RTX Corporation (RTX) Earnings

Management highlights

- Overall Financial Performance * Q2 2026 adjusted total sales were $24.7 billion, up 14% year-over-year (16% organically), with double-digit growth in commercial aftermarket and defense. * Adjusted EPS was $1.89, up 21% year-over-year, driven by 18% segment operating profit growth. * Free cash flow was $2.9 billion, supported by higher Pratt engine deliveries and advance payments from international Raytheon customers. * Total company backlog reached a new record of $289 billion, up 22% year-over-year and 6% sequentially. * Completed the sale of Raytheon's Blue Canyon Technologies for $620 million to focus on core capabilities. - Operational Execution Progress * GTF engine aircraft-on-ground (AOG) counts are down 25% year-to-date and continue to decline sequentially, with MRO output up over 40% year-over-year and turnaround time reduced by 23%. * Critical munitions output at Raytheon has more than doubled year-over-year through the first half of 2026, including doubled output for the high-demand Coyote counter-UAS effector. * RTX's connected factory proprietary AI/DI manufacturing platform now includes over 30 million annual manufacturing hours, up 30% since the end of 2025, improving cycle times, quality, and decision-making. - Innovation and Capacity Investment * Raytheon is investing an additional $100 million domestically to expand GEM-T component production and accelerate LTAM test capabilities, and has announced a collaboration with NATO nations to add European suppliers for AMRAAM components to speed up deliveries. * Pratt & Whitney is investing over $100 million in U.S. facilities to expand GTF MRO capacity and add automated repair capabilities to increase throughput. The GTF Advantage engine received aircraft certification and started deliveries to Airbus, with entry into service planned for late 2026 and full production conversion in 2028. * Collins Aerospace completed a commercial MRO facility expansion in Malaysia to add capacity and advanced automated capabilities, and was down selected to deliver mission autonomy software for the U.S. Air Force's Collaborative Combat Aircraft Program. * A cross-company program to develop a longer-range variant of the Stormbreaker precision effector using a modified Pratt TJ-150 engine has advanced from concept to upcoming flight testing in less than 12 months. - Market Demand Trends * Global commercial passenger travel remains resilient, with low engine retirements supporting strong commercial aftermarket growth. Airframers continue to plan for rate increases in the second half of 2026, driving demand for OE products. * Defense demand remains robust globally: the U.S. 2027 base budget request includes a 25% year-over-year increase to $1.1 trillion with bipartisan support for higher munitions funding, and Raytheon booked over $10 billion in international defense awards in H1 2026, up more than 2x year-over-year, with $7 billion coming from European customers.

Guidance

Management raised full-year 2026 guidance across all key metrics based on strong first-half performance and robust demand: - Full-year adjusted sales guidance is raised by $2.5 billion to a range of $95 billion to $96 billion, translating to 8% to 9% organic sales growth, up from the prior 5% to 6% range. Commercial OE sales are now expected to grow mid-to-high single digits (up from prior mid single digits), commercial aftermarket is expected to grow low double digits (up from prior high single digits), and defense sales are expected to grow high single digits (the upper end of the prior mid-to-high single digit range). - Full-year adjusted EPS guidance is raised to a range of $7.10 to $7.25, from the prior $6.70 to $6.90 range. The increase is driven by higher segment operating profit from volume growth, favorable defense program mix, and improved productivity, primarily at Raytheon. - Full-year free cash flow guidance is raised at the lower bound to a range of $8.5 billion to $8.75 billion, from the prior $8.25 to $8.75 billion. The upper bound was maintained due to timing of Q2 advance payments and planned inventory builds to support future delivery ramps. - Segment-level guidance updates: * Collins: Sales now expected to grow mid-to-high single digits adjusted (high single digits to low double digits organic), up from prior mid single digits. Operating profit growth guidance raised to $550 million to $625 million, up from $425 million to $525 million. * Pratt & Whitney: Sales now expected to grow high single digits, up from prior mid single digits. Operating profit growth guidance raised to $275 million to $350 million, up from $225 million to $325 million. * Raytheon: Sales now expected to grow high single digits to low double digits, up from prior high single digits. Operating profit growth guidance raised to $575 million to $650 million, up from $275 million to $375 million.

Segment performance

1. Collins Aerospace: Q2 2026 adjusted sales were $8.2 billion, up 8% year-over-year (13% organically). Commercial OE sales grew 26%, commercial aftermarket grew 10%, and defense sales grew 7% year-over-year. Adjusted operating profit was $1.4 billion, an increase of $121 million year-over-year. Segment margin expanded 30 basis points year-over-year. Collins accounts for ~33% of RTX's total Q2 adjusted sales. 2. Pratt & Whitney: Q2 2026 adjusted sales were $8.9 billion, up 16% year-over-year (17% organically). Commercial OE sales were down 8% due to mix effects despite higher unit deliveries, commercial aftermarket sales grew 25%, and military engine sales grew 23% year-over-year. Adjusted operating profit was $740 million, an increase of $132 million year-over-year. Segment margin expanded 30 basis points year-over-year. Pratt & Whitney accounts for ~36% of RTX's total Q2 adjusted sales. 3. Raytheon Defense: Q2 2026 adjusted sales were $8.3 billion, up 18% year-over-year on both an adjusted and organic basis, driven by higher volume across land/air defense, naval, and air/space systems programs. Adjusted operating profit was $1 billion, an increase of $234 million year-over-year. Segment margin expanded 100 basis points year-over-year. Raytheon accounts for ~34% of RTX's total Q2 adjusted sales. Raytheon Q2 bookings hit $19.9 billion, for a book-to-bill ratio of 2.42, with 48% of backlog now international, up 4 percentage points year-over-year.

Risks & headwinds

- Uncertainty around the timing and final outcome of the U.S. 2027 defense budget approval process, with an expected continuing resolution (CR) at the start of the fiscal year that could delay contract execution for the signed framework agreements. * Sustained higher-than-expected demand for defense munitions requires significant supply chain expansion, which depends on multi-year contract visibility to encourage supplier investment; constrained existing defense industrial base capacity could limit the pace of output growth if long-term commitments are not finalized. * Commercial aerospace demand could be impacted by broader macroeconomic weakness, which management is still monitoring closely for the commercial aftermarket segment. * OE sales at Pratt & Whitney face ongoing mix headwinds as the company prioritizes material allocation to GTF MRO operations to reduce AOG counts, leading to expected low single digit OE sales decline for the full year.

Analyst Q&A

• Q: What is the current status of Raytheon's 5 signed defense framework agreements, and how could a continuing resolution (CR) at the start of the 2027 U.S. fiscal year impact execution?

  A: Management noted strong bipartisan congressional support for increased munitions funding aligned with RTX's core programs, and framework agreements remain under productive negotiation to convert them into definitive contracts. The agreements have $10 years of significant demand and are not yet included in RTX's backlog. RTX is already prepping by engaging the supply chain, adding secondary/tertiary suppliers to increase capacity both inside and outside the existing defense industrial base. International defense demand remains strong regardless of domestic budget timing, with $10 billion in international awards booked in H1 2026.

• Q: Why was the top end of full-year free cash flow guidance maintained despite a strong Q2, and why is second half organic revenue growth expected to slow relative to the first half?

  A: Strong Q2 free cash flow was driven by timing: it included catch-up collections from the 2025 Q2 Pratt work stoppage and advance payments from large international Raytheon awards, which pulled some cash forward from the second half. The expected revenue slowdown is primarily due to tough year-over-year comparisons: the 2025 Q2 four-week Pratt work stoppage and 2025 Q3 F-135 Lot 18 contract award will not repeat, and Raytheon is lapping a low growth first half 2025 after strong H1 2026 growth. Inventory builds to support future delivery ramps offset the higher segment profit benefit to the top end of the free cash range.

• Q: With Raytheon defense margins already improving significantly, what is the long-term margin opportunity for the segment?

  A: Management stated Raytheon is on track to reach its previously outlined long-term margin potential, driven by favorable demand mix: most current awards are for mature, well-understood programs that support strong productivity. 48% of Raytheon's backlog is now international, which supports better pricing than domestic contracts. The $10 billion+ in unbooked framework agreements, if converted to multi-year contracts, will provide an additional margin tailwind. The segment is already delivering mid-12% margins in 2026 while continuing to invest in new capacity and product development, with room for further expansion.

• Q: What is the outlook for legacy Pratt engine (V2500, PW4000) shop visit demand and GTF aftermarket margins over the medium term?

  A: V2500 shop visit volume and content remain on track, with a relatively young fleet that still has many engines yet to complete first or second shop visits, so it will contribute steady growing revenue through the end of the 2020s. PW4000 is in a planned managed decline aligned with expectations, but will still contribute meaningfully for several years. GTF aftermarket margins are currently low double-digit and on the expected trajectory, with further expansion expected as heavier work scope grows and new engine improvements are introduced over the next few years. Growth in GTF aftermarket will fully offset legacy fleet decline.

• Q: How does RTX approach capital allocation today, and what is its outlook for portfolio strategy?

  A: Management confirmed its long-standing capital allocation priorities are unchanged: first, invest in internal capacity and supply chain to meet strong existing demand across both commercial and defense segments; second, maintain a commitment to the dividend, which was recently raised; third, continue paying down debt to strengthen the balance sheet. RTX remains disciplined on M&A, with clear criteria for businesses that fit its core portfolio, and sees no need for major changes to its current highly complementary portfolio that benefits from cross-company scale and technological synergies.