L3Harris grew Q2 2026 revenue 8% to $5.88B and diluted EPS 28% to $3.13; a 1.2x book-to-bill lifted backlog to a record $42B and full-year revenue and EPS guidance was raised, though investment gains flattered earnings.
Revenue
$5.9B
+8.4% YoY
Net income
$600M
+31.0% YoY
Diluted EPS
$3.13
+28.3% YoY
Operating margin
11.1%
Overview
L3Harris grew second-quarter 2026 revenue 8% to $5.88 billion (quarter ended July 3, 2026), with all three segments growing, and diluted earnings per share rose 28% to $3.13. The company booked $7.3 billion of new orders, lifting its backlog of contracted work to a record $42.0 billion, and raised full-year revenue and EPS guidance.
The headline EPS growth overstates how much the core business improved. The segment margin, though, understates it. A year ago the quarter included $92 million of one-off gains from selling product lines. This quarter had no such gains but did book gains on stakes in outside technology companies. With both stripped out, the business earned noticeably more from day-to-day work (see "What's behind the numbers" below).
Two other developments matter. During the quarter, the U.S. Department of War put $1 billion into L3Harris's missile business ahead of a planned IPO of that unit. And on August 17, 2026, three weeks after these results, CEO Christopher Kubasik left the company (details at the end).
Key metrics
Metric
Q2 2026
Q2 2025
YoY Change
Revenue
$5,881M
$5,426M
+8.4%
Operating income
$654M
$571M
+14.5%
Operating margin
11.1%
10.5%
+0.6 pts
Segment operating margin (non-GAAP)
16.0%
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Operating margin is the share of revenue left after the costs of running the business, before interest and tax.
Segment operating margin is L3Harris's own measure. It excludes corporate items such as amortization of past acquisitions, which is why it runs higher.
Book-to-bill is new orders divided by revenue. Above 1.0x means work is coming in faster than it is being delivered.
Free cash flow is cash from operations minus spending on plants and equipment.
The prior-year backlog figure is the sum of the three segment backlogs reported in the 10-Q ($16,282M + $9,437M + $9,661M).
Segment performance
Segment
Revenue Q2 2026
YoY
Operating margin Q2 2026
Q2 2025
Backlog (Jul 3, 2026)
Backlog YoY
Space & Mission Systems
$2,966M
+7%
9.8%
10.4%
$22,431M
+38%
Communications & Spectrum Dominance
$1,943M
+4%
26.9%
24.6%
$9,031M
−4%
Missile Solutions
$1,054M
+14%
12.3%
12.5%
$10,531M
+9%
The segment revenues add up to the $5,881 million total after removing $82 million of sales between segments.
Space & Mission Systems (satellites, surveillance aircraft, FAA systems) is the largest segment. Revenue rose $196 million. The 10-Q breaks that down as:
$81 million more in ISR (intelligence, surveillance and reconnaissance) from "missionized aircraft programs"
$76 million from classified space programs
$40 million from FAA work
$34 million from the F-35
Lower classified volume in Intel and Cyber partly offset these gains.
Operating income was flat at $290 million, so the margin fell 60 basis points (0.6 percentage points). That decline is a comparison effect: Q2 2025 included a $75 million gain from selling a product line. Without it, profitability improved. Revisions to expected profit on long contracts (called "EAC adjustments") were a net $34 million favourable, and the segment booked a $23 million gain on technology investments. The EAC total already includes a net $30 million of unfavourable adjustments on two specific programs. The segment's backlog jumped 38% year over year to $22.4 billion.
Communications & Spectrum Dominance (tactical radios, electronic warfare, night vision) had the strongest quarter on profitability. Revenue rose 4%, including $70 million more in Mission Critical Communications from "increased international deliveries" of its software-defined radios. The margin rose 230 basis points to 26.9%. The drivers were higher-margin international volume and a $16 million investment gain. These were partly offset by $27 million more spent on R&D and selling, and by the absence of last year's $17 million product-line sale gain. Backlog is 4% lower than a year ago at $9.0 billion, so the segment is delivering faster than it is refilling its order book.
Missile Solutions (the former Aerojet Rocketdyne: rocket motors and propulsion for missiles and munitions) grew fastest, with revenue up 14%:
Propulsion Systems added $85 million "from increased production and development volumes on key missile and munitions programs," partly offset by slower space propulsion.
Advanced Effects added $44 million.
The margin slipped 20 basis points to 12.3%, only because Q2 2025 benefited from a favourable contract resolution.
What's behind the numbers
Last year's one-off gains mask part of the improvement. Q2 2025 expenses were reduced by $92 million of product-line sale gains ($75M in Space & Mission Systems, $17M in Communications & Spectrum Dominance). Q2 2026 had none. Operating income still rose $83 million (+15%). Part of that came from no longer paying the $39 million of LHX NeXt restructuring costs booked in Q2 2025. That cost-cutting program finished in 2025.
Investment gains lifted the bottom line. The "non-service FAS pension income and other" line rose from $105 million to $185 million. Most of the increase came from $73 million of net gains on stakes in outside "dual-use technology" companies, against $6 million a year earlier. Of that, $39 million is counted inside segment operating income ($23M Space & Mission Systems, $16M Communications & Spectrum Dominance). Gains like these are not predictable, and they are a large part of why net income grew 31% while revenue grew 8%.
Lower interest cost. Net interest expense fell $23 million to $129 million because the company carries less debt.
Higher tax rate. The effective tax rate rose to 15.5% from 12.6%, mainly because Q2 2025 benefited from larger favourable tax-audit settlements.
A new charge from the Pentagon's stake. EPS is now calculated after a $14 million "deemed dividend" on the preferred shares sold to the Department of War (explained below). That cost roughly 7 cents a share, so EPS growth would have been higher without it.
More R&D spending. Company-funded R&D rose to $160 million from $131 million.
Takeaway: The 16.0% segment margin, up only 0.1 points, understates this quarter. It absorbed the loss of $92 million in last year's asset-sale gains plus $29 million more R&D, while a 1.2x book-to-bill lifted backlog 19% to $42 billion, mostly in Space & Mission Systems. The 28% EPS growth, by contrast, owes a noticeable share to $73 million of investment gains that shouldn't be counted on every quarter.
The $1 billion Department of War investment and planned missile IPO
On April 17, 2026, Aerojet Rocketdyne Holdings, the subsidiary that is the Missile Solutions segment, sold $1 billion of convertible preferred stock plus warrants to the U.S. Department of War. The company received $973 million net. Under the agreement, the money must fund "expanding our missile manufacturing capacity and capabilities."
If the missile business goes public. A "qualified IPO" of a new subsidiary, AXYV Inc., on or before December 31, 2027 would convert the government's preferred shares into AXYV stock at a 20% discount to the IPO price. L3Harris expects the government would then own about 10% of the unit. Warrants give the government the right to buy another 3%.
If no IPO happens. The preferred stock carries a 7% annual compounding return and becomes redeemable later. A 110% premium applies if certain milestones are missed by the end of 2027.
How it's accounted for. The shares are booked as "mezzanine equity," a category between debt and equity, at $968 million. L3Harris is accruing toward the highest possible redemption value, $1,422 million, through April 2031. That accrual is the $14 million deemed dividend taken out of EPS, and it will recur every quarter. The conversion feature ($130 million) and the warrants ($186 million) are carried as liabilities, so changes in their fair value will pass through earnings. The company also recorded a $386 million "program investment" asset. Once a milestone is reached, that asset will be amortized as a reduction to revenue over 20 years.
The 10-Q notes that "costs related to the carve-out and planned AXYV public offering" are running through corporate expenses. It gives no IPO date.
Divestiture pending
L3Harris is combining its space propulsion and power business and its space avionics division, both in Missile Solutions, into a new company at a net enterprise value of $825 million. AE Industrial Partners will own about 60% and L3Harris will keep about 40%. The RS-25 rocket engine and hypersonics businesses are excluded. The 10-Q says closing is expected "early in the second half of 2026." The group is classified as held for sale, with $1,010 million of assets, and earned $28 million pre-tax this quarter. L3Harris booked a further $10 million loss on it earlier in 2026. When the deal closes, Missile Solutions' revenue base will shrink by that amount.
Cash flow and balance sheet
Free cash flow. Operating cash flow was $879 million (+37%) and capital spending $108 million, leaving free cash flow of $771 million. The company attributes this to higher net income and "working capital timing." Year to date, free cash flow is $584 million against a $3.0 billion full-year target, so most of the year's cash is still expected in the second half.
Uses of cash. The company spent $229 million on buybacks and $232 million on dividends, and paid down $350 million of commercial paper (short-term borrowing). Cash rose to $1.52 billion, helped by the $973 million from the Department of War.
Debt. Debt due within a year rose to $1.8 billion from $673 million at year-end as bonds approach maturity. Total debt was about $11.0 billion.
Calendar effect. Year-to-date comparisons cover 26 weeks in 2026 against 25 weeks in 2025, which inflates first-half growth rates by roughly one week's revenue. Q2 was 13 weeks in both years.
Guidance (raised July 29, 2026)
2026 guidance
New
Prior
Revenue
$23.2B–$23.7B
$23.0B–$23.5B
Diluted EPS (GAAP)
$11.80–$12.00
$11.40–$11.60
Segment operating margin
low 16%
n/a
Free cash flow
~$3.0B
n/a
Operating cash flow
~$3.6B
n/a
By segment:
Space & Mission Systems: revenue target raised to about $11.7 billion (from about $11.5 billion), with a margin in the mid-10% range.
Communications & Spectrum Dominance: margin target raised to the mid-25% range (from about 25%) on about $8.0 billion of revenue.
Missile Solutions: about $4.1 billion of revenue at a low-12% margin.
The August 17 leadership announcement reaffirmed 2026 guidance for revenue, organic growth, segment operating margin, GAAP EPS and free cash flow.
Leadership change after the quarter
On August 17, 2026, L3Harris announced that Chairman and CEO Christopher Kubasik had left, effective immediately. According to the 8-K, a board investigation with independent counsel found that he "engaged in conduct that was not consistent with the values of the Company as outlined in its Code of Conduct." The company said the conduct had "no impact on" financial reporting, controls, customer relationships or operations. He receives no severance. Sam Mehta, who ran the two largest segments (about 80% of revenue), became President and CEO. Lead independent director Lewis Hay III became independent chairman.
Outlook
Demand is building. Backlog is up 19%, and the 10-Q cites a GFY 2027 national-defense budget request of about $1.5 trillion, 44% above GFY 2026 enacted spending. The 10-Q also says the company expects a continuing resolution from October 1, 2026. That is a stopgap budget that holds spending flat and delays new program starts, so it could slow some awards.
The guidance implies second-half revenue of about $11.6–12.1 billion, against $11.6 billion in the first half, so it doesn't assume a sharp acceleration.
Things to watch:
Whether the shrinking backlog in Communications & Spectrum Dominance starts to weigh on that segment's high-margin revenue.
How much of reported earnings keeps coming from investment gains, and how much the preferred-stock deemed dividend takes out of EPS.
Progress on the missile-business IPO and the space-technology divestiture.
Whether the abrupt CEO change disrupts execution. The August reaffirmation of guidance suggests management does not expect it to.