01—Abstract
Summary
Summary of the 10-Q filed May 3, 2021. Cited figures are marked; the original filing is the authoritative source.
L3Harris Technologies, Inc. reported solid financial performance for the quarter ended April 2, 2021, with a notable increase in income from continuing operations driven by strong performance across most segments and a significant reduction in impairment charges compared to the prior year.
Total revenue saw a slight decrease of 1%a year-over-year, primarily impacted by the divestiture of the airport security and automation business and ongoing effects of the commercial aviation downturn in the Aviation Systems segment. However, this was offset by growth in Integrated Mission Systems, Space and Airborne Systems, and Communication Systems. The company demonstrated strong operational execution, leading to an improvement in gross margin and efficiency.
A substantial decrease in "Impairment of goodwill and other assets" compared to the prior year, which was heavily impacted by COVID-19, significantly boosted profitability. L3Harris also continued its commitment to shareholder returns through significant share repurchases and an increased dividend, underscoring its financial strength and confidence in future performance. The company's strategic divestitures are progressing as planned, indicating a focus on optimizing its portfolio.
02—Key points
Key Highlights
- Total revenue decreased slightly by 1% to $4,567 million, primarily due to divestitures and the commercial aviation market downturn, but was partially offset by growth in other segments.
- Income from continuing operations increased by 139% to $467 million, significantly aided by a substantial reduction in impairment charges compared to the prior year.
- Diluted earnings per share (EPS) from continuing operations rose by 127% to $2.25, reflecting improved profitability and a reduction in outstanding shares due to buybacks.
- Gross margin improved to 30% from 29% year-over-year, driven by integration benefits and operational efficiencies.
- The company repurchased $700 million of its common stock during the quarter, demonstrating a commitment to returning capital to shareholders.
- L3Harris is actively managing its portfolio, with definitive agreements signed for the divestiture of the CPS business, Military Training business, and VSE disposal group, expected to close in the second half of 2021.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2022, L3HARRIS Technologies, Inc. kept $0.10.
- Revenue$4.57B100.0%
- Cost of revenue−$3.21B70.4%
- Gross profit$1.35B29.6%
- Operating costs−$885.0M19.4%
- Operating income$469.0M10.3%
- Interest, other & tax−$1.0M0.0%
- Net income$468.0M10.2%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2022filed May 3, 2021Financial Statements
Q1 FY2022 against Q1 FY2021
| Line item | Q1 FY2022Q1 FY2021 | Change |
|---|---|---|
| Revenue | $4.57B$4.63B | −1.3% |
| Cost of Revenue | $3.21B$3.30B | −2.6% |
| Gross Profit | $1.35B$1.33B | +2.0% |
| SG&A Expenses | $801.00M$812.00M | −1.4% |
| Operating Income | $469.00M$218.00M | +115.1% |
| Interest Expense | $69.00M$68.00M | +1.5% |
| Net Income | $468.00M$194.00M | +141.2% |
| EPS (Basic) | $2.26$1.00 | +126.0% |
| EPS (Diluted) | $2.25$0.99 | +127.3% |
| Shares Outstanding (Basic) | 206.70M217.30M | −4.9% |
| Shares Outstanding (Diluted) | 208.50M219.30M | −4.9% |
05—Questions
Frequently Asked Questions
What is the primary driver behind the significant increase in income from continuing operations?
The significant increase in income from continuing operations is largely attributable to a substantial reduction in "Impairment of goodwill and other assets." In the prior year's quarter, the company recorded $324 million in impairment charges, primarily related to the COVID-19 impact on its Commercial Aviation Solutions sector. In the current quarter, these charges were significantly lower at $62 million, mainly related to the pending divestiture of the CPS business.
How are the ongoing divestitures impacting the company's financial results?
The divestitures are impacting revenue, with a slight decrease noted, primarily due to the airport security and automation business sale and the commercial aviation market downturn affecting the Aviation Systems segment. However, the company has signed definitive agreements for further divestitures (CPS, Military Training, VSE disposal group) which are expected to be completed in the second half of 2021, indicating a strategic shift and portfolio optimization. These divestitures also involve goodwill reallocations and potential impairment charges, as seen with the CPS business.
What is the company's approach to capital allocation, particularly regarding share repurchases and dividends?
L3Harris demonstrates a strong commitment to capital allocation. During this quarter, the company repurchased $700 million of its common stock. Additionally, the board approved a $6 billion share repurchase authorization. The company also increased its quarterly cash dividend to $1.02 per share, marking its twentieth consecutive annual increase, reflecting confidence in its financial health and future prospects.
How has the COVID-19 pandemic continued to affect L3Harris's operations?
While the company has largely kept its U.S. production facilities operational due to its classification as a Critical Infrastructure Sector, the commercial aviation market, part of its Aviation Systems segment, continues to be significantly impacted by reduced demand. The company implemented various safety protocols to protect employees and maintain operations. The defense, government, and public safety segments are seen as more predictable, partly due to U.S. government support measures.
06—Continue