L3Harris at Global Conference: Growth Potential in Defense

On Thursday, 22 May 2025, L3Harris Technologies Inc. (NYSE:LHX) presented at the 18th Annual Global Transportation & Industrials Conference. The company highlighted strategic growth opportunities, particularly through its Aerojet Rocketdyne segment and the Golden Dome initiative, while addressing capacity constraints and potential market challenges.

Key Takeaways

• L3Harris aims for $23 billion in revenue and over 16% margins by 2026.
• Investments and government support are addressing capacity constraints in tactical solid rocket motors.
• The Golden Dome initiative offers opportunities in ground and space-based interceptors.
• Potential reversal of R&D capitalization rule could yield $150-200 million in annual tax benefits.
• Projected organic revenue growth of 7% with a focus on diverse defense segments.

Financial Results

L3Harris is optimistic about meeting its 2026 financial targets, projecting $23 billion in revenue with margins exceeding 16%. The company anticipates organic revenue growth of approximately 7%, driven by strategic investments and emerging defense opportunities.

Operational Updates

The company is tackling capacity constraints in tactical solid rocket motors through capital investments and process improvements, supported by Defense Production Act funding. New facilities are expected to come online by late 2025 or early 2026, significantly enhancing production capacity.

Future Outlook

L3Harris is exploring opportunities within the Golden Dome initiative, focusing on ground-based and space-based interceptors. This initiative could offset potential reductions in NASA’s SLS program post-Artemis III. The company is also eyeing opportunities in ISR, CS, SAS, and IMS segments, aiming to improve margins while investing in early-stage programs.

Q&A Highlights

During the conference, Ken Benningfield, CFO and President of Aerojet Rocketdyne, expressed confidence in achieving L3Harris’s long-term goals. He noted that the potential reversal of the R&D capitalization rule could provide a significant cash tax benefit, enhancing the company’s financial flexibility.

For more detailed insights, refer to the full transcript below.

Full transcript - 18th Annual Global Transportation & Industrials Conference:

Myles Walton: All right. I think we’re good. See you going. Thanks so much for joining us. Excited to have with us LHX, the CFO, Ken Benningfield.

Thanks for coming, Ken. Really appreciate it.

Ken Benningfield, CFO and President of Aerojet, L3Harris (LHX): Thanks for having us, Myles. It’s great to be here. And maybe just real quick, I’ll just remind everyone that today’s discussion may include forward looking statements. And forward looking statements involve risks and uncertainties, which can be further understood in our SEC filings.

Myles Walton: So you’ve been in a dual headed role. So Ken is both the CFO. I neglected to give you all your titles. So he’s both the CFO and the President of Aerojet. In that dual headed role, you’ve been there for five months.

Tell us a little bit about what you’re learning about Aerojet as a segment where its operations like you want to take it? And it’s one of the bigger growth potentials of the business, but obviously a newly integrated part. There’s probably some observations you have in the first few months.

Ken Benningfield, CFO and President of Aerojet, L3Harris (LHX): Yes. Look, it’s exciting times at Aerojet Rocketdyne and it’s a fantastic business and a fantastic team. And I’m really honored to have the opportunity to serve as both the President of Rocketdyne as well as the CFO of L3Harris. In terms of Aerojet Rocketdyne, obviously, it’s been roughly twenty months approaching two years since we closed on the acquisition. And I think it’s number one, a fantastic business number two, really important to our country and our allies and then number three, I think very well positioned to grow as we look forward.

And that growth I think is importantly aligned to some critical capabilities. So from my perspective, there’s probably a decade long run of capacity for tactical solid rocket motors as we look at delivering that capacity in those products to basically catch up for a lot of, let’s just say, capability that’s been used across recent conflicts as well as some tactical issues that our customers have been facing. A little bit longer term, there’s significant opportunity in what we would call large solid rocket motors, and I’ll include medium solid rocket motors in that group just for ease of purposes. But beyond the tactical, we’ve been successful and we’re investing in things like the Sentinel program, next generation interceptor, glide phase interceptor, the Zeus program, as well as some classified business. I do think that area does have some kind of solid, let’s say, protection in terms of harder for folks to break into that market, given the size and scale of those motors, the facilities and the capabilities and the technology needed to do that.

And I think we’ve been very successful, not just from a propulsion perspective, but also from a divert and attitude control perspective, where I think we have incredible capability that has really helped us to be on every interceptor program today as well as all of the new development programs from an interceptor perspective. And then outside of missiles, that business should be a solid double digit grower for a number of years in front of us. Outside of missiles, we obviously have an important space propulsion business as well. And I think there’s a real solid backlog and a lot of work to do around the RL-ten second stage liquid fuel engine and we’re doing a lot to support ULA in that regard. And then we’re keeping our eye on the RS-twenty five, which is the old space shuttle engine that is now on the NASA SLS rocket and obviously tracking and working to keep an eye on how many missions, how many flights will that rocket actually do.

And I do think most of that work is done in our Canoga Park, California facility. We’ll likely do other large solid rocket motor there. So I think we’ve got a plan that number one, think NASA SLS is important for getting to the moon, some national security aspects of that, ultimately getting to Mars. But we do have solid plan Bs should that set emissions be truncated to make sure that we’ve got adequate work in that facility. So a fascinating business, fantastic team, great growth opportunity.

And it’s not just revenue growth, but I think we’ve got the opportunity to really solidify our margin as well. There’s a little bit of purchase accounting that’s working its way out of the system. And as we’re getting on to new contracts, I think we’re seeing that what I’ll call the economic profit will start to contribute and ultimately bring that cash with it as we look forward in the business. So exciting times at Aerojet Rocketdyne.

Myles Walton: So I got a few follow ups as you might imagine on that. So first one, the capacity constraints that you have in sort of average at Rocketbank, how are you relieving those? Where are you today? Where are you going to be? And how important are those to sort of the reacceleration of revenue that you talked about both in the near term as well as the target of $4,000,000,000 out in 02/1930?

Ken Benningfield, CFO and President of Aerojet, L3Harris (LHX): So from a capacity constraint perspective, I would say during 2024, the first full year that we had the business in the portfolio, I got the sense that there were kind of some frustrations around, hey, it wasn’t growing as fast as anticipated. There’s a big market opportunity here and the revenue cadence maybe isn’t hitting that. But it’s a long cycle business and it takes some time to get the investments in. Some of the equipment that we needed has fifty two week lead time, but we placed the orders. We’re investing in the business.

We’re investing our capital. We did get a couple of hundred million dollars from the U. S. Government in Defense Production Act dollars as I think they recognize this is critical capability for their needs. And we’re often executing on that work to support the capacity increases.

And then I think our industrial engineering team has done a great job of really studying the process and finding where the choke points are. And not every choke point requires significant amounts of capital. And so sometimes it’s as little as you find you can put $100,000 into a small piece of equipment that will double a small choke point that enables you to really drive that capacity down the road. But it’s exciting to see that the momentum is building, the capacity is coming online. And I feel very comfortable that we’re doing all the right things and starting to see it pay off.

We will see that Defense Production Act money that will be new facilities to support three tactical solid rocket motor programs, should be online late twenty twenty five, early ’20 ’20 ’6. And we’ll really see that start to almost double, triple capacity on a few programs that are important to our customer and therefore, obviously important to us. So I think all is firing on all cylinders, so to speak, in that regard. And we’re very excited about where it’s going. And it’s just about keeping that cadence of day to day, getting motors out the door.

Obviously, what we do is not only important, but it’s dangerous work as well, working with energetics and keeping that safety cadence at the same time so that all of our employees return home in the same condition they came in, and we can just continue that production without any risk or stops along the way.

Myles Walton: So there was an announcement a couple of days ago in the overall the Golden Dome. Not a ton of information except two name drops of LHX by your senator from Indiana. So maybe just to stay on Aerojet Rocketdyne, what is the opportunity for the Aerojet portion of your portfolio within Golden Boom? I think at the press conference it was more on the space side, but I’ll get to that. Sure.

Ken Benningfield, CFO and President of Aerojet, L3Harris (LHX): First of all, we’re really excited about the Golden Dome opportunity. And clearly, think it’s a high priority for the administration. And we’re excited to see an announcement. We were certainly excited to see Senator Banks there in support of the investments that we’ve made in Fort Wayne, Indiana and our payload facility there, as well as our final integration facility in Palm Bay, Florida. But your question was about Aerojet Rocketdyne, I will get to that now.

So from the Aerojet perspective, I think that we’ve got significant opportunity when it comes to Golden Dome. And I would say that the first is ground based interceptors. And as I mentioned, we’re on existing interceptor programs today. So we do expect that THAAD would likely see an extension to production of that program. I think we’re seeing additional demand and additional drive for capacity increases on standard missile.

And then as we look at some of the new interceptor programs, next gen interceptor as well as glide phase on the hypersonic interceptors. We’re seeing requests for information to potentially accelerate the development, potentially pull low rate production in and potentially even increase the rate at which low rate production would start. So we’re tracking a number of opportunities. I think it can have significant impact to that path to $4,000,000,000 that you talked about. And I think, to be honest, that path to $4,000,000,000 was before we knew about Golden Dome.

So I think Golden Dome opportunities could potentially give us some upside to that. We got to figure out how we get the capacity in the system, not just the physical, the buildings and the equipment, but also the labor. And we’re working hard on that. We’ve invested not just in Camden, Arkansas. You may have seen we just did a groundbreaking in Orange, Virginia.

And we’ve moved the inert work, so anything that’s non energetic to Huntsville, Alabama for the most part. We do a little bit in Canoga Park, California as well. But to get kind of get everything in the right places, let the team focus on the right things and we see that as paying big dividends as we look out at the ability to deliver the capacity and the capability that will be required. And then ultimately, I think the next stage of Golden Dome, so first existing interceptors second, kind of those next generation of interceptors. And those I think think of those as kind of accelerations of what existed.

But I think the next one and maybe as importantly would be the space based interceptor opportunity. And I think there we’re really evaluating how do we play. Obviously, Aerojet Rocketdyne has a role, but we do have an important space business as well. And so really thinking about that holistically from a one LHX perspective as to how we might go and address that kind of longer tail of space based interceptor development and we’re working strategies around that.

Myles Walton: Would that be something you would consider priming on?

Ken Benningfield, CFO and President of Aerojet, L3Harris (LHX): I think that’s certainly in the mix absolutely. Not determined at this point in time, but I don’t see why we couldn’t.

Myles Walton: And then the upside from Golden Dome, think the worse amount sounds like that’s more than enough to offset the RS-twenty five if they curtail after Artemis three?

Ken Benningfield, CFO and President of Aerojet, L3Harris (LHX): Yes. Yes, RS-twenty five, the NASA SLS program roughly is about 1% of revenue for us. And we’ve been producing engines for beyond flight three. We’re on contract through nine flights currently. So we’re hard at work on that and we’ll see where that goes.

But it’ll take some time. I don’t think anything has been determined on that front yet. So there’s a President’s budget that has requested to basically curtail that program after three flights and Capitol Hill will weigh in and we’ll see where that goes. Again, think we’re working appropriate strategies to think about that risk. And then from a Golden Dome perspective, looking at the space business, we’ve invested over the years really since the acquisition to become a prime in space with a focus on missile warning, missile defense I should say missile warning, missile tracking and missile defense.

We’ve had success. We’ve been on all three tranches of the space development agency’s tracking layer. We were successful in launching a prototype on HVTSS, Hypersonic Ballistic Tracking Space Sensor, I think, if I remember correctly, that stands for. And we think that there’s an opportunity for us put some additional HVTSS satellites up that could provide coverage for the entire United States while this administration is still in office. And that’s in facilities that we’ve invested in.

And so we’re excited about that opportunity and we look forward to hopefully getting on contract in the near term to provide that capability to this administration.

Myles Walton: So Chris raised that on the call I think and sort of his pitch was on the call So listen to us we could get it done for your administration. So it’s a constellation of 40 HPTSS for initial identification. Is that what the mission would be?

Ken Benningfield, CFO and President of Aerojet, L3Harris (LHX): I think it’s roughly 40 HVTSS. I think the space engineers and architects are finalizing what that looks like. I think it’s in the 40s. And I would say, again, we’ve got a prototype up. I think we understand the mission and the capability.

I think we’ve got a low risk approach that doesn’t require much nonrecurring engineering. And again, we’ve already invested in the facilities. There’s probably some capacity tooling that we would need to invest in, but it’s not huge dollars or time. And we have confidence that we’ve got the team, the facilities and the technology to get those procured, produced and delivered before, let’s say, late twenty twenty eight or very early twenty twenty nine.

Myles Walton: That’s a couple of $3,000,000,000 type of translation?

Ken Benningfield, CFO and President of Aerojet, L3Harris (LHX): I would say, we haven’t yet done final pricing on that opportunity. But if you think about maybe where SDA tranche one and two have been, this is not significantly different from those. You might land on a number around in that ZIP code, I guess, I would say maybe a little south of that ZIP code.

Myles Walton: Sounds good. So this leads to the targets for 2026 you laid out. Top line 23,000,000,000 cash flow $28,000,000,000 and margins greater than

Ken Benningfield, CFO and President of Aerojet, L3Harris (LHX): $16,000,000,000 16 billion

Myles Walton: So the top line I think is where most of the investment community is sort of scratching their head because it implies an acceleration of about 7% organic after a couple of years lower than that. Does this does basically Golden Dome secure once you’re under contract secure you and your visibility to that?

Ken Benningfield, CFO and President of Aerojet, L3Harris (LHX): So from my perspective, our confidence to the $23,000,000,000 continues to build. And when we put the framework out there, we had confidence to the $23,000,000,000 and that was before Golden Dome. And I think we had a solid path to get there even before this opportunity, again, initially to probably accelerate some things that were in process presented itself. We did have some headwinds to growth in 2025, and we’ve talked a little bit about that, some ISR programs that delivered in 2024, F-thirty five Tier three development kind of largely behind us, but production not hitting rate sufficient enough to offset that until 2026. And then AirJet Rocketdyne, as I mentioned, took a little time to get that capacity built.

But as the missile business, in particular, is growing double digits in twenty twenty six twenty twenty five and 2026, that will contribute as well. I think our job clearly, of the things we need to do is deliver confidence to our investors that we can hit the $23,000,000,000 number. I think one of the best ways we could do that would be to drive our 2025 revenues above the midpoint of our guidance. I think it’s midpoint that folks are calculating that growth rate off of. And we’re just working on building that momentum to end 2025 at a strong point that positions us very well for 2026.

And then I would say, if Golden Dome and a few things hit, we’ll see that $23,000,000,000 as a number that we can give investors a lot of confidence in. And I’ll just mention on the call, we also talked about the second quarter. And just in April, we had a few significant bookings that were outside of the book to bill, which was a little low in Q1, but we see an opportunity for a very solid Q2 book to bill potentially, I would say above a 1.5 book to bill in the second quarter. There’s an international ISR award as well as a classified program and that’s without Golden Dome potential opportunities. And so we see those as giving us confidence toward that growth profile as well.

Myles Walton: Were those 2Q bookings the major go gets to secure the confidence in the ’23?

Ken Benningfield, CFO and President of Aerojet, L3Harris (LHX): Certainly, are a couple of big items. I don’t know that we have any necessarily big movers that we need to go get to the $23,000,000,000 If I think about our CS business, they’ve been very successful in winning some international contracts. So we’re excited to support The Netherlands for its network modernization as well as Germany, Poland, Romania. And that certainly contributes to a solid growth path there. Space, I think, has a solid profile again, SAS, I should say, across its portfolio, including Mission Networks and supporting the FAA customer and some change orders and some work that we’re seeing some additional opportunity on that front.

IMS has its share of opportunities, and then we’ve talked about Aerojet. So I do think we’ve got a pretty robust portfolio. We think it’s well aligned and I think all of the segments are contributing to it.

Myles Walton: Do you have capability for modification of large aircraft Texas. You’ve done the battle wagon for what’s called the Air Force one that’s actually a battle wagon nuclear hart. You’ve done retrofits for lots of heads of state. Seemed like if we were bringing aircraft into the country to modify for a head of state aircraft, you’d be well positioned if we ever did that per state?

Ken Benningfield, CFO and President of Aerojet, L3Harris (LHX): I would say we have a very capable ISR business based in Texas to your point. And we would be, I would think well positioned to do that. And I don’t know that I have any comment beyond that at this point in time. The

Myles Walton: reconciliation bill has a provision in it which reverses the capitalization rule for research and development. And it’s retro well, the wording is retroactive to the start of 2025. You’ve as a company I think had to pay about $1,000,000,000 plus or minus more in cash taxes because of capitalization of R and D over the last several years. How much of a tailwind would this be if the rule actually were passed?

Ken Benningfield, CFO and President of Aerojet, L3Harris (LHX): Sure. Yes. The old disappearing $1,000,000,000 of cash. So look right. So look, we’ve got a great tax team that’s been hard at work trying to figure out how we manage our cash taxes.

And I think they’ve done a great job of really starting to chip away at the capitalization of R and D and the amortization did result headwinds to your point of about $1,000,000,000 over a five year period. We’ve probably done some good work to buy down a couple of hundred million of that. So I think the Section 172 benefit probably is 700 to $800,000,000 of benefit over maybe a three to four year period, so call it 150,000,000 to $200,000,000 a year. And again, I think the team has done some good work kind of buying back a little bit of that. And but we’re excited to see the reconciliation bill move forward for multiple reasons of which I think important tax legislation is one, but clearly from a budgetary perspective as well.

Myles Walton: So we just raised the free cash flow target of 26,000,000,000 to $3,000,000,000

Ken Benningfield, CFO and President of Aerojet, L3Harris (LHX): Well, I would say, let’s get the bill finalized and then we’ll look at updating our guidance.

Myles Walton: Sounds good. Within the framework of that reconciliation bill, was $150,000,000,000 of added defense spending. And what I found fascinating was about 80% of it was to buy things. About half of it was on programs that really were not yet spoken for, which seem perfectly aligned with LHX’s ability to adapt and move to where the demand is. Outside of what we talked about with Golden Dome, are there other areas of that pot of money that’s sort of yet spoken for that are targets of opportunity for LHX?

Ken Benningfield, CFO and President of Aerojet, L3Harris (LHX): Absolutely. Yes. I think there’s we are I think agile, nimble and able to respond to changing dynamics, which I think is a strength for us as a company. And I think there are a number of opportunities. So, first of all, maybe I’ll just run through kind of segment by segment.

At CS, I think there’s a number of opportunities between programs like Next Gen Jammer that we’ve won that will need to move into production in the next few years. I think we’ve got great capability around next generation BMC-two. It looks like we’ll be moving forward. SAS, clearly opportunities in space as well as electronic warfare, including international opportunities on that front. We talked a little bit about the FAA and some change orders that we’re seeing coming from that customer.

IMS, they have important work around a couple of things in the maritime world. So power generation and power conditioning for nuclear submarines, which is a focus. They’ve invested for a long time in unmanned surface vehicles and unmanned underwater vehicles. We see that as an opportunity. They’ve also got the center of excellence for our counter UAS capability.

You may remember we have a program called Vampire that was deployed to Ukraine for counter UAS. And we’re now working with other customers to include the Navy around what that system might look like in a marinized variant. And then certainly, think we’ve talked enough about the Air Jet Rocketdyne opportunities. But again, really about capacity on the missile side, we’ve been building backlog on the RL-ten and then we are continuing to monitor the RS-twenty

Myles Walton: So you have three businesses with margins in the mid-twelve percent range. You got one business in the mid-20s. What is the potential a few years out for those businesses given the mix changes you might see given the productivity improvements you’re making? Is this sort of the pace and cadence of the margins we should expect and it’s a top line story? Or how much more beyond 16% margins are there?

Ken Benningfield, CFO and President of Aerojet, L3Harris (LHX): So we do have a diverse portfolio and that includes kind of the margin portfolio. So even within those call it 12% businesses like SAS, IMS in particular those two, we do have businesses that are, say, commercial in nature that do have above average margins. And so we’re constantly managing that portfolio. And I think one of the things we’re trying to do is increase our performance on our programs and our delivery of products to enable margin improvement ten, twenty, 40 bps at a time. That enables us to reinvest not only in R and D, but also in some of those early stage programs.

And even some of these early stage programs, if you bid them to deliver, let’s just say, our average margin rate, so we bid at 16%, We’re going to start booking likely at a lower risk adjusted booking rate. So we still need those mature programs to deliver higher. So you think you kind of start low and end high, and we’ve got to manage that life cycle of opportunities. So I think to answer your question about what’s the opportunity from here, We’re committed to the low 16% or at least 16% margins in 2026. Is there opportunity to run from there?

I think that likely comes down to, obviously, we need to continue to perform and then what the portfolio mix looks like. Is there a lot more upside from a margin perspective? Probably not. And I think it becomes more of a growth story while maintaining margins in that 16 plus percent range. If we were to drive margins much above that, it would likely mean the portfolio was probably getting a little too mature and we weren’t investing quite enough in that continued seed corn kind of early stage opportunities.

But I think if we can grow the top line as we have the opportunity to do, maintain margins in that 16% range and continue to turn that into cash with a growing set of cash flows, there’s a real kind of value creation opportunity there.

Myles Walton: Perfect. That is perfect.

Ken Benningfield, CFO and President of Aerojet, L3Harris (LHX): All right. Thanks, Myles. Great to see you.

Myles Walton: You too.

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