L3Harris (LHX) Q3 2025: Aerojet Backlog Hits $8.3B as Missile Demand Reshapes Defense Supply Chain
L3Harris’s Q3 revealed a decisive inflection in missile and space demand, with Aerojet Rocketdyne’s backlog surging to $8.3B and double-digit growth spanning all core segments. The company’s execution on classified ISR, international missionization, and capacity ramp-up positions it to benefit from multi-year defense modernization, despite near-term government funding uncertainty. Management’s tone has shifted from defense to offense, with upside potential tied to contract awards and formalized demand signals in the months ahead.
Summary
- Missile Demand Surges: Aerojet Rocketdyne’s record backlog and capacity investments signal a structural upcycle.
- Execution on Modernization: L3Harris is converting innovation into large-scale awards, especially in ISR and software-defined systems.
- Contracting Visibility Remains Key: Multi-year awards and government funding clarity will determine pace of future growth.
Performance Analysis
L3Harris posted broad-based organic growth across all four segments, with two delivering double-digit gains. Aerojet Rocketdyne, the company’s missile propulsion and space business, stood out with 15% organic growth and a record $8.3B backlog, reflecting exceptional demand for solid rocket motors and interceptors. Integrated Mission Systems (IMS) revenue grew 17% organically, led by classified ISR (Intelligence, Surveillance, Reconnaissance) program ramps and a doubling of segment backlog over the past year. Communication Systems (CS) delivered 6% growth, driven by international demand for software-defined radios and Next Generation JMR ramp, while Space and Airborne Systems (SAS) posted 7% growth on higher FAA and airborne combat volume.
Margins expanded for the eighth consecutive quarter, with segment operating margin at 15.9%, up 20 basis points, supported by LHX Next cost savings and improved program performance. Free cash flow was seasonally soft at $450M due to customer payment delays, but management reiterated full-year guidance, expecting a strong Q4 cash inflection tied to milestone payments and tax refunds. Notably, the company’s $6.6B in orders produced a book-to-bill of 1.2, with additional large awards (such as a $2.2B South Korea contract) set to bolster Q4 bookings.
- Missile and Space Outperformance: Aerojet Rocketdyne’s backlog and growth outpaced original acquisition targets, driven by interceptor demand and capacity expansion.
- ISR Momentum: IMS’s classified ISR ramp and international wins reflect successful leadership changes and execution focus.
- Margin Expansion Discipline: LHX Next cost initiatives and program digital cockpit adoption are driving sustained margin improvement.
With 22% of revenue now international and a clear path to 25%, L3Harris is leveraging its platform-agnostic integrator model to win both domestic and allied modernization programs. The company’s ability to convert technology leadership into profitable growth is increasingly evident in its backlog and award cadence.
Executive Commentary
"Our purpose-built portfolio sits at the center of a mission-critical modernization effort, supporting war fighters across every domain for the U.S. and its allies. As new contracts are awarded, we're positioned to accelerate production and integration with work on additional satellites expected to begin soon. This progress reinforces our role as a trusted, proven partner in advancing the nation's layered, next-generation Homeland Defense Network."
Christopher E. Kubasik, President and Chief Executive Officer
"We had $6.6 billion in orders this quarter, resulting in a book to bill of 1.2. Revenue was $5.7 billion, reflecting strong organic growth of 10%. This growth was across all four segments with two growing double digits and driven by higher volume on existing programs, new programs ramping, and increased international demand."
Ken Denning, Executive Vice President and Chief Financial Officer
Strategic Positioning
1. Missile and Propulsion Scale-Up
Aerojet Rocketdyne, L3Harris’s propulsion and missile business, is now a structural growth engine. Its record $8.3B backlog is rooted in demand for interceptors like PAC-3, THAAD, and Next Gen Interceptor, with L3Harris as the sole solid rocket motor supplier for PAC-3. Management is investing in new facilities and equipment, aiming to double or triple production contingent on multi-year contracts, and sees double-digit growth as sustainable for years ahead.
2. ISR and Missionization Franchise Expansion
IMS’s classified ISR turnaround is gaining momentum, with backlog doubling in twelve months and international wins (South Korea, Morocco, Poland) validating the platform-agnostic integrator strategy. The $2.2B South Korea airborne early warning contract cements L3Harris’s role as the world’s leading missionized business jet integrator, offering long-term sustainment and upgrade potential.
3. Software-Defined and AI-Enabled Systems
L3Harris is scaling software-defined radios and AI-enabled mission systems, critical for resilient communications and rapid tech refresh. The NGC2 MANPAC win for the Army and real-world deployment of software-defined comms in Ukraine highlight the company’s ability to deliver operationally relevant technology at scale.
4. Digital Execution and Margin Discipline
The rollout of the program digital cockpit, built on Palantir’s Foundry, is accelerating enterprise-wide program management, leveraging automation and AI to drive real-time decision-making and improved program outcomes. LHX Next cost savings and digital tools are underpinning sustained segment margin expansion and execution consistency.
5. Internationalization and Local Partnerships
With international revenue trending toward 25%, L3Harris is deepening partnerships and local production in key allied markets, supporting both indigenous capability and offset requirements. Its open approach to teaming—prime, sub, or merchant supplier—maximizes flexibility and win rates in a fragmented global defense landscape.
Key Considerations
This quarter’s results underscore a pivot from stabilization to acceleration, with management’s narrative shifting to upside optionality and long-term growth visibility. Investors should focus on the following:
- Capacity Investments: Aerojet Rocketdyne’s facility expansions and capital allocation are designed to meet multi-year missile demand, but require government contract formalization to unlock full scale.
- Contracting Dynamics: The transition to multi-year missile contracts is essential for supply chain investment and pricing leverage, with management actively engaged in driving this shift.
- Backlog and Award Timing: Government shutdowns and funding delays are temporarily slowing contract awards and cash conversion, but pent-up demand could catalyze a surge in Q4 and 2026 bookings.
- Margin Sustainability: Legacy contract drag is receding, with new program ramps and digital execution tools supporting stable to expanding segment margins, particularly in Aerojet and SAS.
- International Growth: L3Harris’s flexible partnership model is enabling it to capture a rising share of NATO and allied modernization budgets, with 22% of revenue now international and rising.
Risks
Government shutdowns and budget delays remain the most immediate risk, impacting contract awards, export licenses, and cash collections. The pace of multi-year contracting is critical for capacity investments, and any prolonged uncertainty could slow the missile supply chain ramp. Legacy contract performance and competitive dynamics in solid rocket motors are secondary risks, though management sees these as manageable given backlog visibility and program diversity.
Forward Outlook
For Q4 2025, L3Harris guided to:
- Strong cash generation, back-end weighted, with milestone payments and tax refunds expected to drive a Q4 inflection.
- Continued double-digit organic growth in Aerojet Rocketdyne, IMS, and stable-to-expanding margins in all segments.
For full-year 2025, management raised guidance:
- Revenue to $22B (6% organic growth)
- Segment operating margin to high 15% range
- Non-GAAP EPS to $10.50–$10.70
- Free cash flow reaffirmed at $2.65B
Management expects 2026 sales to exceed the current financial framework, with upside tied to contract awards and missile modernization funding. Key drivers: Aerojet capacity ramp, ISR franchise growth, and international program wins.
- Multi-year contract conversion is a gating factor for full-scale missile production.
- Digital execution and cost discipline underpin margin confidence into 2026.
Takeaways
L3Harris’s Q3 marks a decisive pivot from stabilization to acceleration, with missile demand and international wins driving backlog and growth visibility.
- Missile Demand as a Structural Tailwind: Aerojet’s $8.3B backlog and capacity buildout position L3Harris to capitalize on a multi-year missile upcycle, contingent on contract formalization.
- Execution and Digital Discipline: Margin expansion and program performance are increasingly driven by digital tools and cost initiatives, with legacy headwinds receding.
- Watch for Award Cadence and Multi-Year Contracts: The pace of government funding and contract awards will determine how quickly L3Harris can unlock further upside and scale its defense supply chain investments.
Conclusion
L3Harris’s Q3 results and backlog dynamics underscore a company moving from defense to offense, with missile demand, ISR momentum, and internationalization driving durable growth. The next inflection will depend on government contracting velocity and the ability to convert demand signals into multi-year awards, unlocking full capacity investments and margin leverage.
Industry Read-Through
L3Harris’s missile and space backlog surge signals a sector-wide missile production upcycle, with capacity constraints and multi-year contracting set to reshape the defense supply chain. Contractors with scalable propulsion, ISR, and software-defined system capabilities are best positioned, but government funding clarity will be the gating factor for near-term growth. Internationalization and agile teaming models are increasingly critical as allied defense budgets rise and demand for interoperability accelerates. The digitalization of program execution, as seen with Palantir-enabled tools, is likely to become table stakes for margin discipline and delivery performance across the industry.