Raytheon Technologies(RTX) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted sales for Q3 were $22.5 billion, up 12% on an adjusted basis and 13% organically year over year [14] - Adjusted segment operating profit increased by 19% year over year to $2.8 billion, with a consolidated segment margin expansion of 70 basis points [14] - Free cash flow was robust at $4 billion for the quarter, contributing to a full-year outlook of $7 to $7.5 billion [15][18] Business Line Data and Key Metrics Changes - Collins Aerospace reported sales of $7.6 billion, up 8% adjusted and 11% organically, driven by commercial OE sales up 16% and aftermarket sales up 13% [20] - Pratt & Whitney's sales reached $8.4 billion, up 16% on both an adjusted and organic basis, with commercial OE sales up 5% and military engine sales up 15% [22][24] - Raytheon achieved sales of $7 billion, up 10% on both an adjusted and organic basis, with a book to bill ratio of 2.27 and a record backlog of $72 billion [25][26] Market Data and Key Metrics Changes - Global demand for commercial aerospace products remains strong, with passenger air travel projected to grow approximately 5% this year [3] - The defense sector is experiencing increased demand, particularly for munitions and integrated air and missile defense systems [4] Company Strategy and Development Direction - The company is focused on executing commitments and driving performance improvements through its core operating system, resulting in six consecutive quarters of year-over-year adjusted segment margin expansion [7] - Investments of over $600 million in capacity expansion projects are planned to support growth, including a $300 million investment at Raytheon [10] - The company is innovating for future growth, with initiatives such as a hybrid-electric propulsion demonstrator for regional aircraft and advancements in braking systems for the A321XLR [11] Management's Comments on Operating Environment and Future Outlook - Management raised the full-year adjusted sales outlook to a range of $86.5 billion to $87 billion, reflecting strong operational performance and end market strength [16] - The company expects continued top-line growth, margin expansion, and solid free cash flow conversion beyond this year [19] - Management remains confident in meeting the growing needs of U.S. and international customers in the defense sector [4] Other Important Information - The company completed the sale of its actuation business and the Collins Simmons Precision Products business for $765 million [15] - The backlog now stands at $251 billion, up 13% year over year, indicating exceptional demand for products and technologies [5][29] Q&A Session Summary Question: Confidence in delivering LEAP engines to Airbus - Management expressed confidence in executing deliveries and supporting production ramps for Airbus, with a focus on balancing material allocation [34][39] Question: Limitations to growth in Raytheon segment - Management highlighted strong demand and a focus on capacity investments, with ongoing efforts to ensure supply chain health to meet production needs [51][52] Question: Margins in Collins and tariff impacts - Management noted that Collins faced about $90 million in headwinds from tariffs, impacting margins, but efforts are underway to mitigate these effects [96] Question: Expectations for GTF compensation payments - Management confirmed that the financial outlook for GTF compensation payments remains consistent, with no changes to the timing of expected reductions in AOG levels [93] Question: Incremental margins in Collins - Management acknowledged that incremental margins were impacted by tariffs, but the team is working to improve productivity and mitigate these headwinds [96]