The RTX Second Quarter 2024 Earnings Conference Call began with an introduction from the operator, followed by a reminder about the recording and webcast of the call. The company's President and CEO, Chris Calio, highlighted the strong operational and financial performance in the second quarter, including a 10% organic growth in adjusted sales and a 9% increase in adjusted EPS. The company also saw growth in backlog and ended the quarter with a book-to-bill ratio of 1.25.

The company had notable contract wins in the quarter, including a 10-year agreement to support Air Canada's 787 fleet, a multibillion-dollar award for the U.S. Air Force, and a $639 million award for SPY6 radar production. Germany also placed an additional order for Patriot Systems. At the Farnborough Airshow, over 700 GTF engines were ordered, with more expected in the future. The company is making progress on their GTF fleet management plan and remains on track with their financial and operational outlook. They have inspected over 6,000 powder metal parts in the field and their findings are consistent with their fleet management plan. MRO facilities are expanding and PW1100 MRO output increased 10% in the second quarter.

The paragraph discusses the operational performance of the PW1100 fleet, reaching support agreements with customers, and resolving legal matters. It also mentions the termination of a fixed price development contract and the company's strong performance and revised outlook for adjusted sales and EPS. Lastly, it mentions the company's plan to return capital to shareholders.

The speaker discusses the company's strategic priorities, including meeting customer demand, sales growth, margin expansion, and cash flow generation. They highlight examples of operational improvements and investments being made to increase output and meet the demands of the industrial ramp-up. The company is also modernizing its existing footprint through Industry 4.0 initiatives.

RTX has connected 26 factories with digital analytics technology to improve efficiency and output, with plans to connect 40 factories by the end of the year. The company is also investing in research and development to develop innovative solutions in areas such as sustainability, advanced propulsion, and hypersonics. They have recently achieved significant milestones in the development of a hybrid electric demonstrator and have delivered a radar with advanced technology. The company is also investing in digital transformation and AI.

RTX is implementing over 30 new use cases for artificial intelligence and deep learning to increase productivity and cost savings. They currently have over 200 AI use cases in place and are using AI to improve their products. Their third priority is to leverage their size and scope to drive value for stakeholders through efficiency and supply chain management. They also prioritize safety, quality, and compliance in all their operations. The company recently announced a leadership change as Steve Tim retires after 28 years with the company.

In the second quarter, Collins Aerospace had a strong performance, with adjusted sales increasing by 8% and segment operating profit growing by 19%. The company also saw growth in all three of its businesses and an expansion of 100 basis points in consolidated segment operating margin. Adjusted earnings per share also increased by 9%, while GAAP EPS included charges related to acquisition accounting adjustments, restructuring, and legal matters.

The company is finalizing agreements with the DOJ and SEC to resolve investigations into defective pricing and improper payments made by Raytheon Company and its joint venture. A pretax charge of $633 million was recorded in the quarter, bringing the total reserves to $959 million. An additional pretax charge of $285 million was recorded for export controls compliance matters. The company will be required to retain independent compliance monitors for 3 years as part of the resolution. The company expects to pay about $1 billion related to these matters this year. These provisions put these issues behind the company financially and they will continue to cooperate with the government and external monitors. The company has also been facing challenges with a fixed price development contract.

In the second quarter, the company recorded a pretax charge of $575 million due to an anticipated termination on one of their Raytheon programs with a foreign customer. Cash flow was strong and the company continued to pay down debt and return capital to shareholders. The company also announced the sale of Collins actuation business and entered into an agreement to sell Collins hoist and winch business for over $500 million. The company has increased their full year adjusted sales outlook and now expects 8% to 9% organic sales growth for the year.

The company is increasing its adjusted EPS outlook by $0.10 on the low end and $0.05 on the high end, with the new range now at $5.35 to $5.45. This is due to lower interest and corporate expenses, higher pension income, and a lower effective tax rate. The free cash flow outlook has been updated to approximately $4.7 billion, taking into account expected cash outflows and improved tax payments. The segment results for Collins show a 10% increase in sales, driven by commercial aftermarket, commercial OE, and defense. Adjusted operating profit also increased by 25% due to higher volume in commercial aftermarket, defense, and commercial OE.

The company expects strong sales growth for Collins, driven by commercial air traffic and defense volume. Pratt & Whitney also saw strong sales growth in all three channels, with commercial lease sales up 33% and military engine sales up 16%. Adjusted operating profit for Pratt & Whitney increased due to higher commercial aftermarket volume and favorable mix. For the full year, Pratt & Whitney expects mid-teens sales growth and continued operating profit growth. Raytheon saw a decline in sales due to a divestiture in the first quarter.

In the second quarter, Raytheon had strong operating results and an updated outlook for the full year. They have a strong position in franchise programs and a growing installed base for commercial aftermarket growth. Their defense capabilities address global threats.

Peter Arment from Baird asked a question about the GTF fleet management plan during an earnings call. Chris Calio, the operator, responded by saying that everything is going according to plan and the key assumptions remain consistent. They are focused on improving MRO output and have seen progress in the first half of the year. Material availability, specifically structural castings, has also seen progress.

Chris Calio discusses how the company is driving output in various areas, including isothermal forging and adding capacity for inspection and machining. He also mentions that they are pleased with the additions to the GTF backlog announced at Farnborough. He addresses concerns about the recent forecast cut from Airbus and explains that their outlook reflects their assessment of where Airbus needs support from them.

The speaker, Chris Calio, discusses the decision to terminate a contract for a classified program that was not within the company's core competency. This was a difficult decision, but it was made in the best interest of both the company and the customer. The decision will allow the company to focus on other programs and allocate resources more effectively.

Sheila Kahyaoglu asks Neil Mitchill about the company's net income and cash flow for the year. He explains that there will be about $7.2 billion in net income and $4.7 billion in cash flow, with some of it being one-time items such as the DOJ, powder metal, and tax. He also discusses the potential outcomes and cash impact of the DOJ case beyond 2024.

Neil Mitchill, speaking on behalf of the company, discussed the changes made to their outlook for the year. He mentioned that the $4.7 billion in free cash flow includes some non-recurring items, and if adjusted, the operational free cash flow would be around $7 billion or higher. Mitchill also provided an update on the company's powder metal outflows, stating that they are currently at $200 million and expected to ramp up. He highlighted the strong organic sustainable cash flow and working capital improvement, with inventory being a use of cash in the first half but expected to turn around in the second half. Mitchill also mentioned the ongoing DOJ investigation and stated that they feel certain about the cash impact this year, as agreements in principle have been reached.

The company is working on finalizing a project with government agencies, which may take a few months. After that, they will have to make payments, but the costs are manageable. The company has reduced shop visit times for the GTF and diverted resources from the V2500 to improve parts availability. However, induction wait times are still long and the company has completed 369 V2500 inductions in the first half of the year.

The company expects to see an increase in shop visits and work scopes in the second half of the year for Pratt & Whitney, particularly in the aftermarket. They are heavily focused on providing support for the V2500 engines and are seeing a reduction in turnaround times for GTF MRO when material is available. However, there is still a large backlog of engines that need to be inducted into the shop. The company is working on improving the supply chain to address this issue.

During a conference call, a question was asked about the expectations for Collins, specifically in the interiors segment. The company's CEO and CFO responded by stating that they have seen significant improvement in the interiors business and expect it to drive growth in the second half of the year. They also mentioned that all segments of Collins have seen strong performance and that they are confident in their free cash flow target for next year. However, they are monitoring certain items that may have implications for 2025.

Chris Calio, the speaker, is discussing the challenges in the aerospace industry, specifically with structural castings. While there has been some improvement in this area, it is still a bottleneck for the industry's ramp-up. The issue is that there are very few companies that specialize in this area, and many in the industry rely on the same players. Despite these challenges, Calio believes that the 2025 cash goal is achievable based on current conditions.

The speaker discusses the company's efforts to improve their supply chain and ensure clear demand signals. They have also deployed their own people to work with suppliers on inspection criteria. The company has seen positive results in operations at Pratt and Collins, with sales and margins beating expectations. However, the company has not updated their profit guidance for these segments, citing some headwinds.

The paragraph discusses the factors contributing to higher product costs for the company, particularly in the defense segments of Pratt & Whitney and Collins. These costs have been partially offset by reductions in corporate spending and other below-the-line items. The company has increased its sales outlook for the year, with the majority of the increase coming from Pratt & Whitney's military business. However, there are also higher production costs and R&D spending in this segment. Collins has also seen a slight increase in sales, mainly from commercial OE, but at a lower rate than previously expected. Overall, the company is confident in its updated outlook for the second half of the year.

Jason Gursky asks about the future of Collins Aerospace and its engine platforms. He mentions that Rolls Royce may re-enter the narrow-body market and that GE has mentioned customer interest in the rise engine. He also mentions a comment made at Farnborough about a potential 25% increase in fuel efficiency for the next generation GTF engine, but it is unclear if this is in comparison to the existing GTF or the overall fleet.

Chris Calio discusses the future of engines in the narrow-body market, stating that the focus in the near term is on the GTF advantage, which has shown good results in testing. In the medium to longer term, the company is investing in key technologies such as composite fan blades and hybrid electric systems. They view hybrid electric as more of an assist in certain flight conditions rather than a complete replacement for traditional engines. The GTF architecture is expected to continue to evolve and improve.

The speaker discusses the company's investments in enabling technologies for the next-generation single-aisle aircraft, with a focus on fuel efficiency, durability, and reliability. They mention their investment in advanced coatings and manufacturing techniques to improve engine durability. The speaker also mentions the company's divestitures and the recent Hoist & Winch deal, but is unable to provide specific numbers at this time. They expect to close the deal in the fourth quarter.

Chris Calio and Matt Akers discuss the recent approval in Italy and the ongoing support for Safran. They also mention their focus on targeted M&A and pruning the portfolio, but nothing is announced at this time. Chris adds that they have a thorough process for evaluating the portfolio and that they are also investing in early-stage companies through RTX Ventures. David Strauss asks about Collins and the impact of the Boeing OE reach, which Chris says has been reduced.

The speaker, Neil Mitchill, is asked to clarify the rate at which the company is building the MAX and 787, and where they currently stand. He responds by saying that they started the year with a more aggressive outlook, but are now in the low 30s in the first half of the year with a calculated increase as the year goes on. They are monitoring the situation and are aligned with the airframers, but are balancing between airline customers and OEMs. The speaker also mentions that they do not like the business model where engine OEMs lose cash on OE sales and have to recoup their investment in the aftermarket, which can create tension when allocating resources.

Chris Calio and Neil Mitchill discuss the need for a broader industry discussion to better align profit drivers between airframers and engine OEMs on future clean sheet aircraft programs. They believe that aligning business models will benefit both the OEMs and customers. They also mention the GTF powdered metal process and the need for engines to come off wing for repairs.

The company has been ramping up production of full life powder metal parts for engines since late last year. This will continue to accelerate into 2025 and 2026. The company is also focusing on isothermal forging production and making decisions on which engines get the full life parts based on factors such as the engine's work scope and operating conditions. As they negotiate with customers, the company's assumptions remain similar, but each negotiation is unique based on the customer's operations.

The agreements made by the company are tailored to specific airline metrics and criteria, but they use the same key assumptions across the board. The company is making progress with the FAA in certifying wide-body first-class seats and ramping up output on the 787 heat exchanger. The heat exchanger had to be moved out of Russia due to conflict and a new supply chain has been set up. The company is starting to ramp up production to meet Boeing's demand. The call has ended and the Investor Relations team is available for follow-up questions.

This summary was generated with AI and may contain some inaccuracies.