L3Harris Technologies delivered a record performance in 2025, achieving full-year revenue of $21.9 billion, up 5% organically, with non-GAAP EPS increasing 11% to $10.73. The company exceeded its long-term targets, posting an adjusted segment operating margin of 15.8% (up 40 basis points) and generating $2.8 billion in adjusted free cash flow, driven by the LHX NEXT efficiency program. Strategic highlights include the planned 2026 IPO of its Missile Solutions business, backed by a $1 billion investment from the Department of War, and a restructuring into three focused segments. For 2026, LHX forecasts revenue of $23.0 to $23.5 billion (7% organic growth), segment margins in the low 16%, and free cash flow of $3.0 billion, underpinned by a record backlog exceeding $38 billion and a book-to-bill ratio of 1.3.
| Metric | Value | Change |
|---|---|---|
| Q4 Revenue | $5.6 billion | +6% organic |
| FY2025 Revenue | $21.9 billion | +5% organic |
| Q4 Non-GAAP EPS | $2.86 | +10% YoY |
| FY2025 Non-GAAP EPS | $10.73 | +11% YoY |
| FY2025 Adj. Segment Op Margin | 15.8% | +40 bps |
| FY2025 Free Cash Flow | $2.8 billion | >20% growth |
| Backlog | >$38 billion | Record High |
| Book-to-Bill | 1.3 | N/A |
L3Harris is executing a strategic pivot to unlock value and focus on core priorities by announcing the IPO of its Missile Solutions (MSL) business in 2026. This $4 billion-plus revenue entity, combining Aerojet Rocketdyne and other missile systems, will receive a $1 billion preferred security investment from the Department of War. This novel structure allows L3Harris to accelerate capacity building for solid rocket motors immediately without waiting for traditional contract funding, directly aligning shareholder returns with national security priorities.
The company is realigning its corporate structure into three segments: Space & Mission Systems (SMS), Communications & Spectrum Dominance (CSD), and Missile Solutions (MSL). This reorganization, along with the sale of a majority stake in the civil space propulsion business, sharpens LHX's focus on the fastest-growing defense priorities such as space sensing, missile defense, and resilient communications. The new structure allows for more agile capital allocation and clearer reporting of high-growth commercial margins versus traditional prime models.
Operational excellence remains a core driver, as L3Harris exceeded its $1 billion LHX NEXT savings target one year ahead of schedule. This cost discipline contributed to a 40-basis point expansion in adjusted segment operating margins to 15.8% for the year. The company is transitioning to GAAP EPS reporting, signaling the completion of major restructuring efforts and the embedding of efficiency into the company's 'DNA', which supports the 2026 margin guidance of low 16%.
L3Harris is aggressively investing in capacity to meet record demand, evidenced by a 35-40% increase in CapEx to approximately $600 million for 2026. The company is expanding facilities, including over 1 million square feet for solid rocket motor production, and has already invested over $500 million in Aerojet Rocketdyne since acquisition. This 'capacity is the most important capability' strategy positions L3Harris to win market share in the constrained missile defense market.
International growth and the 'Golden Dome' initiative represent significant upside drivers. The company secured a landmark $2.2 billion award from South Korea and is positioned as the only company awarded contracts across all four SDA tracking layers. Management believes the $155 billion reconciliation bill, including $25 billion for Golden Dome, will drive sustained demand for space-based interceptors and satellite architectures, leveraging L3Harris's 'agile trusted disruptor' status.
The Integrated Mission Systems (IMS) segment faced margin pressure in Q4, with operating margins dropping 270 basis points to 11.1%. Management attributed this to the CAS divestiture and 'unfavorable program performance in Maritime.' While other segments improved, this specific execution hiccup in maritime programs suggests lingering integration or technical challenges that could persist if not fully resolved.
Management acknowledged that a government shutdown 'delayed awards and limited additional revenue growth in the quarter and the year,' specifically impacting the Space and Airborne Systems segment and setting back Space Force progress by 45 days. This highlights the company's exposure to political gridlock and the timing of appropriations, which could disrupt the anticipated ramp in high-growth areas like space sensing.
While free cash flow is projected to grow to $3.0 billion in 2026, this relies on a significant increase in operating cash generation to offset a 40% rise in capital expenditures to $600 million. The heavy upfront investment in capacity (e.g., 60+ buildings for missiles) creates execution risk; any delays in revenue ramp or supply chain bottlenecks could pressure cash conversion despite strong earnings growth.
Supply chain maturity remains a critical risk factor for the ambitious ramp plans. While management claims to be 'winning the race,' they admitted that getting 'second and third-tier suppliers the scale and the ability to perform' is a challenge for the entire industry. The rapid expansion plans are heavily dependent on a supplier base that is still recovering from COVID and scaling up, creating a potential bottleneck for the missile solutions growth story.
Overall: Management displayed a highly confident and assertive demeanor throughout the call, frequently emphasizing 'speed,' 'execution,' and 'discipline.' They expressed pride in exceeding targets ('Many doubted our ability to meet these targets') and were direct in addressing strategic shifts. The tone shifted from celebratory regarding past results to urgent and determined when discussing capacity expansion and the 'race' to meet customer demand.
Confidence: HIGH - Management used definitive language regarding their market position and growth prospects, citing specific achievements like beating the LHX NEXT savings target a year early and securing a novel government investment structure. They provided detailed guidance that exceeded previous frameworks, indicating strong visibility and control over operations.
$23.0 - $23.5 billion (7% organic growth at midpoint)
Low 16%
$11.30 - $11.50
$3.0 billion
~$600 million
Hedging & Uncertainty: Management generally used strong, declarative language ('We sure plan to win the race'), signaling high confidence. However, they employed standard forward-looking qualifiers when discussing 2026 guidance, stating it 'reflects appropriate risk early in the year.' Regarding the 2027 budget and specific growth rates for missiles, Kubasik used temporal hedging: 'I don't want to put a number out there on tripling, but we do think that this business... can grow at a double-digit CAGR.' Bedingfield also hedged on future CapEx: 'I'm not going to put a number on 2027 CapEx at this point.' These hedges serve to manage expectations while maintaining an optimistic outlook.
Speed and execution mattered. Against that backdrop, our workforce delivered. - Christopher E. Kubasik, Chair and CEO
We are leading the industry to meet the needs of our customers... We sure plan to win the race. - Christopher E. Kubasik
Our 2026 guidance... exceeds the 2026 financial framework... Many doubted our ability to meet these targets. - Christopher E. Kubasik
We're essentially in a race both to get those in the hands of the warfighter as well as stay ahead of the competition. - Kenneth L. Bedingfield, EVP and CFO
I don't want to put a number out there on tripling, but we do think that this business... can grow at a double-digit CAGR. - Christopher E. Kubasik
We're certainly thinking about it in terms of, as we capacitize to deliver, how will we be able to pull cash on some of these new production programs... - Kenneth L. Bedingfield
Analyst Sentiment: Analysts were highly engaged and focused on the structural changes, specifically the mechanics of the Missile Solutions IPO and the growth profile of the remaining company (RemainCo). Questions were detailed, probing the sustainability of margins, the specifics of the government partnership, and the capacity of the supply chain to support the ramp.
Management Responses: Management responses were direct and data-rich, effectively clarifying the strategic rationale for the IPO and the 'RemainCo' structure. They defended the growth outlook for the non-missile segments and provided specific details on the government's investment terms (single-digit stake, 20% discount). They maintained a consistent tone of confidence regarding their ability to execute on the ramp.
Missile Solutions IPO structure and DOW partnership terms.
RemainCo growth drivers and margin sustainability (CSD vs SMS).
Supply chain capacity and Capex requirements for solid rocket motors.
2027 Defense Budget outlook and 'Golden Dome' opportunities.
Impact of government shutdown on Q4 awards and 2026 timing.
L3Harris is successfully executing a strategic pivot that unlocks value and sharpens its focus on high-growth, defense-critical domains. The 2025 results demonstrated strong operational discipline and margin expansion, while the 2026 guidance implies continued momentum. The planned IPO of Missile Solutions, backed by a unique Department of War investment, de-risks the massive capacity expansion required to meet surging demand for solid rocket motors. The restructuring into three segments creates a clearer investment narrative, with the Communications & Spectrum Dominance segment offering high-margin stability and the Space & Mission Systems segment poised for growth in satellite and ISR markets. Trading with a record backlog and robust free cash flow generation, L3Harris is well-positioned to deliver sustained double-digit EPS growth.
Management anticipates a potentially massive FY27 defense budget (potentially $1.5T), driven by the 'Golden Dome' reconciliation bill. This includes $25B specifically for missile defense, which would act as a significant accelerant for L3Harris's missile and space portfolios.
Threat environments are evolving 'faster than recent history,' driving urgent demand for advanced capabilities. This is evidenced by international wins in South Korea ($2.2B) and strong order books for tactical comms and special mission jets.
While the supply chain is healthier than post-COVID, it remains the primary bottleneck for scaling solid rocket motor production. Management notes that private equity is entering the market to add capacity, but 'second and third-tier suppliers' still need to scale to meet the demand signal.