RTX Corp Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Financial and Operational Performance: Generated 8% organic sales growth, 120 basis points of segment margin expansion, and strong free cash flow. Commercial aftermarket sales up 21%, commercial OE up 3% (difficult prior-year compare), defense up 4%.
• GTF Program: PW1100 MRO output up 35% year-over-year and 14% sequentially; isothermal forging output up over 10% year-over-year.
• Innovation Pipeline: Pratt received FAA certification for GTF Advantage, targeting initial deliveries to Airbus later this year; Raytheon completed prototyping of LTAMDS, transitioning to production.
• Supply Chain: Collins overdue line items down over 20% year-over-year; Raytheon material receipts up eight consecutive quarters.
• Backlog: Exited the quarter with a backlog of $217 billion, up 8% year-over-year, including $125 billion of commercial orders and $92 billion of defense awards.

Segment Performance

• Collins: Sales were $7.2 billion in the quarter, up 8% on an adjusted basis and 9% organically. Adjusted operating profit was $1.2 billion, up $179 million year-over-year. Margins expanded 130 basis points. Full-year outlook: excluding tariff impact, expects low-single-digit sales growth adjusted and mid-single-digit organic, with operating profit growth between $500 million and $600 million versus 2024.
• Pratt & Whitney: Sales of $7.4 billion were up 14% on both adjusted and organic bases. Adjusted operating profit was $590 million, up $160 million year-over-year. Margins expanded 130 basis points. Full-year outlook: excluding tariff impact, expects high-single-digit sales growth adjusted and organic, with operating profit growth between $325 million and $400 million versus 2024.
• Raytheon: Sales of $6.3 billion were down 5% on an adjusted basis (due to cybersecurity divestiture) but up 2% organically. Adjusted operating profit was $678 million, up $48 million year-over-year. Margins expanded 120 basis points. Bookings were $4.4 billion, resulting in a book-to-bill of 0.7. Full-year outlook: excluding tariff impact, expects low-single-digit sales growth adjusted and mid-single-digit organic, with operating profit growth between $150 million and $225 million versus 2024.

Guidance

• Tariffs: Estimated tariff impacts include $250 million for Canada/Mexico, $250 million for China, $300 million for the rest of the world, and $50 million for steel/aluminum, mostly impacting the back half of the year. Mitigations being implemented include temporary imports under bond, duty drawbacks, etc.
• Segment Outlooks: Full-year outlooks consider organic growth and margin targets, with Raytheon expecting low-single-digit adjusted sales growth and mid-single-digit organic, while Collins and Pratt expect high-single-digit organic sales growth.
• Backlog and Markets: Confident in backlog strength; commercial optimistic on aircraft utilization; defense encouraged by funding for key priorities and EU defense spending plans.

Risks

• Tariff Uncertainties: Potential direct impacts on profitability, including supply chain disruptions and customer behavior changes not factored into current guidance.
• Supply Chain Disruptions: Concerns about maintaining material flow and shop operations amidst trade environment changes.

Question and Answer

Q: Peter Arment on defense environment and Raytheon book-to-bill A: Chris Calio stated the EU defense spending presents an opportunity for Raytheon, with expected book-to-bill of 1.0 or more Q: Robert Stallard on tariff net vs gross and pricing A: Chris Calio discussed mitigations and balance in pricing amidst tariff uncertainties Q: Myles Walton on China strategy and supply chain A: Chris Calio talked about supply chain improvements and observing China market dynamics Q: Ronald Epstein on NGAD A: Chris Calio provided updates on NGAP progress with $550 million award and testing feedback Q: Scott Deuschle on SPS fire A: Chris Calio mentioned working with SPS and alternate suppliers to mitigate SPS fire impacts Q: Sheila Kahyaoglu on tariff timing and segments A: Neil Mitchill discussed tariff timing with back-half impact and segment split of $400 million each for Collins and Pratt Q: Seth Seifman on order activity and air traffic A: Neil Mitchill and Chris Calio on customer demand analysis and monitoring buying patterns Q: Jason Gursky on tariff gross impact and procurement reform A: Neil Mitchill on net impact and Chris Calio on support for procurement reform to streamline processes Q: Kristine Liwag on trade discussions and defense budget A: Chris Calio on advocacy for aerospace defense industry and capacity ramp for defense budget Q: David Strauss on V2500 and GTF capacity A: Chris Calio and Neil Mitchill on V2500 shop visits and GTF MRO capacity optimization Q: Doug Harned on Raytheon backlog and Europe A: Chris Calio and Neil Mitchill on Europe opportunity and backlog timing influenced by contractual terms Q: Scott Mikus on Pratt labor negotiation A: Chris Calio on optimism regarding Pratt labor negotiation without disruption Q: Matt Akers on tariff pass-through A: Chris Calio on pricing balance and mitigation limitations in passing through tariff costs Q: Noah Poponak on segment EBIT guidance A: Neil Mitchill on margin outlook and cushion for absorbing potential tariff impacts Q: Gavin Parsons on Raytheon margins A: Neil Mitchill on Raytheon margin expectations and productivity trends