While L3Harris Technologies has weathered the COVID-19 pandemic quite well, global supply chain issues are beginning to wear on the firm. The company’s growth trajectory petered out somewhat in late 2021, with the company reporting nine-month revenue of $13.46 billion, down 1 percent from $13.53 billion in the 2020 period.
This, in turn, caused the company to revise its guidance for 2021, dropping its forecast from $18.1 billion – $18.5 billion to $17.9 billion. The recent omicron surge will likely put more pressure on supply chains in the near term, which could cause this number to dip a little more. That said, so far the new COVID variant appears to burn hot and may hopefully be concluded by the end of winter, which will allow the recovery to continue and pick up the pace.
Over the course of 2021, L3Harris pretty much completed the refinement of its portfolio following its 2019 merger. While L3Harris Technologies is a formidable player in the defense electronics sector, the merger did create a little overlap, most notably in the night vision sector. To avoid anti-trust issues, Harris sold its night vision operations to Elbit Systems in a deal valued at $350 million.
As it began the process of combining the two firms, the company decided to focus on what it sees as core markets, specifically in the C4ISR sector. L3Harris management has said it could sell up to 10 percent of the company that is not considered core, and several major deals have pushed the company close to this goal.
The first operation L3Harris divested was the airport security and automation business, which was sold to Leidos for $1.0 billion in 2020. This business provides airport and critical infrastructure screening products, automated tray return systems, and other industrial automation products. This was followed by the sale of optics and sighting manufacturer EOTech for $60 million.
In 2021, L3Harris exited military training with the sale of its military training operations to Canada’s CAE for $1.05 billion. The L3Harris Military Training business included Link Simulation & Training, Doss Aviation, and AMI. L3Harris Link is a provider of military training solutions in the United States; Doss Aviation is the provider of initial flight training to the United States Air Force (USAF); and AMI is a design and manufacturing facility for simulator hardware. L3Harris has so far retained its commercial pilot training and simulator operations.
At the same time, the company also signed an agreement to sell its Combat Propulsion Systems and Magnet-Motor GmbH businesses for about $400 million in cash to Germany’s RENK. Combat Propulsion Systems, based in the U.S., supplies transmissions and engines, such as the AVDS-1790 series, for armored vehicles in the U.S. and international markets. Magnet-Motor develops and designs high-performance electric power supplies and hybrid drive systems for military applications and is located in Starnberg, Germany.
As 2021 wrapped up, the company completed several smaller transactions. In the latter part of the year, L3Harris divested four microwave technology operations, including ESSCO, Narda-MITEQ, Electron Devices, and Narda Microwave-West.
With assets reduced by the previously targeted 10 percent, L3Harris announced a new alignment and organization of core businesses in early 2022. Going forward, the company has shifted from four to three focused segments: Integrated Mission Systems, Space and Airborne Systems, and Communication Systems. With this new structure in place, the company can focus on fine-tuning the various pieces to increase synergy and revenue opportunities.
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