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Will Supply-Chain Constraint Hurt L3Harris' (LHX) Q1 Earnings?

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L3Harris Technologies, Inc. (LHX - Free Report) is slated to report first-quarter 2022 results on Apr 28 before market open. 

L3Harris Technologies has a four-quarter earnings surprise of 3.72%, on average. Its first-quarter top line is likely to have benefited from the growth in Intelligence, Surveillance, Reconnaissance (ISR) and the strength in space in airborne systems, weighed downby the impacts of supply-chain challenges.

Integrated Mission Systems’ Revenues Expected to Remain Strong

The continued recovery in its commercial aerospace business is expected to have benefited revenues from Integrated Mission Systems in the first quarter. Also, the higher product deliveries of Electro Optical must have favorably contributed to this segment’s revenues in the soon-to-be-reported quarter. However, ISR aircraft timing from a tough compare is expected to drive a low to mid-single-digit decline in revenues in the first quarter.

The Zacks Consensus Estimate for Integrated Mission Systems’ first-quarter revenues, pegged at $1,725 million, suggests an improvement of 18.9% from the year-ago quarter’s reported figure.

Space and Airborne Systems – Another Revenue Contributor

A ramp-up in missile defense and other responsive programs and the strength in the classified program timing of Intel & Cyber are likely to have boosted revenues from the segment in the first quarter. However, this might have been partially offset by the transition toward modernization programs within airborne businesses.

The Zacks Consensus Estimate for Space and Airborne Systems’ first-quarter revenues, pegged at $1,454 million, suggests an improvement of 17.6% from the year-ago quarter’s reported figure.

Communication Systems Remains Gloomy

Product delivery delays within Tactical Communications due to supply chain-related constraints, coupled with the lower volumes of legacy platforms in Broadband Communications, might have dampened communication systems’ revenues in the soon-to-be-reported quarter. Additionally, contract roll-offs in Global Communications Solutions and the delivery timing within Integrated Vision Solutions are likely to have contributed unfavorably to Communication Systems’ revenues in the first quarter.

L3Harris Technologies Inc Price and EPS Surprise

L3Harris Technologies Inc Price and EPS Surprise

L3Harris Technologies Inc price-eps-surprise | L3Harris Technologies Inc Quote

First-Quarter Estimates

With the mixed revenue performance from L3Harris Technologies’ segments, one might remain skeptical about the overall top-line performance of the company, mainly due to inflationary pressure and supply-chain constraints that LHX continues to face in the first quarter.

The Zacks Consensus Estimate for first-quarter sales is pegged at $4.12 billion, indicating a decrease of 9.7% from the prior-year reported figure.

Inflationary pressure for labor and materials is likely to have dampened the bottom line of the company in the soon-to-be-reported quarter. However, L3Harris Technologies’ earnings are likely to have benefited from merger cost synergies and savings from the e3 (excellence, everywhere, every day) operational excellence program. Also, the rising segment margin is expected to have aided the bottom line in the first quarter.

The Zacks Consensus Estimate for first-quarter earningsis pegged at $3.02 per share, indicating a decrease of 5% from the prior-year reported figure.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for LHX this time. The combination of a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. However, that is not the case here.

L3Harris Technologies has an Earnings ESP of -0.62% and a Zacks Rank 4(Sell). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are three defense players you may want to consider as they have the right combination of elements to post an earnings beat this season:

Airbus Group (EADSY - Free Report) has an Earnings ESP of +10.35% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Airbus boasts a long-term earnings growth rate of 12.4%. The Zacks Consensus Estimate for EADSY’s first-quarter sales and earnings is pegged at $12.44 billion and 15 cents per share, respectively.

Northrop Grumman (NOC - Free Report) has an Earnings ESP of +1.32% and a Zacks Rank #3. NOC has a four-quarter average negative earnings surprise of 11.05%.

Northrop’s long-term earnings growth rate is pegged at 6.2%. The Zacks Consensus Estimate for NOC’s first-quarter earnings is pegged at $5.95 per share, indicating a decline of 9.4% from the prior-year quarter’s reported figure.

Spirit Aerosystems (SPR - Free Report) has an Earnings ESP of +9.34% and a Zacks Rank #3. It boasts a long-term earnings growth rate of 8.5%.

The Zacks Consensus Estimate for SPR’s first-quarter earnings indicates an improvement of 50% from the prior-year reported figure.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.