L3Harris Technologies Inc. (NYSE: LHX) reported fourth-quarter 2025 earnings on Thursday that exceeded analyst estimates, though shares retreated in early trading as investors reacted to a revenue miss and a brief operational disruption caused by a U.S. government shutdown. The company’s performance was characterized by record-high order backlogs and a significant structural shift as it prepares to spin off its missile business later this year.
Earnings Beat Overshadowed by Revenue Headwinds
L3Harris posted non-GAAP diluted earnings per share (EPS) of $2.86 for the fourth quarter, outperforming the $2.77 anticipated by Wall Street. This bottom-line strength was attributed to the early success of the “LHX NeXt” initiative, which met its $1 billion efficiency target ahead of schedule. However, quarterly revenue of $5.65 billion fell short of the $5.79 billion consensus.
Chief Executive, Christopher Kubasik, described 2025 as a “clear inflection point,” noting that while the company executed with discipline, the top line was pressured by external factors. “We wrapped up 2025 by continuing to execute with speed and discipline,” Kubasik stated during the earnings call, while acknowledging that a late-year government shutdown delayed several key contract awards and slowed operational momentum.
Full-Year 2025 Performance and Record Backlog
For the full year, L3Harris generated $21.9 billion in revenue, representing a 5% organic increase. The company’s book-to-bill ratio—a key indicator of future growth—reached 1.3x for the year, driven by $27.5 billion in total orders. This activity pushed the company’s total backlog to a record $38 billion.
| Metric | FY 2025 Result | Year-over-Year Change |
| Total Revenue | $21.9 Billion | +3% (5% Organic) |
| Non-GAAP Diluted EPS | $10.73 | +11% |
| Adjusted Segment Margin | 15.8% | +40 bps |
| Adjusted Free Cash Flow | $2.8 Billion | +21% |
Segment performance was led by Aerojet Rocketdyne, which saw 10% revenue growth in the fourth quarter to $763 million. Communication Systems also performed strongly, with margins expanding to 24.9% on the back of resilient international demand for tactical radios. Conversely, the Integrated Mission Systems segment faced headwinds, with operating income falling nearly 20% year-over-year due to program mix and the divestiture of its commercial aviation business.
Strategic Pivot and Missile Solutions IPO
The company announced a significant reorganization from four business segments into three: Space & Mission Systems, Communications & Spectrum Dominance, and Missile Solutions. This realignment is intended to streamline operations and focus on high-priority defense requirements.
A central component of this strategy is the planned initial public offering (IPO) of the Missile Solutions business in the second half of 2026. The move involves a $1 billion investment from the Department of Defense (DoD), which Kubasik referred to as the “anchor investor” for the new majority-owned public entity. “We’ve spent time in the Pentagon and listened to the [DoD’s] needs to significantly expand missile production,” Kubasik said. “Capacity is now the most important capability.”
Additionally, L3Harris completed the sale of a 60% stake in its civil space propulsion business to AE Industrial Partners, a move intended to “sharpen focus on priorities for the Department of War,” according to management.
2026 Outlook and Sector Dynamics
Looking forward, L3Harris issued 2026 revenue guidance of $23.0 billion to $23.5 billion, representing roughly 7% organic growth. The company expects adjusted EPS between $11.30 and $11.50 and free cash flow to reach approximately $3.0 billion.
The outlook reflects a broader defense environment where global tensions are driving demand for advanced munitions and resilient communication networks. However, analysts noted that the 2026 EPS guidance sat slightly below some aggressive consensus estimates, contributing to the stock’s lukewarm immediate reaction. CFO, Kenneth Bedingfield, emphasized that the company’s record backlog and “strong demand signals” provide a high level of visibility for 2026 as the company pivots toward higher-margin production programs.
Reasons to Pass on LHX
- Fourth-quarter revenue missed expectations, reflecting delays in contract awards and customer payments tied to the late-year U.S. government shutdown.
- Share price reaction negative despite an earnings beat, suggesting investor focus remains on top-line execution and near-term growth visibility.
- 2026 adjusted EPS guidance of $11.30–$11.50 came in below some market expectations, raising concerns about near-term earnings momentum as investment spending increases.
- Revenue growth remains exposed to federal budget timing and shutdown risk, highlighting ongoing sensitivity to U.S. government funding cycles.
- Integrated Mission Systems segment showed weakening performance, with operating income declining nearly 20% year over year due to program mix and divestitures.
- Planned Missile Solutions IPO introduces execution and structural uncertainty, including potential earnings dilution and complexity during the transition period.
- Significant capital investment required to expand production capacity, which may pressure margins and cash flow in the near term despite long-term demand.
- Sector-wide supply chain and execution challenges persist, limiting the near-term benefits of strong backlog and order intake.