In Defense Aviation Products, L3Harris received multiple awards leveraging investments in precision weapons and unmanned systems capabilities. The company received a $41 million prime contract for the development, integration and testing of an advanced unmanned aircraft system as well as a $24 million contract on the Advanced Low-cost Munitions Ordnance (ALaMO) program for the first low-rate initial production order. Additionally, the company was awarded $59 million in orders for combat propulsion systems in support of the U.S. Army's ground vehicle recapitalization strategy.
This order momentum resulted in a segment funded book-to-bill of 1.05 for the quarter and 1.09 since the merger.
Cash and Capital Deployment
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($ millions) |
First Quarter |
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1Q20 |
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1Q19 |
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Change |
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Operating cash flow |
$ |
533 |
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$ |
405 |
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$ |
128 |
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Adjusted free cash flow6 |
$ |
533 |
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$ |
379 |
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$ |
154 |
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In the first quarter of fiscal 2020, L3Harris generated $533 million in adjusted free cash flow6 and returned $883 million to shareholders through $700 million in share repurchases and $183 million in dividends.
Guidance
L3Harris updated its guidance for 2020 to the following to reflect current expectations and assumptions regarding COVID-19-related risks:
- Revenue in a range of $18.3 billion - $18.6 billion, up organically 3% - 5% on an adjusted pro forma basis7 (reduced from previous range of up 5% - 7%); primarily reflects downturn in commercial aerospace business, as well as some weakness in international and public safety demand and risks from supply chain disruptions
- GAAP net income margin of 8.2% - 8.5% and adjusted EBIT margin of 17.4% - 17.6% (expanded at upper end of previous range of 17.0% - 17.5%)
- GAAP EPS of $6.95 - $7.35 and non-GAAP EPS8 of $11.15 - $11.55 (reduced from previous guidance of $8.35 - $8.75 GAAP and $11.35 - $11.75 non-GAAP)
- Operating cash flow and adjusted free cash flow6 unchanged at $2.8 - $2.9 billion and $2.6 - $2.7 billion, respectively
- ~$1.7 billion in share repurchases, inclusive of proceeds from divestitures announced year-to-date
COVID-19
In March 2020, the widespread outbreak of coronavirus disease (“COVID-19”) was recognized as a pandemic by the World Health Organization (“WHO”) and declared a national emergency by the U.S. Government. The COVID-19 pandemic and attempts to contain it, such as mandatory closures, “shelter-in-place” orders and travel restrictions, have caused significant disruptions and adverse effects on the U.S. and global economies, including impacts to supply chains, customer demand, international trade and capital markets. In response, L3Harris has increased its focus on keeping its employees safe while continuing to strive to meet customer commitments and support suppliers. For example, L3Harris has instituted work-from-home (for employees who are able to work remotely) and social distancing arrangements; canceled travel and external events; initiated health screening procedures at higher-risk facilities; staggered work shifts, redesigned work stations and implemented stringent cleaning protocols, particularly for production facilities; maintained an active dialog with key suppliers and developed plans to mitigate supply chain risks; and shifted the timing of share repurchases, which bolsters liquidity in support of employees, suppliers and customers during the pandemic. The U.S. Government response has included identifying the Defense Industrial Base as a Critical Infrastructure Sector and enhancing cash flow and liquidity for the Defense Industrial Base, such as by increasing progress payments and accelerating contract awards. As part of the Defense Industrial Base, these actions have enabled L3Harris to keep its U.S. production facilities largely operational in support of national security commitments to U.S. Government customers and to announce that it will accelerate more than $100 million in payments to small business suppliers in 45 states.
