L3Harris builds space, communications and missile systems, largely for the U.S. government. Its order book has swelled, but the new work is longer-dated, so the test is whether it becomes revenue at the better margins of the latest quarter.
A soldier speaking into a field radio, a satellite in orbit, a rocket motor pushing a missile off its launcher: L3Harris builds equipment of this kind. The company is an American defense contractor with three businesses: space, communications and missiles. It is paid largely by the U.S. government, under contracts that pay as the work progresses. What it keeps depends on holding costs to its estimates and delivering on time.
On its U.S. government work, the contract type decides who carries the cost risk. Under a fixed-price contract (a set price for a set job), L3Harris keeps any saving and bears any overrun. Under an incentive version, savings and overruns are shared up to a ceiling price, and above that ceiling the company carries the whole excess. Cash arrives along the way, through milestone payments (sums due at agreed stages) or monthly payments equal to 80% of the costs incurred so far. The rest, profit included, is billed on delivery. In the latest quarter, communications brought in less revenue than space yet earned the most profit from operations, $502 million. The larger space business earned less.
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