Harris Corp. 2Q 2019 Revenue Up by 9% to $1.7 Billion

Melbourne, Fla., Jan. 29, 2019 — Harris Corporation (NYSE: HRS) reported fiscal 2019 second quarter revenue of US$ 1.7 billion, up 9% compared with the prior year. GAAP earnings per diluted share (EPS) from continuing operations increased 74% to US$ 1.88, and non-GAAP EPS increased 19% to US$ 1.96. Net income increased 72% to US$ 225 million, and adjusted earnings before interest and taxes increased 18% to US$ 327 million with margin expansion of 150 basis points (bps).

"We delivered the third straight quarter of high single-digit revenue growth and generated record EPS with strong margin expansion across all three segments," said William M. Brown, chairman, president and chief executive officer. "First half revenue growth of 9%, book-to-bill of 1.17 and margin expansion of 90 bps give us confidence to increase our revenue and EPS guidance for the second time this fiscal year."

"Integration planning for the merger with L3 is progressing well, with the integration team fully staffed and developing detailed plans to deliver US$ 500 million of cost synergies and ensure seamless operations post close. We continue to expect the transaction to close in mid-2019."

Harris said revenue increased 9% for the quarter and the first half, with solid growth across all three segments. GAAP and non-GAAP EPS3 grew double digits for the quarter and the first half driven by higher volume, strong operational performance and a lower share count. A lower tax rate also contributed to first half EPS growth. In addition, GAAP EPS increased due to the absence of a one-time write down of deferred tax assets and an adjustment for deferred compensation recorded in the second quarter of fiscal 2018, partially offset by L3 deal and integration costs in the current quarter. Book-to-bill was 1.06 for the second quarter and 1.17 for the first half.

Second quarter revenue increased 10% from strong growth in all three businesses. Tactical Communications revenue grew 9%, with International up 11% from solid growth in Asia Pacific and Europe, and DoD up 7% on modernization demand. Night Vision and PSPC grew double digits as strong orders continued to convert into revenue. Operating income grew 12%, and margin expanded 50 bps to 30.0% from volume leverage and operational efficiencies, partially offset by mix. Orders were up 33% resulting in a segment book-to-bill of 1.18.

Following the release of results, Quilty Analytics, an integrated strategic and financial services boutique focused on the Satellite & Space industry, said Harris was able to beat Rev/EPS by single-digits and boost margins in all three business units as merger with L3 approaches.
“Following an initial spurt of enthusiasm for the L3 merger (stock up 13%) shares of HRS tumbled 27% into the Christmas Eve low vs. 14.5% for the S&P 500.  The stock subsequently rallied ~13% (in-line with the market) but yesterday’s EPS report boosted shares 8.8% as investors cheered Harris’ Q2 results, improved FY19 outlook, and constructive comments on the L3 merger (expected to close mid-2019),” Quilty noted.

Quilty said three items that caught its attention were: (1) Harris looking to proactively divest its ~$150 mm night vision business, (2) DoD spending on radios is shifting from readiness to modernization as evidenced by the company’s Q2 DoD tactical radio B2B of 1.7x, and (3) trends in the Space business are “very, very good,” with Harris winning $350 million in smallsat contract awards over the past 3 years.

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