc., expected to close in mid-2019.
- The effective tax rate decreased significantly to 16.0% from 27.6% in the prior year, partly due to the Tax Cuts and Jobs Act.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2019, L3HARRIS Technologies, Inc. kept $0.14.
- Revenue$1.54B100.0%
- Cost of revenue−$1.01B65.5%
- Gross profit$532.0M34.5%
- Operating costs−$316.0M20.5%
- Operating income$216.0M14.0%
- Interest, other & tax−$3.0M0.2%
- Net income$213.0M13.8%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2019filed October 26, 2018Financial Statements
Q3 FY2019 against Q3 FY2018
| Line item | Q3 FY2019Q3 FY2018 | Change |
|---|---|---|
| Revenue | $1.54B$1.41B | +9.4% |
| Cost of Revenue | $1.01B$919.00M | +9.9% |
| Gross Profit | $532.00M$491.00M | +8.4% |
| Operating Expenses | $279.00M$268.00M | +4.1% |
| Operating Income | $216.00M$272.00M | −20.6% |
| Interest Expense | $44.00M$41.00M | +7.3% |
| Net Income | $213.00M$165.00M | +29.1% |
| EPS (Basic) | $1.81$1.33 | +36.1% |
| EPS (Diluted) | $1.77$1.31 | +35.1% |
| Shares Outstanding (Basic) | 117.90M119.10M | −1.0% |
| Shares Outstanding (Diluted) | 120.60M121.20M | −0.5% |
05—Questions
Frequently Asked Questions
What was the primary driver for the revenue increase in this quarter?
The revenue increase of 9% to $1.54 billion was primarily driven by growth across all three business segments: Communication Systems (up 16%), Electronic Systems (up 9%), and Space and Intelligence Systems (up 5%). This indicates broad-based demand for the company's diverse offerings.
How did the adoption of new accounting standards impact the financial statements?
L3Harris adopted ASC 606, the new revenue recognition standard, using the full retrospective method. This adoption impacted the presentation of revenue and contract assets/liabilities and required restatement of prior periods for comparability. Additionally, ASU 2017-07 changed the presentation of net periodic pension and postretirement benefit costs. While these adoptions affected presentation and certain prior period figures, the core operational and cash flow results remain key indicators.
What is the significance of the announced merger with L3 Technologies, Inc.?
The announced merger of equals with L3 Technologies, Inc. is a transformative event, creating a combined entity named L3 Harris Technologies, Inc. Expected to close mid-calendar year 2019, this all-stock transaction aims to combine complementary portfolios, leading to enhanced scale, technological capabilities, and market position within the aerospace and defense industry. Investors should closely monitor the closing conditions and integration progress.
What is the company's outlook on liquidity and capital management?
The company reported $305 million in cash and cash equivalents and a $1 billion revolving credit facility, indicating a solid liquidity position. Net cash provided by operating activities increased, and the company expects its existing cash, operational cash flow, and credit facilities to be sufficient for working capital, capital expenditures, dividends, and debt repayments for the foreseeable future. Significant debt was incurred for the Exelis acquisition, and the company is managing its capital structure, including share repurchases and dividend increases.
06—Continue