10-Q: L3Harris Technologies Reports Strong Q1 2026 Results

L3Harris Technologies announced a 12% revenue increase to $5.74 billion and a 33% rise in diluted EPS to $2.72 for the first quarter of 2026, driven by strong performance across all segments.

Summary

• Revenue for the first quarter of 2026 increased by 12% to $5.74 billion, up from $5.13 billion in the same period last year.
• Net income rose to $512 million, a significant increase from $386 million in the first quarter of 2025.
• Diluted Earnings Per Share (EPS) grew by 33% to $2.72, compared to $2.04 in the prior year's first quarter.
• The Space & Mission Systems (SMS) segment saw a 24% revenue increase to $2.99 billion, with operating income up 32%.
• The Communication & Spectrum Dominance (CSD) segment reported a 3% revenue increase to $1.86 billion, and operating income grew by 5%.
• The Missile Solutions (MSL) segment experienced an 18% revenue increase to $990 million, with operating income up 29%.
• The company has a contractual backlog of $40.7 billion as of April 3, 2026.
• A significant event subsequent to the quarter is the definitive agreement for the issuance of Series A Convertible Preferred Stock and warrants to the Department of War for $1.0 billion to fund Aerojet Rocketdyne Holdings, Inc. (AJRD) expansion.
• The company expects capital expenditures for fiscal year 2026 to be approximately $600 million.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong positive report, with significant revenue and EPS growth, a robust backlog, and strategic capital infusion for a key subsidiary, indicating solid operational performance and future potential.

Positives

• Revenue increased by 12% to $5.74 billion, driven by higher volumes and new program ramps across all segments.
• Net income increased by 32% to $512 million.
• Diluted EPS increased by 33% to $2.72.
• The Space & Mission Systems (SMS) segment showed robust growth with a 24% revenue increase and a 32% rise in operating income.
• The Missile Solutions (MSL) segment also demonstrated strong performance with an 18% revenue increase and a 29% rise in operating income.
• Contractual backlog stands at a healthy $40.7 billion, indicating strong future revenue potential.
• The company's effective tax rate decreased to 13.1% from 15.9%, benefiting from higher FDII deductions and favorable audit resolutions.
• The Board increased the quarterly cash dividend to $1.25 per share, marking the 25th consecutive annual increase.

Negatives

• Net cash used in operating activities was $95 million, an increase from $42 million in the prior year's first quarter.
• The company recorded a $10 million pre-tax loss related to the Space Technology disposal group, incremental to a previously recorded loss.
• Inventories increased slightly to $1.23 billion from $1.22 billion.
• Accounts payable decreased significantly to $1.93 billion from $2.46 billion.
• Contract liabilities increased to $2.74 billion from $2.26 billion.

Risks

• The company's results could be materially different from forward-looking statements due to risks including competitive markets, U.S. Government spending priorities, changes in contract mix, and uncertain economic conditions.
• Supply chain disruptions, interest rate fluctuations, and changes in effective tax rates are also identified risks.
• The company is subject to numerous environmental laws and regulations and is involved in investigations and litigation for potential environmental issues, with an estimated liability of $657 million as of April 3, 2026.
• The company is routinely a defendant in legal actions, claims, disputes, and other proceedings, though the accrual for probable losses was not material as of April 3, 2026.
• The agreement with the Department of War for AJRD involves potential future conversions and warrant exchanges, subject to IPO conditions and customary closing conditions.

Future Outlook

The company expects capital expenditures for fiscal year 2026 to be approximately $600 million. Management believes that existing cash, funds from operations, credit facilities, and access to capital markets will be sufficient to meet anticipated working capital needs, capital expenditures, dividend payments, share repurchases, and debt repayments for the next 12 months and beyond. The company does not expect to make material pension contributions in fiscal 2026 and intends to continue evaluating opportunities to strategically manage pension obligations.

Management Comments

• We are the Trusted Disruptor in the defense industry. With customers mission-critical needs always in mind, we deliver end-to-end technology solutions connecting the space, air, land, sea and cyber domains in the interest of national security.
• The U.S. and international budget environments are evolving rapidly within a dynamic geopolitical context, influenced by the Administration and Congress, heightened geopolitical tensions, global security concerns, inflationary pressures, and overall macroeconomic conditions.
• Revenue increased $612 million, or 12% reflecting higher revenues across all segments, primarily from higher volumes, driven by new program ramps, including a milestone related to material procurement in support of classified contracts, and increased international deliveries.
• Gross margin increased $52 million, primarily due to higher volumes across all segments and a $39 million favorable change in net EAC adjustments, partially offset by the absence of the CAS disposal group as a result of the March 2025 divestiture.
• G&A expenses decreased $75 million, or 9%, primarily due to an increase in gains recognized in connection with the monetization of certain legacy assets, including recognition of a $39 million gain in our MSL segment in 2026, the absence of LHX NeXt implementation costs, as the LHX NeXt implementation phase was completed in fiscal 2025, and the absence of the CAS disposal group expenses.
• Diluted EPS increased 33% primarily due to higher net income from the combined effects of reasons noted in the sections above.
• The net cash used in operating activities in first quarter is consistent with our historical pattern, whereby operating cash flows are typically lowest in the first quarter due to timing of our business cycles and expenditure activities.
• Given our current cash position, outlook for funds generated from operations, credit ratings, available credit facilities, cash needs and debt structure, we have not experienced to date, and do not expect to experience, any material issues with liquidity for the next 12 months and in the longer term.
• On January 23, 2026, we announced that our Board increased the quarterly per share cash dividend rate on our common stock to $1.25 from $1.20, the 25th consecutive annual dividend increase.

Industry Context

StockSavvy.ai notes that L3Harris Technologies operates in the dynamic aerospace and defense sector, which is influenced by global geopolitical tensions and evolving government spending priorities. The company's strong revenue growth and increased EPS reflect its ability to capitalize on these trends, particularly in space, mission systems, and missile solutions, aligning with increased defense budgets and strategic initiatives.

Comparison to Industry Standards

• L3Harris's revenue growth of 12% in Q1 2026 outpaces the projected growth for the broader aerospace and defense industry, which is estimated to be around 5-7% for the year.
• The company's operating margins, particularly in the CSD segment (25.1%), are competitive within the defense electronics and communications sector.
• The significant contractual backlog of $40.7 billion provides a strong revenue visibility, a key metric for stability in the defense industry, often exceeding that of smaller, more specialized competitors.
• The company's consistent dividend increases, now at 25 consecutive years, demonstrate a commitment to shareholder returns that is a benchmark for mature companies in the sector, though some growth-oriented peers may prioritize reinvestment over dividends.

Legal Proceedings

• In the ordinary course of business, the company is a defendant in various legal actions, claims, disputes, arbitrations, and other proceedings related to product liability, personal injury, intellectual property, labor and employment, commercial disputes, acquisitions/divestitures, environmental matters, and breach of warranty.
• As of April 3, 2026, the company's accrual for probable unfavorable resolutions of lawsuits, claims, or proceedings was not material.
• The company is subject to numerous environmental laws and regulations and is involved in investigations and litigation for potential environmental issues, with an estimated liability of $657 million as of April 3, 2026.

Stakeholder Impact

• Shareholders: Positive impact due to increased net income, EPS growth, and a 25th consecutive annual dividend increase.
• Employees: Potential positive impact from company growth and investment in R&D, though specific details are not provided.
• Creditors: The company's strong liquidity position and available credit facilities suggest continued ability to meet debt obligations.
• Government Customers: The company's alignment with U.S. Government defense priorities and international allies positions it to benefit from ongoing defense spending.

Next Steps

• The company expects the Space Technology disposal group transaction to close in the second half of 2026.
• The impacts of the AJRD investment agreement with the Department of War will be recognized in the second quarter of 2026.
• The company plans to continue evaluating opportunities for strategic pension obligation management, including potential de-risking transactions.
• Capital expenditures for fiscal year 2026 are expected to be approximately $600 million.

Key Dates

Recommendation

The filing demonstrates strong financial performance with significant revenue and EPS growth, a substantial backlog, and strategic capital initiatives that enhance future prospects. The company's consistent dividend increases and robust market position in the defense sector, coupled with positive industry tailwinds, support a strong buy recommendation.

Keywords

L3Harris Technologies, SEC Filing, 10-Q, Quarterly Report, Aerospace, Defense, Space Systems, Communications, Missile Solutions, Financial Results, Revenue, Earnings Per Share, Contract Backlog, Aerojet Rocketdyne