RTX Corporation Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Delivered solid second quarter results with 9% organic sales growth, 12% year-over-year segment operating profit growth, and backlog at $236 billion up 50% year-over-year.
• Free cash flow was approximately breakeven due to May work stoppage at Pratt, expected to recover in second half. Q2 book-to-bill was 1.86.
• Strategic priorities: Executing commitments (GTF fleet management, isothermal forging output up, MRO output improvement at Pratt, Raytheon ramping production on key programs). Innovating for future growth (partnerships with Shield AI and Kongsberg, leveraging data analytics/AI platform). Portfolio shifts (sold Collins/Siemens Precision Products and actuation business, raised dividend by 8%).

Segment Performance

• Collins: Sales were $7.6 billion in the quarter, up 9% on adjusted and organic basis. Commercial aftermarket sales were up 13% driven by mods, upgrades, parts/repair, and provisioning. Defense sales up 11% due to higher volume on multiple programs. Commercial OE sales up 1% with higher volume on 787 offsetting lower 737 MAX volume. Adjusted operating profit was $1.2 billion, up $104 million.
• Pratt & Whitney: Despite a 4-week work stoppage, sales were $7.6 billion, up 12% adjusted and organic. Commercial aftermarket up 19%, Commercial OE up 15%, Military engines flat. Adjusted operating profit was $608 million, up $71 million.
• Raytheon: Sales were $7 billion, up 6% adjusted and organic. Bookings were $9.4 billion, resulting in a book-to-bill of 1.35 and backlog of $63.5 billion. Adjusted operating profit was $809 million, up $100 million.

Guidance

• Adjusted sales outlook raised to $84.75 billion to $85.5 billion from prior $83 billion to $84 billion, reflecting 6%-7% organic sales growth.
• Adjusted EPS range revised to $5.80 to $5.95 from prior $6 to $6.15, incorporating tariff impacts and cost discipline.
• Free cash flow outlook maintained at $7 billion to $7.5 billion for the full year.

Risks

• Tariff impacts: Initial tariff cost outlook reduced from $850 million to $500 million, but ongoing fluid trade environment remains a risk.
• Supply chain and work stoppages: Pratt work stoppage in May impacted free cash flow, though expected to recover.
• International geopolitical uncertainties: Affecting demand and trade dynamics in certain regions.

Q: Jason Gursky of Citi asked about Raytheon's multiyear outlook and converting pipeline to revenue.

A: Chris Calio responded on strong demand for Raytheon, backlog growth, key regions like Europe and INDOPACOM, and ramping production on key programs with investments in capacity.

Q: Robert Stallard of Vertical Research inquired about Q2 vs Q1 developments and demand from U.S. airlines.

A: Chris Calio discussed tariff mitigation efforts reducing tariff costs, stable demand in commercial aftermarket with strong shop visits, and Scott Deuschle's question on tariff impact decline in 2026 was addressed by Neil Mitchill emphasizing ongoing mitigation strategies.

Q: Myles Walton of Wolf Research asked about tariff assumptions and R&D tax benefit.

A: Neil Mitchill clarified tariff assumptions on current rates, R&D tax benefit with permanent restoration of R&D expensing, and expected cash benefit from tax legislation.

Q: Ron Epstein of Bank of America asked about OE production rates and Airbus A350 impact.

A: Neil Mitchill and Chris Calio discussed stability in Boeing narrow-body and wide-body rates, Collins OE growth, and A320 ramp with material allocation between MRO and production.

Q: Kristine Liwag of Morgan Stanley asked about long-term free cash flow.

A: Neil Mitchill talked about free cash flow recovery from Pratt strike, delivery milestones, receivables collection, and tax legislation benefits contributing to operational free cash flow.

Q: Douglas Harned of Bernstein asked about Raytheon margins.

A: Neil Mitchill discussed margin improvement from mix, productivity, and international demand contributing to moving towards 12%+ margins.

Q: Scott Mikus of Melius Research asked about Pratt's GTF hot section plus offering.

A: Chris Calio explained customer-by-customer determination on cost coverage and expected time on wing benefits from retrofits.

Q: Noah Poponak of Goldman Sachs asked about aftermarket MRO capacity and R&D cash.

A: Christopher Calio highlighted GTF MRO output growth and Neil Mitchill discussed R&D tax benefits from new regulation and sustained cash tax benefits from U.S. R&D expenditures.