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 to $2.8 billion, up 19% year over year, 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, with commercial OE sales up 16% and commercial aftermarket sales up 13% [20] - Pratt & Whitney's sales reached $8.4 billion, up 16% on both an adjusted and organic basis, driven by a 5% increase in commercial OE sales and a 23% increase in commercial aftermarket sales [22][24] - Raytheon reported sales of $7 billion, up 10% on both an adjusted and organic basis, with adjusted operating profit of $859 million, up $198 million year over year [25] Market Data and Key Metrics Changes - The book-to-bill ratio for the quarter was 1.63, resulting in a backlog of $251 billion, up 13% year over year [7][28] - New awards in the quarter totaled $37 billion, with $23 billion in defense and $14 billion in commercial orders [7] Company Strategy and Development Direction - The company is focused on executing commitments and driving performance improvements through its core operating system, achieving 10% organic sales growth while keeping headcount flat [8] - 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 leveraging data analytics and AI tools to improve productivity and decision-making across its operations [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength of global demand for products and services, particularly in commercial aerospace, with passenger air travel expected to grow approximately 5% this year [4] - The full-year adjusted sales outlook has been raised to a range of $86.5 billion to $87 billion, reflecting strong operational performance and end-market strength [16] - Management anticipates continued top-line growth, margin expansion, and solid free cash flow conversion beyond the current year [19] Other Important Information - The company completed the sale of the actuation business and the Collins Simmons Precision Products business for $765 million [15] - The company is on track to achieve a free cash flow outlook of $7 billion to $7.5 billion for the year, driven by segment operating profit growth and working capital improvement [18] Q&A Session Summary Question: Confidence in delivering LEAP engines to Airbus - Management indicated strong execution and support for production ramps, with a focus on balancing material allocation to meet delivery targets [32][38] Question: Limitations to Raytheon segment growth - Management highlighted strong demand with a book-to-bill of 2.27, but emphasized the need for a healthy supply chain to meet production increases [44][45] Question: Collins margins and tariff impacts - Management acknowledged a $90 million headwind from tariffs affecting Collins margins, but noted ongoing efforts to mitigate these impacts [85] 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 [80] Question: Incremental margins in Collins - Management attributed weaker incremental margins to tariff impacts, with ongoing efforts to improve productivity and efficiency [85] Question: Top line and bottom line moving pieces for Pratt - Management clarified that the uptick in revenue outlook for Pratt is driven by a mix of spare engines and increased defense contracts, with expectations for continued MRO output growth [90]