tapebrief
LHX · Q3 2025

LHX · Q4 2025 Earnings

Bullish

L3Harris

Reported January 29, 2026

30-second summary

L3Harris closed FY25 with Q4 revenue of $5.65B (+2% YoY, +6% organic), $2.86 Non-GAAP EPS, and a full-year book-to-bill of 1.3x on $27.5B in orders, with revenue of $21.87B landing in line with the ~$22B guide and beating on FCF ($2.81B vs. ~$2.65B). The 2026 setup is the story: revenue guided to $23.0–23.5B (7% organic), segment margin to "low 16%," FCF to $3.0B, and management disclosed a Department of War-anchored majority-owned missile solutions IPO targeting H2 2026 with a $1B government investment and "$4B+" revenue scale. Management's posture pivoted from "execution proof points" to capacity as the binding strategic priority, with CEO Kubasik stating outright: "Capacity is now the most important capability."

Headline numbers

EPS

Q4 FY2025

$2.86

Revenue

Q4 FY2025

$5.65B

+2.0% YoY

Free cash flow

Q4 FY2025

$1.86B

Operating margin

Q4 FY2025

7.0%

Key financials

Q4 FY2025
MetricQ4 FY2025YoYQ3 FY2025QoQ
Revenue$5.65B+2.0%$5.66B-0.2%
EPS$2.86—$2.70+5.9%
Operating margin7.0%—11.0%-400bps
Free cash flow$1.86B—$0.43B+336.3%

Guidance

FY2025 results narrowly missed revenue and organic growth guidance; FY2026 guidance materially raised with ambitious margin and FCF targets, underpinned by record backlog and acceleration to 7% organic growth.

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

Actuals vs prior guidance

MetricPeriodPrior guideActualΔResult
RevenueFY2025~$22.0B$21.865B-$0.135B below guideMissed
Organic revenue growthFY20256%5%-1.0pt below guideMissed
EPS (Non-GAAP)FY2025$10.50–$10.70$10.73+$0.03 above high end of guideMet
Adjusted segment operating marginFY2025high 15%15.8%in-lineMet
Free cash flowFY2025~$2.65B$2.814B+$0.164B above guideMet

New guidance

MetricPeriodGuideYoY
EPS (GAAP)FY2026$11.30–$11.50—
RevenueFY2026$23.0B–$23.5B+5.3–7.4% YoY
Organic revenue growthFY20267% at midpoint—
Segment Operating MarginFY2026low 16%—
Free cash flowFY2026$3.0B+6.6% YoY

Segment KPIs

Q4 FY2025
SegmentQ4 FY2025YoY
Communication Systems$1.483B+3.0%
Integrated Mission Systems$1.716B—
Space & Airborne Systems$1.739B+1.0%
Aerojet Rocketdyne$0.763B+10.0%

Other KPIs

Q4 FY2025
SegmentQ4 FY2025
Orders$27.5 billion (full year)
Book-to-Bill Ratio1.3x (full year)
Organic Revenue Growth (Q4)6%
Organic Revenue Growth (Full Year)5%
Adjusted Segment Operating Margin (Q4)15.7%
Adjusted Segment Operating Margin (Full Year)15.8%
Cash from Operations (Full Year)$3.1 billion, +21% YoY
Adjusted Free Cash Flow (Full Year)$2.8 billion, +21% YoY

Management tone

Narrative arc: Q2 framework proof points → Q3 capacity is the constraint → Q4 capacity is the strategy, with government as anchor investor.

The missile solutions business has been re-cast from segment to standalone government-anchored IPO. Two quarters ago Aerojet Rocketdyne was an internal growth engine with a $5B-by-decade-end aspiration. Last quarter management conditioned capacity expansion on "5–7 year multi-year contracts." This quarter management announced the Department of War as anchor investor in a "$4 billion plus revenue majority owned public company" with a $1B government investment and IPO planned for H2 2026 (single-digit % government ownership). Anchor quote from Q&A: "Doing what we say we're going to do is fundamental to how we run the company." The shift is from negotiating customer commitment to monetizing it via a government-backed capital structure — a structurally different lever than what defense primes typically have.

Capacity has been promoted from constraint to capability. Q3 framed capacity as the binding limit on growth ("It's all about capacity"). This quarter the framing inverted: "Capacity is now the most important capability." The 2026 capex guide steps up to ~2.5% of sales (~$600M, +35–40% YoY) while FCF still grows to $3B — management is signaling that the capacity investment cycle is real, near-term, and self-funding. This is the moment where capacity expansion stopped being a future ask and became a current commitment.

The 2026 revenue framework was not just raised — it was exceeded. Q2 set the $23B 2026 framework. Q3 said 2026 sales would "exceed our current financial framework." Q4 quantified it at $23.0–23.5B (midpoint $23.25B) with explicit language that the guide "exceeds our ambitious targets for revenue margin and free cash flow that we laid out at our last investor day in December, 2023." The framework was treated as a floor, not a ceiling — and a year ahead of when it was originally promised.

Hedging crept back in on policy risk while operational confidence stayed high. Management added the qualifier "Our guidance reflects appropriate risk posture early in the year and the dynamics associated with administration priorities." This is new language vs. Q2/Q3 and partially explains the FY26 organic growth midpoint at 7% (vs. some sell-side hopes for higher). The cautious posture is policy/timing, not demand — record backlog of $38B and 1.3x book-to-bill underpin the demand confidence.

Margin expansion mechanics changed. Q3 framed margin gains as evidence "the strategy is working" against LHXnext cost-out. Q4 attributed Aerojet's +130bps Q4 adjusted segment margin expansion to higher volume and LHX NeXt driven cost savings. The next leg of margin (FY25 15.8% → FY26 low 16%) comes from mix and scale plus continued embedded continuous improvement, not the next phase of standalone cost programs — a more durable but more demand-dependent driver.

Recurring themes management leaned on this quarter:

Capacity as the primary competitive constraint and strategic priorityGovernment partnership model (DoW investment/IPO structure) as differentiated growth leverRecord backlog and order book providing high visibility into 2026-2028 growthSpeed of execution and agility in responding to evolved threat environmentPortfolio alignment with fastest-growing defense priorities (space sensing, missile defense, ISR)Operational transformation (LHX Next completion, margin expansion, segment restructuring)

Risks management surfaced:

Government shutdown delays awards and limits revenue growthUnfavorable program performance in maritime (Q4 IMS margin headwind)Administration priorities creating 'dynamics' requiring risk posture in guidanceTransaction closing for space propulsion and power business (expected H2 2026)New company (Missile Solutions) execution risk at scale and speed

Q&A highlights

Kristen Lewog · Morgan Stanley

Given strong demand for missile solutions, should long-term agreements similar to PAC-3 and THAAD be expected? Could this business grow 3-5X larger over the next three to five years?

Management confirmed excitement about THAAD and PAC-3 framework agreements. While declining to commit to 3-5X growth, they stated the business can grow at double-digit CAGR for the foreseeable future, based on market studies and independent third-party validation. IPO Form S-1 will provide more details on upside potential.

Double-digit CAGR growth expected for missile solutions businessForm S-1 filing planned later in 2025 as part of IPO processMarket and demand studies completed with independent third-party validationManagement declined to put specific number on potential 3-5X growth

Miles Walton · Wolf Research

Is 2.5% CapEx as a percentage of sales a temporary step-up or will there be larger increases in future years to support multibillion-dollar missile solutions investment?

Management confirmed 2026 CapEx stepping up to approximately 2.5% of sales ($600M), representing 35-40% increase from 2025. They maintained $3B free cash flow guidance for 2026 despite higher CapEx. For 2027 onwards, management declined to specify numbers but indicated they will work to offset CapEx through working capital management and customer cash inflows, characterizing this as a one-time capital investment.

2026 CapEx: ~2.5% of sales or $600 million35-40% increase in CapEx from 2025 to 20262026 free cash flow guidance maintained at $3 billionOver $500 million invested in Aerojet Rocketdyne over past 2.5 years

Noah Popanek · Goldman Sachs

Clarification on government stake in missile solutions entity and explanation of how cash from operations can grow faster than segment EBIT despite higher CapEx.

Management confirmed the government would take a single-digit ownership stake in missile solutions. On cash flow, they emphasized discipline in working capital management, contractual arrangements with customers and suppliers, and investments across the L3Harris portfolio to drive capacity increases, enabling maintenance of $3B FCF guidance.

Government stake in missile solutions: single-digit percentage ownershipFree cash flow 2026 guidance: $3 billion (maintained)Working capital management discipline cited as key driverCapEx required across entire L3Harris portfolio, not just solid rocket motors

John Godin · Citigroup

What is the revenue outlook for RemainCo (LHX RemainCo) over the next couple of years and what leverage points exist for accelerated growth given a potentially larger defense budget?

Management guided for solid mid-single-digit growth in RemainCo, slightly faster than industry. They highlighted strong portfolio with new factories for space, SDA wins, classified work, and positioned the company to capitalize on a potential $1.5 trillion defense budget in 2027. Management noted agile production capacity investments position L3Harris to deliver faster on defense budget increases.

RemainCo growth guidance: solid mid-single-digit growth, faster than industry averageStrategic portfolio includes space, airborne, maritime segmentsSDA wins mentioned as 'four in a row'Potential 2027 defense budget: $1.5 trillion

Peter Arment · Baird

How should investors quantify the opportunity for L3Harris in the Golden Dome initiative, particularly regarding space-based interceptors, satellite architecture, and missile defense components?

Management provided framework for Golden Dome ($25B out of $155B reconciliation funding) with three components: space-based interceptors (merchant-supplier approach), satellite architecture (where company has winning position based on SDA track record), and missile defense/hypersonic/solid rocket motors (covered under THAAD/PAC-3). Company positioned with capabilities, modern factories, and ability to execute quickly on awards.

Golden Dome: $25 billion out of $155 billion reconciliation funding72 tracking satellites awarded in space architectureNew production facilities: 200,000+ sq ft in Fort Wayne, Indiana and Palm BaySpace-based interceptor: merchant-supplier strategy

Answers to last quarter's watch list

Q4 free cash flow conversion — Q4 FCF of $1.86B blew through the $1.2B downside threshold, drove FY25 to $2.81B vs. the ~$2.65B guide, and underpins management's confidence in the FY26 $3B target despite higher capex.
Resolved positively
Whether 2026 revenue framework is formally raised next quarter — FY26 revenue guided to $23.0–23.5B vs. the $23B framework, and management stated the FY26 guide "exceeds our ambitious targets" from the December 2023 investor day. The framework was cleared, not walked back.
Resolved positively
Communication Systems margin trajectory into Q4 — Q4 Communication Systems revenue grew only 3% YoY (vs. Q3's 6%), suggesting the Q4 mix did decelerate as the held FY guide implied. Q4 adjusted segment operating margin came in at 24.9% (+50bps YoY), and FY landed at 25.2% — in line with the ~25% guide.
Resolved positively
Multi-year contract signings on solid rocket motors and missile production — the missile solutions IPO with DoW anchor investment and $1B government commitment is materially more aggressive than the multi-year contract framework Q3 contemplated — government is now investing equity, not just signing offtake. THAAD and PAC-3 framework agreements were also confirmed in Q&A.
Resolved positively
HBTSS contract signature — not specifically called out in available materials. Management discussed Golden Dome architecture broadly and noted a ~45-day Space Force delay from the government shutdown but did not announce HBTSS signature.
Continue monitoring

What to watch into next quarter

Missile solutions S-1 filing and IPO terms — Form S-1 expected later in 2026 will disclose stand-alone financials, government ownership terms, and growth model. Anything materially below the "$4B+ revenue" framing or above single-digit government ownership would re-rate the deal.

FY26 GAAP-to-Non-GAAP EPS bridge disclosure — the basis change from Non-GAAP to GAAP guidance is the single biggest comparability obstacle into 2026. Watch the Q1 print for a clean reconciliation; without one, sell-side models will diverge.

IMS margin recovery from Q4 maritime program drag — management flagged "unfavorable program performance in maritime" as a Q4 IMS headwind. If Q1 IMS margin (now folded into the new SMS segment) doesn't normalize, the FY26 low-16% segment margin guide gets pressured.

FY26 capex pacing vs. FCF guide — $600M capex (+35–40%) and $3B FCF concurrent is a tight bridge. Q1/Q2 FCF below ~$500M cumulative would put the FY26 target at risk and signal the working-capital offset is harder than management is positioning.

Aerojet/MSL organic growth rate as it approaches the IPO — Q4 came in at +12% organic. Anything below 10% in Q1 would dent the double-digit CAGR narrative right as the missile solutions S-1 lands.

HBTSS contract signature — silent for two consecutive quarters now; remains the gating event for material 2026 Golden Dome revenue per Q2 commentary.

2028 financial framework at February Investor Day — management explicitly teed up a new 2028 financial framework to be unveiled at the February 25 Investor Day, which will set the next multi-year bar.

Sources

  1. L3Harris Q4 CY25 Earnings Press Release — https://www.sec.gov/Archives/edgar/data/202058/000020205826000008/exhibit991q4cy25earnings.htm

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