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RTX Corp Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- Adjusted operating profit is expected to be up between $150 million and $225 million YoY, driven by drop through on higher volume, favorable contract mix, and improved net productivity.
- Adjusted EPS was up 13% YoY to $5.73.
- Adjusted sales were up 11% organically in 2024, driven by 14% growth in commercial OE, 13% growth in commercial aftermarket, and 9% organic growth in defense sales.
- Commercial OE sales were up 31% in Q4, primarily driven by increased deliveries and favorable mix in large commercial engines.
- The company is uniquely positioned to deliver capabilities at scale due to its ability to rapidly bring new technology to production and meet rigorous customer requirements.
- The company expects a $0.16 headwind from other items, which is primarily comprised of $0.06 of higher corporate expenses as they invest in their digital systems and capabilities and $0.05 of higher taxes.
- The company expects a headwind of roughly $0.07 associated with the divestitures they completed last year and the expected actuation divestiture this year.
- Adjusted operating profit is expected to be up between $150 million and $225 million YoY, driven by drop through on higher volume, favorable contract mix, and improved net productivity.
- Commercial OE sales are expected to be up mid single digits, partially offset by impacts from the expected timing of customers' production ramps.
- Operating profit growth of 12% is expected to drive approximately $0.66 of EPS growth.
- The company expects full-year 2025 adjusted sales to be between $83 billion and $84 billion, which translates to organic growth of between 4% and 6% YoY.
- The company expects a $0.16 headwind from other items, primarily comprised of $0.06 of higher corporate expenses as they invest in their digital systems and capabilities and $0.05 of higher taxes.
Q&A Highlights from RTX Corp Earnings Call Q4 2024
- Analyst asked about the company's cash expectation for spending in 2025 and whether they are still on track for an $800 million to $1 billion step-down in 2026.
- Christopher T. Calio, President and CEO of RTX Corporation, explained that the outlook remains consistent, and the underlying technical and inspection assumptions all remain intact. He mentioned that AOGs have been stable, and MRO output is the key enabler, with PW1100 output up 30% in 2024. The company plans to ramp output to bend the curve, with a focus on bending the AOG curve to get assets back into customers' hands as quickly as possible. The supply chain is also instrumental in helping the company achieve its goals, with structural castings and isothermal forgings output up significantly. The company aims to achieve 100% focus on bending the AOG curve.
- Christopher T. Calio, President and CEO of RTX Corporation, explained that the outlook remains consistent, and the underlying technical and inspection assumptions all remain intact. He mentioned that AOGs have been stable, and MRO output is the key enabler, with PW1100 output up 30% in 2024. The company plans to ramp output to bend the curve, with a focus on bending the AOG curve to get assets back into customers' hands as quickly as possible. The supply chain is also instrumental in helping the company achieve its goals, with structural castings and isothermal forgings output up significantly. The company aims to achieve 100% focus on bending the AOG curve.
- Analyst asked about the company's international mix and the uplift that's coming from the international side, along with opportunities on the replenishment side with the new administration.
- Christopher T. Calio, President and CEO of RTX Corporation, stated that the demand for the company's products continues to be strong, with a $63 billion backlog and a 1.48 book-to-bill. The company's products are in operation in 30-plus systems in conflicts, defending the US and its allies. In the US, it's about replenishment, while in Europe, it's about integrated air and missile defense, continuing to replenish effectors like GEM-T, AMRAAM, and the like. In Asia-Pac, it's more on naval munitions, the standard family, SM-3, and SM-6, continuing to ramp up. The company continues to see international demand be very strong, with NATO countries committing or spending above the 2% target, and think of what's happening in Poland, which is coming up on almost 5%. International demand remains strong, and the company sees it as a tailwind for their business.
- Christopher T. Calio, President and CEO of RTX Corporation, stated that the demand for the company's products continues to be strong, with a $63 billion backlog and a 1.48 book-to-bill. The company's products are in operation in 30-plus systems in conflicts, defending the US and its allies. In the US, it's about replenishment, while in Europe, it's about integrated air and missile defense, continuing to replenish effectors like GEM-T, AMRAAM, and the like. In Asia-Pac, it's more on naval munitions, the standard family, SM-3, and SM-6, continuing to ramp up. The company continues to see international demand be very strong, with NATO countries committing or spending above the 2% target, and think of what's happening in Poland, which is coming up on almost 5%. International demand remains strong, and the company sees it as a tailwind for their business.
- Analyst asked about the tailwind for Pratt this year and how to think about it from a financial perspective.
- Neil G. Mitchill Jr. stated that the Engine Core Upgrade on the F135 program and the work that RTX is doing for Pratt have resulted in mid-single-digit growth for the military side of their business, making it a tailwind for Pratt. He also mentioned that the aftermarket remains strong, and the older aircraft continue to fly, which is a positive sign.
- Neil G. Mitchill Jr. stated that the Engine Core Upgrade on the F135 program and the work that RTX is doing for Pratt have resulted in mid-single-digit growth for the military side of their business, making it a tailwind for Pratt. He also mentioned that the aftermarket remains strong, and the older aircraft continue to fly, which is a positive sign.
- Analyst asked about the impact of the $350 million EBIT growth on Pratt's free cash flow bridge, considering negative engine margin, increased investment in GTFA, and aftermarket incrementals.
- Neil G. Mitchill Jr. stated that he would start with the OE top line and then move to the FCF bridge.
- Neil G. Mitchill Jr. stated that he would start with the OE top line and then move to the FCF bridge.
- Analyst asked about the impact of the age of the fleet on Collins' aftermarket growth and the number of large engine deliveries at Pratt.
- The age of the fleet is supporting growth in the aftermarket at Collins. The company expects that the number of planes that are coming off warranty will affect aftermarket growth at Collins. The company also expects to continue to provide tailwind to the Pratt installed base, which has a $160 billion installed base.
- The age of the fleet is supporting growth in the aftermarket at Collins. The company expects that the number of planes that are coming off warranty will affect aftermarket growth at Collins. The company also expects to continue to provide tailwind to the Pratt installed base, which has a $160 billion installed base.
- Analyst asked about the opportunity for Raytheon Technologies if Iron Dome is put up in the United States.
- Raytheon Technologies is a major partner in Israel's Iron Dome and is ready to engage on this opportunity as it takes shape over the study period. The company views this as a significant opportunity for them, something right in their wheelhouse.
- Raytheon Technologies is a major partner in Israel's Iron Dome and is ready to engage on this opportunity as it takes shape over the study period. The company views this as a significant opportunity for them, something right in their wheelhouse.
- Analyst asked about the disaggregation of provisioning versus repair in Collins' business and the potential impact of destocking on spare parts.
- Neil G. Mitchill Jr., RTX Corporation's CEO, responded by stating that they haven't seen any significant destocking, and the aftermarket growth for the last several years has been tremendous. He further explained that Collins' business is still seeing parts and repair up in the high single digits, while provisioning is in line with the OE growth, mid-single digits. He also mentioned that mods and upgrades are expected to be strong for Collins in 2025, with over 10% growth, and that the installed base of $160 billion at Pratt is also significant.
- Neil G. Mitchill Jr., RTX Corporation's CEO, responded by stating that they haven't seen any significant destocking, and the aftermarket growth for the last several years has been tremendous. He further explained that Collins' business is still seeing parts and repair up in the high single digits, while provisioning is in line with the OE growth, mid-single digits. He also mentioned that mods and upgrades are expected to be strong for Collins in 2025, with over 10% growth, and that the installed base of $160 billion at Pratt is also significant.
- Analyst asked about the certification timing for the new business class seats at Collins.
- The company does not want to get ahead of their customers and will provide updates as they become available. However, they are expecting commercial OE growth in the mid-single digits. The company's focus is on working with the supply base to ensure they are in sync and have the necessary capacity to continue ramping up. They have protected long lead items in case the ramp is greater than expected. On the seating question, the company has a path forward for certification and is working through testing.
- The company does not want to get ahead of their customers and will provide updates as they become available. However, they are expecting commercial OE growth in the mid-single digits. The company's focus is on working with the supply base to ensure they are in sync and have the necessary capacity to continue ramping up. They have protected long lead items in case the ramp is greater than expected. On the seating question, the company has a path forward for certification and is working through testing.
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