RTX (RTX) Annotations

Pratt & Whitney

Collins

we remain on track to deliver our full year outlook, including full year sales of between $78 million and $79 billion, which translates to between 7% and 8% organic revenue growth. In addition, we continue to see adjusted earnings per share of between $5.25 and $5.40 and free cash flow of approximately $5.7 billion.

At Raytheon, the business continues to see incredible demand. And as we said on our last call, we're taking actions to advance our key franchises, improve our supply chain and drive margin expansion. In the quarter, Raytheon saw 50 basis points of sequential margin improvement and 20 basis points on a year-over-year basis.

defense side, we delivered 7% growth year-over-year and ended the quarter with a defense book-to-bill of 1.05 and a backlog of $77 billion. We're pleased the fiscal year 2024 spending bills have been enacted and provide $886 billion in defense spending, which is up 3%. But more importantly, the budget supports our key programs and technologies, including next-generation propulsion, critical munitions and upgrades to the F135, ensuring it remains the only engine powering every variant of the F-35 Joint Strike Fighter. The budget also supports investment in key capabilities to address current and future threats such as systems that counter unmanned aircraft and hypersonics, where RTX provides leading technologies. And we are encouraged by the progress on the Ukraine supplemental bill, which the DoD will use to further deepen critical U.S. munition stockpiles, such as TOW, Javelin and Excalibur, and provide needed air defense capabilities to the region with NASAMS and Patriot. Internationally, we continue to see heightened demand from U.S. allies. In the quarter, Raytheon was awarded a $1.2 billion contract to supply Germany with additional Patriot air and missile defense systems.

Commercial OE was up 33% across RTX, driven by continued strong demand for new aircraft. And commercial aftermarket was up 11% as we continue to see strong growth in both domestic and international RPKs. So clearly, the commercial aero demand is there. But as you all know, the industry is still working through supply chain constraints and other challenges, which is leading to some OE production rate uncertainty. And this will continue to be a watch item for us for the year.

we now see Raytheon's 2020 to 2025 annual growth rate to be between 1% and 2.5%, which is down from our prior outlook of between 5.5% to 7.5%.

Thanks, Myles, Good morning. Let me start. Let me maybe start to frame the answer to that question with a little bit of an updated walk between '23 and '25 on free cash flow to get to the $7.5 billion. And then I'll talk about what obviously offset the reduction in the profit as part of that. So as we look from '23 of $5.5 billion, that $2 billion increase is going to come principally from what I would call operational growth, about $4.8 billion, $2.9 billion of which is going to come from the segment operating profit, and Neil pointed out that, that will be lower than our prior guide, and that's around the midpoint. The remaining growth is going to come from working capital improvement, about $2.2 billion, about half of which we will deal with here in '24 as we look to hold our inventory flat. So our '23 headwind operationally was about $1 billion -- $600 million rather. So we're looking year-over-year to improve that. And then we'll have about a half of -- I'm sorry, $400 million of CapEx between '23 and '25. So that will be a headwind. And then I just talked about the $1.5 billion powder metal impact and about $1 billion headwind that's split pretty evenly between -- sorry pretty evenly between interest and improvement in taxes. And then, finally, a few hundred million dollars of pension headwind. All of that should get you to $7.5 billion. So what's changed as we look out to 2025, there's been really 3 things that are different. The first is, we've got about $1 billion net of tax lower operating profit baked into this long-term guide, but that's been offset by about $700 million of improvement in taxes, most notably on the back of improvements in our R&D position as well as a couple of hundred million dollars based on the assumptions we see today with respect to our pension outlays and then a little bit of additional working capital. So those are the key drivers.

So your cash flow hit from a powdered metal issue is $300 million higher in you said, can you tell us how big was the impact in '23? And are we still going to be at $3 billion, and therefore, there's a plus of $300 million pickup in '25? Neil Mitchill It's Neil. Yes, I'll take that one. So as Chris was just talking about, when we closed out '23, for a variety of reasons, the cash flows shifted to the right. So the impact in '23 for powder metal related disbursements was essentially 0. So we moved about half of that into 2024. That's the $1.3 billion that you're seeing, still holding $1.5 billion in our '25 outlook, and then we see the rest spilling into early 2026. And so we'll continue to work, obviously, the agreements with our customers, and that will drive the ultimate timing of the payments, but you can see our assumptions that we've laid out there.

We're actually having those discussions, Doug. I've been part of many of them. Again, customer by customer, looking at their engines by serial number. Again, because you've got to look at the cycle times on those and bounce them off against the fleet management plan, so it's a rigorous, thorough process, but we're having those conversations with customers so they understand their specific impacts. As we said back on the September call, the lion's share of these incremental shop visits that we're going to have, the 600 to 700 in that '23 to '26, but 2/3 of those are '23 and relatively early in '24. That's what causes that bow wave, Doug, that peak of 650 AOGs. And I think we talked earlier about when we're going to provide some of those service bulletins and the ADs that are going to follow on. So those communications are happening, but you're going to see that impact early in '24.

Pratt & Whitney

So I think I mentioned earlier in the conversation, we've seen about $3 billion of orders so far related to Ukraine replenishment. And that's really the replenishing U.S. war stocks. We expect another $4 billion of orders in the next 2 years.

We are comfortable with our $7.5 billion 2025 free cash flow target that we've talked about.

ou heard Neil talk about the 1.17 book-to-bill in the quarter -- or excuse me, year-to-date, the $7.4 billion in bookings in the quarter and the overall backlog of $50 billion. So really strong demand for the products. That said, we have had some headwinds. We've had some inflation hitting some fixed-price programs. We've had a handful of challenging fixed-price development contracts that have been a bit of a drag. That said, we have had some productivity gains in certain areas. As you might suspect, those mature, higher-volume programs. We have had some efficiency gains by leveraging supply chain with larger buys. And as we look forward, the supplier volume is growing. Labor attrition rates are decreasing, frankly, stabilizing. So those are some very positive signs as kind of we look forward in the defense business. And I will say we just need to get through key milestones on those fixed price development contracts. We've talked about those on several calls now. And we've got some key milestones coming up over the next 12 months or so that we've got to hit and get these programs through those milestones and then, ultimately, sold off.

On the defense side, we continue to expect strong international and domestic demand, which has already driven a 2023 year-to-date book-to-bill of 1.22 and a record defense backlog that will continue to convert to solid growth over the next several years. While inflation has begun to moderate, there are still pockets that remain persistently high within our manufacturing base. We expect this to continue into the next year. We'll continue working all the mitigation actions we've had in place in the past 2 years, and we'll implement additional strategic initiatives to offset the pressure we expect to see in 2024.

For the full year, we continue to expect sales to be up low to mid-single digits. With respect to operating profit, while the supply chain continues to improve, as evidenced by the increase in material receipts we have seen in the last 3 quarters, Raytheon continues to have productivity and mix challenges. This stemmed from a combination of the fixed price development programs we have previously discussed as well as higher production costs. As a result, we're reducing Raytheon's adjusted operating profit from the prior range of up $125 million to $175 million to a new range of up $25 million to $75 million versus the prior year.

For the full year, given the continued strength in commercial OE and aftermarket, we now expect Collins' sales range to be up low to mid-teens, an increase from the previous range of up low double digits to low teens. With respect to operating profit, we are maintaining adjusted operating profit in our prior range of up $825 million to $875 million versus the prior year.

Looking ahead, due to higher commercial OE and military volume, we now expect Pratt's adjusted sales to be towards the higher end of our prior range or up mid-teens versus prior year.

Collins

Our backlog is now a record $190 billion, with a pipeline of both existing franchises and new technology developments.