L3Harris Declares "Best Year Ever," Charts Course with Missile Unit IPO and Strategic Portfolio Shift
MELBOURNE, Fla. – L3Harris Technologies (NYSE: LHX) closed the books on what its CEO termed the company's "best year ever," leveraging its fourth-quarter earnings call to detail a year of record orders, margin expansion, and a strategic portfolio overhaul designed to sharpen its focus on high-priority defense sectors.
CEO Chris Kubasik framed 2025 as a period defined by "speed and discipline," pointing to improved operational performance and robust customer demand that culminated in a record $38 billion backlog and a book-to-bill ratio of 1.3. The strong finish sets the stage for a transformative 2026, headlined by a planned initial public offering for its Missile Solutions business.
The company's strategic moves are twofold. First, it is reorganizing from four operating segments into three. Second, and more notably, it plans to spin off its Missile Solutions unit into a separate, publicly traded company in the latter half of 2026. Management projects the new entity will be a "$4 billion+ revenue, majority-owned public company" boasting "sustainable double-digit growth," focused on critical propulsion systems, IR seekers, and related technologies.
In a unique twist, the U.S. Department of War has committed to a $1 billion preferred security investment directly into the Missile Solutions business ahead of the IPO. CFO Ken Bannon clarified that this stake is "solely economic," converting at a discount to the IPO price and including detachable warrants. The capital is earmarked to rapidly scale production capacity for large solid rocket motors and tactical systems, key to programs like THAAD and PAC-3 missile defense interceptors.
"This structure allows us to fund critical capacity investments today, while we work through the longer-term contract negotiations," Kubasik explained, highlighting a pragmatic approach to meeting urgent defense manufacturing needs.
Financially, the company reported a strong 2025, with organic revenue growth of 5% to $21.9 billion and adjusted earnings per share climbing 11% to $10.73. Free cash flow surged over 20% to $2.8 billion. For 2026, L3Harris guided to revenue between $23.0 and $23.5 billion, anticipating continued margin improvement and free cash flow of approximately $3.0 billion.
The earnings call also served as a postscript to a significant portfolio action: the pending sale of a majority stake in its Civil Space Propulsion and Power business to AE Industrial Partners. This divestiture, alongside the missile unit IPO, signals a concerted effort to streamline operations and concentrate resources on its core defense and intelligence franchises.
Market Voices:
"The Missile Solutions IPO is a masterstroke in unlocking value," said David Chen, a portfolio manager at Horizon Strategic Capital. "It creates a pure-play growth story for investors while letting L3Harris retain control and benefit from the segment's expansion. The War Department's direct investment is a powerful vote of confidence in the technology."
"I'm deeply skeptical," countered Rebecca Shaw, a senior analyst at The Governance Initiative. "Spinning off a crown jewel right when missile demand is peaking? This feels like financial engineering to please short-term shareholders. And a government entity taking a direct, complex financial stake in a soon-to-be-public subsidiary raises serious questions about corporate governance and conflicts of interest that were glossed over on the call."
"The operational metrics are undeniably strong," noted Michael Rodriguez, an independent defense sector consultant. "Record backlog, expanding margins, and disciplined cash generation. The restructuring into three segments should improve operational clarity. Their challenge now is executing this complex separation without disrupting the momentum they've built."
L3Harris, formed by the merger of L3 Technologies and Harris Corporation in 2019, is a leading provider of communications, electronic warfare, space, and intelligence systems. The company will unveil its updated long-term financial framework at an Investor Day in New York on February 25.