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    RTX
    Earnings call· Mar 2025(Q1 FY25)

    RTX Corp RTX

    Apr 22, 2025 Source

    Executive summary

    RTX Q1 FY25 — Strong Operational Performance Amidst Tariff Uncertainty

    RTX delivered a strong operational start to the year, marked by robust organic sales growth and significant segment margin expansion across all businesses. The company made key progress on strategic programs like GTF Advantage certification and LTAMDS production transition. However, the call was dominated by discussions around potential tariff impacts, with management outlining an estimated $850 million pretax operating profit headwind for the full year, net of mitigations, if current trade policies remain in place.

    Highlights

    5

    • Generated 8% organic sales growth in Q1 FY25.

    • Achieved 120 basis points of segment margin expansion in Q1 FY25.

    • Free cash flow improved by over $900 million versus prior year to $792 million in Q1 FY25.

    • GTF PW1100 MRO output increased 35% year-over-year and 14% sequentially in Q1 FY25.

    • Total backlog grew 8% year-over-year to $217 billion as of Q1 FY25.

    Concerns

    2

    • Estimated direct tariff impact of $850 million on pretax operating profit for FY25 if current rates persist.

    • Raytheon's in-quarter book-to-bill ratio was 0.7, below 1.0.

    Guidance & targets

    10
    CategoryTargetConfidence
    Collins Sales Growth
    low single digits adjusted, mid-single digits organically
    medium materiality
    High
    Collins Operating Profit Growth
    $500 million and $600 million
    medium materiality
    High
    Pratt & Whitney Sales Growth
    high single digits adjusted and organic
    medium materiality
    High
    Pratt & Whitney Operating Profit Growth
    $325 million and $400 million
    medium materiality
    High
    Raytheon Sales Growth
    low single digits adjusted, mid-single digits organically
    medium materiality
    High
    Raytheon Operating Profit Growth
    $150 million and $225 million
    medium materiality
    High
    GTF PW1100 MRO Output Improvement
    over a 30% improvement
    high materiality
    High
    Raytheon Book-to-Bill
    1.0 or more
    high materiality
    High
    V2500 Shop Visits
    800
    medium materiality
    High
    FY25 Investment in U.S. Industrial Base
    $2 billion
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Collins
    Sales up 8% on an adjusted basis. Driven by strength in commercial aftermarket and defense. Higher A220, regional, and 787 OE volume partially offset by lower 737 MAX volume. Adjusted operating profit of $1.2 billion was up $179 million versus prior year.
    Commercial aftermarket sales: up 13%Parts and repair: up 15%Mods and upgrades: up 18%Provisioning: up 1%Defense sales: up 10%Commercial OE sales: up 2%
    		$7.2 billion9% organically—130 basis points expansion
    Pratt & Whitney
    Sales up 14% on an adjusted basis, with growth across all three channels. Commercial aftermarket driven by higher volume and favorable mix across Large Commercial Engines and Pratt Canada. Military engines driven by increased engine deliveries on Tanker program and higher volume on the F135 Engine Core Upgrade program. Commercial OE sales were up against a difficult Q1 2024 compare (+64%). Adjusted operating profit of $590 million was up $160 million versus prior year.
    Commercial aftermarket sales: up 28%Military engines sales: up 4%Commercial OE sales: up 3%
    		$7.4 billion14% organically—130 basis points expansion
    Raytheon
    Sales down 5% on an adjusted basis due to cybersecurity divestiture in Q1 FY24. Organic sales driven by higher volume on land and air defense systems (international Patriot, LTAMDS), partially offset by lower development program volume within air and space defense systems. Adjusted operating profit of $678 million was up $48 million versus prior year, driven primarily by favorable mix and $15 million of improved net productivity.
    Bookings: $4.4 billionBook-to-bill: 0.7Rolling 12-month book-to-bill: 1.35
    		$6.3 billion2% organically—120 basis points expansion

    Operational metrics

    32
    Organic sales growth
    8%YoY
    Q1 FY25

    Company-wide organic sales growth.

    Segment operating margin expansion
    120YoY
    Q1 FY25

    Consolidated segment margin expansion, with strong contributions from each business segment.

    Commercial aftermarket sales growth
    21%YoY
    Q1 FY25

    Organic commercial aftermarket sales growth.

    Commercial OE sales growth
    3%YoY
    Q1 FY25

    Organic commercial OE sales growth on a difficult prior year compare.

    Defense sales growth
    4%YoY
    Q1 FY25

    Organic defense sales growth.

    GTF PW1100 MRO output growth
    35%YoY
    Q1 FY25

    MRO output for PW1100 engines.

    Isothermal forging output growth
    10%vs prior year
    Q1 FY25

    Output after record output last year.

    Collins overdue line items reduction
    20%vs prior year
    Q1 FY25

    Across all suppliers.

    Raytheon material receipts growth
    8 consecutive quartersYoY
    Q1 FY25

    Material receipts were up again, marking 8 consecutive quarters of year-over-year growth.

    Estimated tariff impact (Canada/Mexico)
    $250M
    FY25

    Cost impact assuming USMCA continues.

    Estimated tariff impact (China)
    $250M
    FY25

    Cost impact at current U.S. and China tariff rates.

    Estimated tariff impact (Rest of World)
    $300M
    FY25

    Cost impact.

    Estimated tariff impact (Steel and Aluminum)
    $50M
    FY25

    Cost impact for the year.

    Total estimated direct tariff impact
    $850M
    FY25

    Sum of estimated impacts from Canada/Mexico, China, Rest of World, and Steel/Aluminum tariffs.

    Cash flow tariff impact
    15% to 20% above $850M
    FY25

    Larger drag due to timing of inventory consumption and duty drawback recovery, evenly spread over the rest of the year.

    U.S. product spend with U.S. suppliers
    65%
    Q1 FY25

    About 65% of product spend is with U.S. suppliers.

    Exports exceeding imports
    $12B
    last year

    Net exporter of goods out of the U.S. with exports exceeding imports by over $12 billion last year.

    Adjusted EPS
    $1.47up 10% YoY
    Q1 FY25

    Adjusted earnings per share.

    GAAP EPS from continuing operations
    $1.14
    Q1 FY25

    GAAP earnings per share.

    Capital returned to shareowners
    $890M
    Q1 FY25

    Returned $890 million of capital to shareowners during the quarter, primarily through dividends.

    Commercial aftermarket parts and repair growth
    15%
    Q1 FY25

    Growth in parts and repair within Collins commercial aftermarket.

    Commercial aftermarket mods and upgrades growth
    18%
    Q1 FY25

    Growth in mods and upgrades within Collins commercial aftermarket.

    Commercial aftermarket provisioning growth
    1%
    Q1 FY25

    Growth in provisioning within Collins commercial aftermarket.

    Commercial aftermarket growth
    28%
    Q1 FY25

    Commercial aftermarket sales growth.

    Military engines sales growth
    4%
    Q1 FY25

    Military engines sales growth.

    Raytheon operating profit drivers
    $15M
    Q1 FY25

    Operating profit driven primarily by favorable mix and $15 million of improved net productivity.

    Raytheon classified awards
    $650M
    Q1 FY25

    Key awards in the quarter included about $650 million of classified awards.

    Raytheon Netherlands air and missile defense awards
    $750M+
    Q1 FY25

    Key awards in the quarter included over $750 million for Netherlands' air and missile defense capabilities.

    Raytheon Evolved Sea Sparrow Missile orders (Japan)
    $250M
    Q1 FY25

    Key awards in the quarter included about $250 million of Evolved Sea Sparrow Missile orders for Japan.

    V2500 shop visit inductions growth
    7%YoY
    Q1 FY25

    V2500 shop visit inductions were up 7% year-over-year in Q1.

    V2500 aircraft retirements
    11
    Q1 FY25

    11 retirements of V2500-powered aircraft in the first quarter.

    NGAP award
    $550M
    Q1 FY25

    Award received in Q1 to continue to progress on NGAP.

    Industry KPIs

    5
    MetricValueDetails
    Book to bill ratio0.7
    Total company backlog$217BUSD
    Defense program awards$750M+USD
    Aftermarket services split21%%
    Production capacity expansion$60MUSD

    Orderbook & backlog

    3
    Total backlog$217BQ1 FY25

    up 8% YoY

    Commercial orders backlog$125BQ1 FY25
    Defense awards backlog$92BQ1 FY25

    Product announcements

    3
    ProductTypeDetails
    GTF Advantage enginemilestone
    GTF Advantage upgrade packageroadmap
    Lower-tier air and missile defense sensor (LTAMDS)milestone

    Deals & partnerships

    1
    CollinsSale of actuation business

    On the sale of the actuation business at Collins, we continue to make good progress on key milestones and are working through the remaining items required to close.

    Capital programs

    2
    Raytheon Tucson expansion projectcompleted$60M

    Benefit: significantly increase capacity to support growing effector demand

    Raytheon completed a $60 million expansion project in Tucson, Arizona, which will significantly increase capacity to support growing effector demand.

    Pratt & Whitney Asheville foundry expansionkicked off$285M
    Start: Q1 FY25

    Benefit: expand foundry, support growing demand and maintain a competitive cost structure for turbine airfoil production

    Pratt has kicked off a $285 million investment to expand our foundry in Asheville, North Carolina. This is part of our broader turbine airfoil production strategy to support growing demand and to maintain a competitive cost structure.

    Risks & headwinds

    4
    Potential direct tariff impactsFY25, mostly in back half of the year

    $850 million pretax operating profit for FY25 (net of mitigations), with a larger cash flow drag (15-20% above $850M)

    Mitigation: Regulatory mechanisms (temporary imports under bond, duty drawbacks, free trade zones), contractual and pricing actions, operational changes (leveraging different suppliers and assembly sites).

    Customer reaction and supply chain/operational disruptions from tariffs

    Not included in $850M estimate, difficult to assess

    Mitigation: Monitoring closely, accelerating efforts to develop multiple global sources for supply chain resilience.

    Commercial aerospace customer sentimentApproaching busy summer travel season, later part of the year

    Not quantified, but closely monitored

    Mitigation: Closely monitoring consumer sentiment and buying patterns, have a playbook for pricing actions if softening occurs.

    Pratt & Whitney labor negotiationVote on contract in early May

    Not quantified

    Mitigation: Optimistic for agreement without interruption given long-standing relationship and high demand, strong track record of reaching agreements.

    What to watch in Q2 FY25

    5

    GTF PW1100 MRO output

    next quarter
    Currentup 35% YoY, 14% sequentially in Q1
    Targetcontinued improvement towards >30% for full year

    Why it matters

    Key enabler for reducing AOGs and demonstrating progress on GTF fleet management plan.

    Starting with the GTF program, PW1100 MRO output was up 35% year-over-year and 14% sequentially, and we remain on track for over a 30% improvement for the full year.

    Q&A highlights

    5

    How does the ReArm Europe effort impact Raytheon, and does Raytheon still expect a book-to-bill above 1.0 for the year?

    Chris Calio confirmed the EU's increased defense spending presents a clear opportunity for Raytheon, especially in integrated air and missile defense systems, given their strong European installed base and partnerships. He reiterated the expectation for Raytheon's book-to-bill to be 1.0 or more for the full year, despite some timing issues.

    “We expect a book-to-bill of 1.0 or more.”

    asked by Peter Arment · answered by Christopher Calio

    2 min read6 chapters

    Detailed Narrative

    01

    Tariff Impact and Mitigation Strategies

    Management detailed the potential direct impact of tariffs, estimating an $850 million pretax operating profit headwind for FY25, net of mitigations, if current rates persist. This includes $250 million from Canada/Mexico, $250 million from China, $300 million from the rest of the world, and $50 million from steel/aluminum. The impact is expected to be back-half loaded⚖️, with a larger cash flow drag due to duty drawback timing. The company is implementing regulatory, contractual, and operational mitigations, acknowledging the newness of these processes in a previously duty-free environment.

    02

    GTF Program Advancements

    Pratt & Whitney received FAA certification for the GTF Advantage engine, which is expected to provide up to 2x the time on wing and will enter service with full life LLPs. Initial deliveries to Airbus are on track for later this year. An upgrade package for the existing fleet, incorporating 90-95% of durability improvements, is targeted for availability next year during MRO visits. PW1100 MRO output was up 35% YoY and 14% sequentially, on track for over 30% improvement for the full year, with continued improvement in in-shop turnaround times.

    03

    LTAMDS Program Transition to Production

    Raytheon completed the prototyping and development phase of the Lower-Tier Air and Missile Defense Sensor (LTAMDS) program. This system offers advanced 360-degree performance and more than twice the tracking range of the existing Patriot radar. The program is now transitioning into production and deployment, with deliveries to the U.S. this year and next, followed by European customers, enhancing protection against complex threat scenarios.

    04

    Supply Chain Resilience and Improvements

    The company reported steady improvements in its supply chain. Collins saw overdue line items across all suppliers decrease over 20% YoY. Raytheon's material receipts grew for the eighth consecutive quarter. Isothermal forging output was up over 10% YoY. Management emphasized staying closely aligned with suppliers to prevent disruptions and noted accelerated efforts to develop multiple global sources for supply chain resilience, a process hastened by lessons from COVID.

    05

    Defense Market Opportunities and Global Spending

    RTX sees significant opportunities from increased global defense budgets, particularly the European Union's push for an additional $850 billion in defense spending over the next 4 years, focused on munitions and integrated air and missile defense products. The company's core capabilities (Patriot, NASAMS, Coyote, F-35) and strong international coproduction agreements position it well to meet this demand, with specific examples like the MBDA partnership on GEM-T.

    06

    Strategic Capital Investments

    RTX plans to invest another $2 billion in its U.S. industrial base in FY25. Raytheon completed a $60 million expansion in Tucson, Arizona, to significantly increase capacity for effector demand. Pratt & Whitney initiated a $285 million investment to expand its foundry in Asheville, North Carolina, as part of a broader turbine airfoil production strategy to support growing demand and maintain a competitive cost structure.

    AI-generated summary of the company’s earnings call. Not investment advice.