How L3Harris links its internal muscle to outward success
By
Ross Wilkers
L3Harris Technologies certainly gained a wider aperture in the market through its merger, but Wall Street also wants to know what kind of internal heft is needed to secure that growth.
L3Harris Technologies often touts its aggression regarding pursuing opportunities in the larger, wider pipeline the company now has as it prepares to mark its second birthday since the merger to create it two years ago.
But when it comes large combinations like that, investors also want to know if the bigger company has the infrastructure in place to support that growth.
Analysts asked during L3Harris’ first quarter earnings call on Friday, and Chief Operating Officer Chris Kubasik answered by saying he thinks the company has the right physical footprint and facility sizes today along with the needed internal investment model.
L3Harris’ estimates combined pipeline with both of its big pieces together at $125 billion over three years. During the first quarter, L3Harris secured eight new wins as revenue synergies to bring its win rate for those opportunities to nearly 70 percent.
Kubasik said L3Harris spends “$1 billion a year between” capital expenditures and internal research-and-development. Around 2 percent of revenue goes toward capex costs that cover fixed assets such as buildings and equipment, while 4 percent is allocated for R&D efforts.
For reference: last year’s revenue totaled $18.2 billion and the company sees this year’s sales at $18.5 billion-to-$18.9 billion, or growth of between 3 and 5 percent. Kubasik said he sees capex trending downward over time.
“We took some existing facilities and modified them and re-laid out the footprint to optimize the flow with new tooling and such,” Kubasik told analysts. “Most of what we're working on are the systems versus the actual platforms, so that does not take up as much factory space.”
Much of that attention on real estate and other fixed assets took place as L3Harris went through the first phases of the three-year integration effort to put its two big pieces together, with more work to do so the $500 million overall cost synergy goal can be met and even exceeded.
Chief Financial Officer Jay Malave said the company remains at work consolidating its IT systems and facilities, which means some capex investment is needed. That also means going to a shared services approach for payroll, procurement and other functional items.
“As those trail off, that will create capacity to invest in new programs over the next few years,” Malave added.
Friday also marked the final earnings call for Bill Brown, L3Harris’ CEO for the past 10 years and chairman of the board of directors for the past seven. He will continue as executive chairman of L3Harris’ board for one year after Kubasik becomes CEO on June 29.
Here is how Brown signed off in part:
“It has been rewarding nearly 10 years with the hard work and dedication of our employees. Harris grew from a small niche defense company to a leading mission solutions defense prime, post the acquisition of Exelis and the merger with L3 with revenue today of over $18 billion.
“I am especially proud of the people at L3Harris who work hard every single day to support our customers' critical missions and deliver value to shareholders. The performance culture and the work environment we've created is really special.
“Last week, the independent directors of the board unanimously endorsed the transition occurring as planned in the merger agreement indicating their confidence and mine in Chris's ability to lead this company going forward.
"The results today speak to the momentum we have in the company and the strong foundation we built for the future, and I am excited and optimistic about what L3Harris can accomplish in its next phase under Chris' leadership.”