L3Harris Q3 2026: record $53.2B backlog; EPS up 33% to $3.28, about half from a one-off tax benefit

L3Harris grew third-quarter 2026 revenue 7% to $6.06 billion (quarter ended October 2, 2026) and diluted earnings per share (EPS) 33% to $3.28. Two things stand out. First, orders of $19.3 billion, more than three times what the company billed in the quarter, pushed its backlog of contracted work to a record $53.2 billion, driven by two seven-year missile-propulsion contracts. Second, about half of the EPS gain came from a one-time tax benefit, not from the business. The underlying picture is still good: revenue grew 9% on an organic basis even though this quarter had one week fewer than last year's.

Key metrics

Operating margin is the share of revenue left after running the business, before interest and tax. Organic growth strips out businesses bought or sold, here the Space Technology product lines sold during the quarter, which took $103 million out of revenue versus a year ago. L3Harris reports only GAAP EPS; it does not publish an adjusted EPS figure.

Segment performance

Space & Mission Systems grew fastest in dollars. The 10-Q attributes the gain to $127 million more in Space Systems (missile warning and tracking satellites, classified programs), $107 million in ISR from "milestones related to material procurement in support of classified contracts," $36 million from FAA work and $25 million from F-35 volumes. Its operating income rose $39 million, but a $38 million favorable change in contract re-estimates did almost all of that work, while last year's quarter had a $19 million asset-sale gain that did not repeat.

Communications & Spectrum Dominance is the profit engine: about a third of revenue, but half of segment profit at a 25.2% margin. Revenue rose $54 million from the ramp of VAMPIRE counter-drone systems and $48 million from international radio deliveries, partly offset by $29 million lower Spectrum Superiority revenue that the 10-Q ties to "one fewer week in the quarter." Margin rose on a richer international and software mix and $27 million of favorable re-estimates, despite $20 million more spent on R&D and selling.

Missile Solutions (the former Aerojet Rocketdyne) looks slow at +4.9% only because it sold its space-technology lines. Propulsion Systems production on "key missile and munitions programs" added $152 million, against $80 million lost to the divestiture and $25 million lower space propulsion volume. Organically the segment grew 16.8%. Its margin slipped to 12.0%; the 10-Q cites a $10 million hit from the divestiture.

What the headline numbers hide

• The tax rate did a big share of the EPS work. The effective tax rate fell to 14.9% from 18.5%. The 10-Q says the quarter "reflects an incremental benefit of 10%" from the favorable resolution of audit uncertainties, partly offset by a charge tied to the divested business. At 10 points of $743 million pretax income, that is about $74 million, or roughly $0.40 a share. Taking it out (a tax rate near 24.9%) gives EPS of roughly $2.88, up about 17% rather than 33%. That is our calculation, not a company figure.
• Much of the operating-income gain came from lower corporate costs, not the segments. Operating income rose $165 million. Segment operating income added $67 million (+7.4%). The other $98 million came from smaller unallocated corporate items: amortization of acquisition intangibles fell $45 million (a non-cash charge that runs down as older deals age), last year's $25 million LHX NeXt restructuring costs did not recur, and deferred-compensation fair-value swings moved $28 million in the company's favor. A $17 million loss on the Space Technology sale went the other way.
• Contract re-estimates helped. Net "EAC adjustments" (revisions to the expected total profit on long contracts as work progresses) were $62 million more favorable than a year ago. They reflect better program execution, but they can swing back.
• Lower interest expense added $36 million before tax, from paying down debt.
• Below the line, gains and losses roughly cancelled. Investment gains on stakes in outside technology companies were $37 million (vs $7 million), the kind of item our Q2 report flagged. This quarter they were offset by a $50 million non-cash loss on the fair value of the conversion feature and warrants the Department of War holds in the missile subsidiary. Separately, a $19 million "deemed dividend" on that preferred stock was deducted before EPS, so common shareholders' net income was $613 million, not $632 million. That charge (about $0.10 a share this quarter) will recur until 2031, since the company is accreting the preferred stock toward a $1,422 million redemption value.
• Calendar comparison works against this quarter. Q3 2026 had 13 weeks against 14 in Q3 2025, so 7% reported revenue growth understates the run-rate.
• Cash conversion was strong, helped by timing. Operating cash flow of $1.44 billion was 2.3 times net income. Customer advances rose $169 million and receivables fell $369 million, though contract assets (work done but not yet billed) rose $299 million. Year to date, operating cash flow is $2.22 billion against $1.74 billion of net income (1.27x). The 10-Q credits "higher net customer advance payments on new awards and timing of billing and collection."
• Buybacks were not a factor. L3Harris spent $73 million repurchasing shares (vs $176 million) and $234 million on dividends. The diluted share count fell only 0.6%.
• Guidance went up by roughly the size of the tax benefit. The full-year GAAP EPS range rose to $12.25–$12.35 from $11.80–$12.00, a $0.40 increase at the midpoint, about what the one-time tax benefit added in the quarter.

On balance the quarter is flattered: the one-time audit resolution supplied roughly $0.40 of the $0.82 EPS gain, and segment profit grew 7.4%, far less than the 33% EPS headline, even though the shorter quarter makes revenue growth look slightly weaker than it was.

Takeaway: The record $53.2 billion backlog is the real news, and it is concentrated: Missile Solutions now holds $20.0 billion, of which $12.3 billion is unfunded (not yet paid for by Congress). The THAAD and PAC-3 deals are "undefinitized" contracts, meaning work starts before price and terms are final. So the profit on that backlog is not locked in, and this quarter's 33% EPS growth overstates the earnings power because about half of it was a tax one-off.

Backlog: what $53.2 billion means

Backlog grew by about $11.2 billion in the quarter even after the Space Technology sale removed about $2.0 billion. By segment, book-to-bill was 11.8x in Missile Solutions, 1.9x in Communications & Spectrum Dominance and 1.0x in Space & Mission Systems. The company expects to turn about 35% of the backlog (roughly $18.6 billion) into revenue in the next 12 months and 55% within 24 months. Only the first year of each seven-year missile contract is counted as funded.

Did last time's read hold up?

Our Q2 2026 report listed four things to watch. Mostly they went well:

• Communications & Spectrum Dominance backlog shrinking. This reversed: the segment booked 1.9x revenue, helped by $723 million for the Next Generation Jammer and $540 million of new VAMPIRE awards.
• Reliance on investment gains and the deemed dividend. Investment gains continued ($37 million) but were more than offset by the $50 million derivative loss. The deemed dividend grew to $19 million from $14 million in Q2. A tax one-off has replaced investment gains as the main flattering item.
• The missile-unit IPO and space-technology divestiture. The divestiture closed in the quarter for $539 million of net proceeds. The 10-Q says the fair-value estimates are "substantially weighted" toward a qualified IPO of the missile unit before December 31, 2027.
• Disruption from the August CEO change. None is visible in the numbers: guidance was raised under new CEO Sam Mehta.

Guidance and outlook

By segment, Space & Mission Systems revenue was raised to about $11.9 billion (from ~$11.7 billion) and Communications & Spectrum Dominance trimmed to about $7.9 billion (from ~$8.0 billion); Missile Solutions stays at about $4.1 billion.

The ranges imply fourth-quarter revenue of about $5.8–$6.0 billion and EPS of $3.12–$3.22. That is below Q3's reported $3.28 but above our roughly $2.88 estimate of Q3 without the tax benefit, so management expects a better underlying run-rate in Q4. Free cash flow needs about $1.16 billion in Q4 to reach $3.0 billion, after $1.84 billion year to date.

The risk is Washington's calendar. The 10-Q notes the government has been on a continuing resolution, a stopgap that holds spending at the prior year's level, since October 1, 2026, running through December 11, 2026. The fiscal 2027 request is about $1.5 trillion for national defense, but appropriations wait until after the midterm elections. With $22 billion of backlog still unfunded, the timing of that money matters more for 2027 than this quarter's margin.

Things to watch next quarter:

• Whether the THAAD and PAC-3 contracts are finalized ("definitized") and at what margins, since that decides how profitable the $20.0 billion missile backlog is.
• Missile Solutions' margin, now 12.0%, as production ramps and new facilities such as the Camden, Arkansas solid-rocket-motor plant come online.
• How much the deemed dividend and the conversion-feature fair value keep moving EPS as the missile-unit IPO approaches.