RTX Corporation (RTX) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call revealed raised revenue and EPS guidance, alongside strong free cash flow and segment profit growth expectations. The Q&A section highlighted positive developments in fleet management, defense output, and strategic investments. Despite some conservative guidance and unclear timelines, the overall sentiment was positive, with tailwinds across all segments and a focus on margin expansion and debt reduction. The increased guidance and positive outlook in key areas suggest a positive stock price reaction.
Key Financial Performance
Adjusted Sales $88.6 billion, up $9 billion year-over-year or 11% organically, driven by 10% growth in commercial OE, 18% growth in commercial aftermarket, and 8% growth in defense.
Adjusted EPS $6.29, up 10% year-over-year, driven by drop-through from higher sales.
Free Cash Flow $7.9 billion, up $3.4 billion year-over-year, driven by durable demand for products and services and operational improvements.
Backlog $268 billion, up 23% year-over-year, with $161 billion in commercial orders and $107 billion in defense awards. Commercial backlog grew 29% year-over-year.
Collins Sales $30.2 billion for the full year, with 9% organic sales growth and 30 basis points of year-over-year margin expansion.
Pratt & Whitney Sales $32.9 billion for the full year, with 17% organic sales growth and 20 basis points of year-over-year margin expansion.
Raytheon Sales $28 billion for the full year, with 6% organic sales growth and 130 basis points of year-over-year margin expansion.
Fourth Quarter Adjusted Sales $24.2 billion, up 12% on an adjusted basis and 14% organically, driven by 18% growth in commercial OE, 17% growth in commercial aftermarket, and 10% growth in defense.
Fourth Quarter Adjusted Segment Operating Profit $2.9 billion, up 9% year-over-year, driven by strong segment operating profit growth.
Fourth Quarter Adjusted EPS $1.55, up 1% year-over-year, with strong segment operating profit growth partially offset by higher corporate expenses and a higher effective tax rate.
Fourth Quarter Free Cash Flow $3.2 billion, contributing to the full year free cash flow of $7.9 billion.
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Operating Highlights
GTF Advantage engine: Received EU certification and production cut-in has begun. Expected entry into service later this year.
Hot Section Plus upgrade package: Certification and first installations expected later this year for MRO customers.
Commercial air travel: Global RPKs projected to grow around 5% in 2026, following a 5% increase in 2025.
Defense budgets: NATO allies to increase core defense spending to 3.5% of GDP by 2035. Asia Pacific and Middle East defense budgets projected to grow 3%-4% annually over the next 5 years.
Digital factory initiatives: Connected factories representing over 50% of annual manufacturing hours to digital platforms, reducing aged inventory by 45% at Pratt's Lansing facility and cutting circuit card production cycle times by 35% at Raytheon's Andover facility.
Munitions output: Increased by 20% across critical programs in 2025, with further increases expected in 2026.
RTX Ventures investments: Invested $85 million in 19 companies in 2025, focusing on autonomy, advanced manufacturing, space, and propulsion. Plans to invest $10.5 billion in 2026, including $3.1 billion in CapEx.
Capacity expansion: Significant investments in facilities across the U.S. to support production of munitions, sensors, and commercial/defense platforms.
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Risk or Challenges
Regulatory and Tariff Challenges: Higher tariffs across the business have impacted operating profit, particularly at Collins and Pratt & Whitney. This remains a financial headwind.
Supply Chain and Production Bottlenecks: Efforts to increase production capacity and reduce bottlenecks are ongoing, but challenges in scaling up production for critical programs like munitions and engines persist.
Defense Program Risks: Dependence on large defense contracts, such as the F135 and Patriot systems, exposes the company to risks if there are delays or cancellations in government funding or international orders.
Commercial OE and Aftermarket Mix: The mix of commercial OE and aftermarket sales, particularly in large commercial engines, has created profitability pressures due to higher costs and heavier shop visits.
Pension and Compensation Costs: The company faces headwinds from lower pension income and powder metal-related compensation, which have impacted free cash flow and earnings.
Geopolitical and Economic Uncertainties: Global defense budgets and commercial air travel demand are subject to geopolitical and economic fluctuations, which could impact future orders and revenue.
Investment and CapEx Risks: Significant investments in capacity expansion and technology development, while necessary, carry risks of cost overruns and delayed returns on investment.
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Guidance & Outlook
Revenue Expectations: For 2026, RTX expects adjusted sales to be between $92 billion and $93 billion, representing 5% to 6% organic growth year-over-year.
Earnings Per Share (EPS): Adjusted EPS is projected to be between $6.60 and $6.80 for 2026.
Free Cash Flow: RTX anticipates free cash flow to be between $8.25 billion and $8.75 billion for 2026.
Commercial Air Travel Growth: Global revenue passenger kilometers (RPKs) are projected to increase by around 5% in 2026, following a similar growth rate in 2025.
Commercial Original Equipment (OE) Production: OEM production rates are expected to increase in 2026, particularly for the A320neo, 737 MAX, and 787 platforms, as well as business jet and general aviation aircraft.
Commercial Aftermarket Growth: Sustained growth is expected in the commercial aftermarket segment, supported by an installed base of $105 billion of out-of-warranty aircraft content and an expanding fleet of engines.
Defense Market Trends: Heightened demand for munitions and integrated air and missile defense is anticipated, driven by U.S. and partner countries replenishing inventories and modernizing systems. NATO allies are expected to increase defense spending to approximately 3.5% of GDP by 2035, with defense budgets in Asia Pacific and the Middle East projected to grow 3%-4% annually over the next five years.
Segment-Specific Growth: Collins Aerospace sales are expected to grow high single digits organically, Pratt & Whitney sales are projected to grow mid-single digits, and Raytheon sales are anticipated to grow mid- to high single digits in 2026.
Capital Expenditures (CapEx): RTX plans to invest $3.1 billion in CapEx in 2026, focusing on capacity expansion, factory automation, and production support for growing customer demand.
Operational Improvements: RTX aims to leverage digital solutions and data analytics to enhance productivity, reduce costs, and improve output across its manufacturing facilities.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you provide an update on the GTF fleet management plan and key items to expect going forward?
A:The financial and technical outlook remains on track. AOGs decreased by over 20% from 2025 highs, with MRO output improving significantly. Output was up 39% in Q4, with a 16% reduction in turnaround time and increased repair volume. The company aims to grow MRO output at a similar level in 2026 to further reduce AOGs and improve fleet condition.
Q:How is the company addressing the executive order on defense companies' capital deployment?
A:The company recognizes its responsibility to deliver more and faster. It plans to increase output significantly in 2026, raise CapEx, and maintain dividends. Active engagement with the department continues to align with future needs and strengthen the industrial base.
Q:How is RTX approaching portfolio composition and potential monetization for shareholders?
A:RTX believes its breadth and scale provide a competitive advantage in technology, cost structure, and manufacturing at scale. The company is investing in capacity and technology to meet current and future demands, leveraging its strong balance sheet and innovation capabilities.
Q:Why does the 2026 guidance for Pratt & Whitney's OEM side appear conservative?
A:Large commercial engine deliveries are expected to grow mid- to high single digits in 2026, with a balance between MRO and installs. Investments in capacity, such as a new powder metal tower and forging press, support long-term delivery growth. The company is focused on balancing fleet support and new installs.
Q:Why does Pratt's commercial aftermarket growth slow to high single digits in 2026?
A:Growth is driven by high single-digit increases in Pratt Canada and steady V2500 shop visits. However, there are headwinds from retiring older engines like PW4000s and 2000s. GTF aftermarket growth continues, with margins improving by 1-2 points in 2026.
Q:What is the status of casting output ramp-up at Asheville?
A:The casting foundry investment is in the buildup phase, with production impact expected in the 2028-2029 timeframe.
Q:Can you provide growth details for the Raytheon segment and any changes following administration comments?
A:Raytheon expects mid- to high single-digit growth in 2026, with over half from Land and Air Defense Systems. 85% of 2026 sales are in backlog. The company is collaborating with the department to accelerate output and improve efficiency, focusing on supply chain synchronization and capacity investments.
Q:How is RTX approaching the Golden Dome initiative and space-based interceptors?
A:RTX sees Golden Dome as an opportunity, leveraging its multilayered architecture solutions like Patriot and SPY-6. The company is exploring space opportunities and addressing long lead-time items and supplier capacity to accelerate production.
Q:Which RTX segment has the most potential to exceed guidance?
A:All segments have tailwinds. Collins is focused on cost reduction and productivity, Raytheon benefits from defense demand and productivity improvements, and Pratt is growing the GTF program and aftermarket. Execution and backlog delivery are key to margin expansion and cash conversion.
Q:What is the margin potential for Raytheon Defense and the status of GTF customer compensation payments?
A:Raytheon Defense margins are approaching 12%, with potential to exceed that as international mix and core product demand grow. GTF customer compensation payments are expected to total $2.8 billion by the end of 2026, with a remaining $200 million anticipated.
Q:What is the long-term margin outlook for Pratt & Whitney?
A:Pratt's margins will benefit from strong V2500 demand, GTF aftermarket growth, and durability improvements. The GTF fleet is growing, offsetting V2500 retirements. Spare engine demand remains steady, contributing to aftermarket revenue and profitability.
Q:Does RTX plan to pursue vertical integration to address supply chain bottlenecks?
A:RTX focuses on strengthening the existing supply base and bringing new suppliers into the fold rather than vertical integration. Investments are being made in areas like solid rocket motors and casting suppliers to address bottlenecks.
Q:What are RTX's plans for addressing debt maturities in 2026?
A:RTX plans to repay $3.4 billion in debt maturities in 2026, continuing its focus on debt reduction while maintaining a strong balance sheet.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the timeline for casting output ramp-up at Asheville, only stating that the impact would be felt in the 2028-2029 timeframe. Additionally, while discussing the Golden Dome initiative, management did not elaborate on specific space opportunities, citing confidentiality.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Advantage engine
Andover
Middle East
Nathan
OE aftermarket
OE digit
Pratt Canada
RTX Ventures
RTX sale
Spain
addition
aftermarket digit
area Tucson
basis channel
certification
channel OE
content
customer research
delivery mix
detail outlook
divestiture OE
engine Pratt
equipment
expansion Raytheon
expansion cash
facility
factory
headwind item
interest
item pension
jet
missile family
platform aftermarket
point margin
production Asheville
reduction effort
segment outlook
sustainment volume
system order
tailwind
turbine airflow
RTX Transcript
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Positive1-27
The earnings call reveals strong financial performance, with significant revenue and net income growth, improved operating cash flow, and aggressive debt reduction. The raised guidance for sales and EPS, along with a robust order backlog, suggests positive future prospects. Despite inflationary pressures and supply chain risks, the company's strategic focus and successful HeatSponge projects contribute to an optimistic outlook. The Q&A session supports this sentiment, with no major concerns from analysts. Overall, the positive aspects outweigh the negatives, indicating a likely positive stock price reaction.
RTX Corporation (RTX) Q4 2025 Earnings Call Transcript
Positive1-27
The earnings call revealed raised revenue and EPS guidance, alongside strong free cash flow and segment profit growth expectations. The Q&A section highlighted positive developments in fleet management, defense output, and strategic investments. Despite some conservative guidance and unclear timelines, the overall sentiment was positive, with tailwinds across all segments and a focus on margin expansion and debt reduction. The increased guidance and positive outlook in key areas suggest a positive stock price reaction.
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RTX Corporation (RTX) Q3 2025 Earnings Call Transcript
Positive10-21
The earnings call reflects a positive sentiment, with increased sales outlook, strong aftermarket performance, and significant new awards. Despite a slight EPS guidance reduction due to tariffs, the company's strategic partnerships and production improvements bolster confidence. The Q&A reveals robust demand and margin expansion potential, though supply chain issues pose some risks. Overall, the positive factors outweigh the negatives, suggesting a positive stock price movement.
RTX Slides
RTX Report
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