L3Harris' Q3 2025: Contradictions Unveiled on Aerojet Rocketdyne Growth, International Strategy, Golden Dome Awards, and LHX NeXt Savings

Date of Call: October 30, 2025

Financials Results

• Revenue: $5.7B, up ~10% organic growth
• EPS: Non-GAAP EPS $2.70, up 10% YOY (pension-adjusted EPS up 15%)
• Operating Margin: 15.9% segment operating margin, up 20 bps (eighth consecutive quarter of sequential margin expansion)

Guidance:

• Full-year 2025 revenue raised to $22.0B (implies ~6% full-year organic growth)
• Increased company segment operating margin target to high 15%
• Non-GAAP EPS guidance raised to $10.50–$10.70 per share
• Free cash flow reaffirmed at $2.65B; expect back-end weighted generation and strong Q4 cash
• CS revenue guidance increased to $5.7B (operating margin ~25%)
• IMS revenue guidance ~ $6.5B (operating margin low‑to‑mid 12%)
• Aerojet Rocketdyne revenue guidance $2.8–$2.9B (operating margin mid‑12%); SAS guidance reaffirmed

Business Commentary:

• Strong Segment Performance:
• L3Harris Technologies reported $6.6 billion in orders for Q3, achieving a book-to-bill ratio of 1.2, with 15.9% margins, and revenue of $5.7 billion, reflecting an organic growth of 10%.

• This was driven by strong domestic and international demand, increased volume on existing programs, and the ramp-up of new programs.

• Aerojet Rocketdyne Growth:

• Aerojet Rocketdyne achieved record financial backlog of $8.3 billion, with organic growth of 15%, marking its second consecutive quarter of double-digit growth.

• This growth was fueled by increased production volumes across key missile and munitions programs and higher demand for solid rocket motors.

• Missile Defense Investments:

• The company is expanding its space portfolio, including capacity in Palm Bay, Florida, and Fort Wayne, Indiana, to support new mission awards and increase production.

• These investments are aligned with the Department of War's strategy to advance missile warning and tracking systems and address increased demand for interceptors and solid rocket motors.

• International Business Expansion:

• L3Harris reported a significant increase in international demand, with CS revenue up 6% and IMS revenue up 17% due to international deliveries and new program ramping.
• This expansion is attributed to strong global demand for resilient software-defined communication equipment and advanced EW capabilities.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted "double-digit organic growth, 15.9% margins, and a book-to-bill of 1.2," raised 2025 guidance to $22B, and cited Aerojet record backlog of $8.3B and multiple large international wins (e.g., $2.2B Korea award), signaling confidence in durable demand and execution.

Q&A:

• Question from Sheila Kahyaoglu (Jefferies LLC): Maybe I could start off on ISR... recent wins in South Korea being put in, ramp on multiple classified ISR programs you saw in the quarter. How do we think about the outlook for that segment and just runway for the business given capacity?
  Response: IMS/ISR backlog has doubled in 12 months, execution is improving, international demand and program ramps support a very positive outlook and continued momentum.

• Question from Ronald Epstein (BofA Securities): How do you manage partnering with smaller, faster companies so your large organization doesn't stifle their nimbleness?
  Response: We eliminated bureaucracy, empowered leaders and use Shield Capital and direct engagement to preserve partner speed and integrate small entrants while remaining agile.

• Question from Myles Walton (Wolfe Research): Outlook for Golden Dome/space-based competitions (HBTSS, Tranche 2 tracking) cadence over the year? And SAS margin—are we through prior program issues and is Q4 an exit rate into next year?
  Response: Confident in space/missile‑defense opportunities (RFPs submitted, ready to proceed once government reopens); SAS legacy issues are maturing and margins should stabilize into 2026, though no precise segment guidance given.

• Question from Seth Seifman (JPMorgan): Is this year's margin expansion a hard headwind to overcome for 2026?
  Response: No—negative EACs from early 2025 have turned positive; management expects continued program performance to sustain and further expand margins in 2026.

• Question from Scott Mikus (Melius Research): IRAD as percent of sales declined—should IRAD step up next year?
  Response: We invest based on opportunity, not a percent of revenue; IRAD, CRAD and strategic investments have been significant and will be deployed where market opportunity dictates.

• Question from Michael Ciarmoli (Truist Securities): Will you compete as a prime for missiles/space-based interceptors or remain supplier/partner?
  Response: Approach is pragmatic—evaluate prime vs sub vs merchant; current priority is building capacity at Aerojet to meet demand, while assessing priming opportunities selectively.

• Question from Noah Poponak (Goldman Sachs): Medium-term growth at Aerojet—how many years of backlog, can growth exceed ~10% this year, and competition in solid rocket motors?
  Response: Aerojet backlog is record ($8.3B), management expects sustained double-digit growth medium-term driven by capacity expansions and broad demand, while monitoring competitive dynamics.

• Question from Peter Arment (Robert W. Baird): Update on international teaming and indigenous capabilities—how do you expand share while supporting local industry?
  Response: We partner globally with local production where sensible, support indigenous industrial bases and offset obligations, and are increasing international revenue from ~22% toward ~25%.

• Question from Gavin Parsons (UBS): Baseline for Aerojet margin—legacy contracts dragging, will strong growth weigh on margin?
  Response: Aerojet margins expected in the mid‑12% range; legacy contracts are rolling out and new signed contracts plus development programs should support margin stability and potential improvement.

• Question from Kristine Liwag (Morgan Stanley): There's a schism between demand signals and contract awards—what needs to happen to close the gap?
  Response: The government shutdown/budget delays are the primary bottleneck; once funding resumes management expects accelerated awards and tightened timing.

• Question from Richard Safran (Seaport Research Partners): Are multiyear contracts feasible and how would they affect supplier pricing and margins?
  Response: Customers support multiyear commitments to justify large capex for capacity; multiyears would align supplier investments and delivery schedules and are being pursued to underpin scale-ups.

• Question from Ronald Epstein (BofA Securities) [follow-up]: What opportunity does potential NASA restructuring present for you?
  Response: Aerojet has significant multi‑year work on RS-25/SLS (funding through Flight 5), providing years of space propulsion backlog and sustained opportunity in civil space programs.

Contradiction Point 1

Aerojet Rocketdyne's Growth and Margin Expectations

This contradiction arises in the expectations for Aerojet Rocketdyne's growth and margin performance, which are crucial for investors and stakeholders.

What is your growth outlook for Aerojet Rocketdyne and expectations regarding new competition in solid rocket motors? - Noah Poponak (Goldman Sachs Group, Inc., Research Division)

2025Q3: Aerojet Rocketdyne's growth is driven by strong demand and backlog. We are focusing on capacity expansion and working closely with OEMs to prioritize production. We expect continued growth, and competition is not seen as an immediate threat to our market position. - Christopher Kubasik(CEO), Kenneth Bedingfield(CFO & President of Aerojet Rocketdyne)

Which segments do you expect to see the most growth and margin improvement by 2026? - David Egon Strauss (Barclays Bank PLC)

2025Q2: The business is growing across the board and coming out of some substantial development costs that impacted the year ago. The growth rate is going to improve, but it is going to take a few quarters to work through the system. We expect growth to continue and acceleration in growth in the back half. - Kenneth Bedingfield(CFO & President of Aerojet Rocketdyne)

Contradiction Point 2

International Business Growth Strategy

The contradiction lies in the company's strategy for international business growth, impacting expansion and partnership plans.

How are you executing international business growth while balancing the need for local capabilities? - Peter Arment (Robert W. Baird & Co. Incorporated, Research Division)

2025Q3: International budgets have increased, and we align with customer demands for resilient interoperability. We have been partnering globally for decades, expanding production capabilities where it makes business sense. - Christopher Kubasik(CEO)

How will increased European defense spending impact your international opportunities? Is a larger European footprint necessary? - Ronald Jay Epstein (BofA Securities)

2025Q2: L3Harris sees solid growth internationally, particularly in telecommunications and software-defined radios. Interoperability and security are key. Our strategy remains partner-based, and we are flexible to meet local needs. Some countries, like Poland, have manufacturing facilities to support sovereign requirements. - Christopher E. Kubasik(CEO)

Contradiction Point 3

Missile Defense Capabilities and Golden Dome Awards

It involves the company's positioning and expectations regarding its missile defense capabilities and the receipt of Golden Dome awards, which are crucial for strategic growth and investor confidence.

What is your outlook for Golden Dome competition and SAS business margins? Have you resolved the earlier program challenges? - Myles Walton (Wolfe Research, LLC)

2025Q3: We're confident in our missile defense capabilities and expect an award soon. - Christopher Kubasik(CEO)

Can you clarify the Golden Dome investments and expected awards? - Ronald Epstein (Bank of America)

2025Q1: We are well-positioned due to our expertise and proven HBTSS capabilities. We expect awards in the next few months to allow for satellite launches during President Trump's term. - Chris Kubasik(CEO)

Contradiction Point 4

LHX NeXt Savings and Margin Impact

It involves differing interpretations of the savings generated by the LHX NeXt initiative and its impact on margins, which are critical for investors.

Can you discuss your outlook for Golden Dome competitions and SAS business margins? Are you past the earlier program challenges? - Myles Walton(Wolfe Research, LLC)

2025Q3: We expect stability in SAS margins in 2026, and while there is a transition period with some of those classified programs, the overall SAS backlog is consistent with our expectations. - Christopher Kubasik(CEO)

What factors are driving the accelerated free cash flow growth of $150 million in 2025 and $350 million at the midpoint for 2026, and how much of the $200 million increase in LHX NeXt translates to actual margin savings versus customer savings? - Myles Walton(Wolfe Research)

2024Q4: LHX NeXt savings have been strong, with $800 million exceeded in '24, expected to reach $1.2 billion by the end of '25, supporting margin expansion. About 40% of savings result in margin opportunity, with the rest benefiting customers through cost reductions and efficiencies. - Kenneth Bedingfield(CFO)