The paragraph is a transcript from the RTX Third Quarter 2024 Earnings Conference Call. The operator, Latif, introduces the call and mentions the presence of key executives: Chris Calio (CEO), Neil Mitchell (CFO), and Nathan Ware (VP of Investor Relations). The call is being webcast and a presentation is available on the RTX website. The company will discuss results excluding certain accounting adjustments and significant items, while also cautioning that earnings and cash flow expectations are subject to risks. Listeners are advised to limit their questions to one per person. Chris Calio highlights strong performance in the quarter, with 8% organic sales growth driven by demand in commercial aftermarket and defense, 100 basis points of segment margin expansion, and $2 billion in free cash flow.

The company has raised its full-year outlook for adjusted sales and EPS due to strong performance, having returned $10.3 billion to shareholders through an accelerated share repurchase program, with a total of over $32 billion returned since the merger. Demand remains strong, reflected in a record $221 billion backlog and a book-to-bill ratio of 1.8. The quarter saw significant achievements, including Raytheon securing $16.6 billion in awards due to high global demand for defense capabilities, with notable contracts like $3 billion for Patriot and GEM-T, and $1.9 billion for LTAMDs. Pratt received a $1.3 billion contract for enhancing the F135 engine core for the F-35.

The paragraph discusses two main topics. First, Collins received a $470 million FAA contract to enhance its air traffic control automation system, which is used in over 500 U.S. control towers, improving airspace management and safety. Second, the author provides an update on strategic priorities for RTX, focusing on top-line growth, margin expansion, and strong cash flow, with a spotlight on the GTF fleet management plan. The inspections of powdered metal parts are progressing well, with fallout rates below expectations. Operational improvements have increased PW1100 engine output, and support agreements with 28 customers now cover 75% of the affected fleet. The company is also utilizing core practices and Industry 4.0 for performance enhancements and capacity expansion.

The paragraph discusses Raytheon's recent advancements in production and technology. At their McKinney, Texas facility, production of the EODAS for the F-35 has increased fivefold due to yield improvements and a new build process. Collins' avionics business has eliminated torque-related defects and saved significant labor hours with an automated torque system. RTX has connected 34 factories using proprietary digital analytics and aims to connect 40 by year's end. Pratt has opened a large, automated facility in Oklahoma City to support military engine sustainment, enhancing productivity. Lastly, RTX is pursuing future growth with 14 cross-technology roadmaps, including hybrid electric propulsion for improved fuel efficiency.

In the quarter, Airbus Helicopters partnered with Collins and Pratt Canada to develop a hybrid electric propulsion system for improved fuel efficiency in helicopters. Collins and Raytheon also worked on adapting carbon-carbon composite technology for hypersonic missile applications, achieving significant technological readiness. The company focuses on developing next-gen products and simplifying operations to enhance productivity, having eliminated over 265 systems this year. Efforts include reducing engineering systems and optimizing supply chain efficiencies. Additionally, RTX negotiated long-term agreements for common metals, aiding suppliers in reducing lead times and costs.

The paragraph outlines RTX's financial performance in the third quarter, highlighting key achievements such as a 6% increase in adjusted sales to $20.1 billion, with an 8% organic growth. Commercial aftermarket sales led with an 11% rise, while defense sales grew 10% organically. Segment operating profit increased by 16% to $2.4 billion, with margins expanding by 100 basis points. Adjusted earnings per share rose by 16% to $1.45, driven by profit growth, a lower share count, and a reduced tax rate, despite higher interest expenses and lower pension income. The GAAP earnings per share was $1.09 after adjustments. Free cash flow remained strong at $2 billion, and $1.1 billion was returned to shareholders through dividends and share repurchases.

The paragraph discusses updates to the company's financial outlook for the year, highlighting strong performance in all business sectors and robust market conditions. The sale of the Collins hoist and winch business is expected to finalize in the fourth quarter, with the actuation business sale projected for next year. The company revised its full-year sales outlook, expecting an increase in adjusted sales and organic sales growth, particularly citing strength in commercial aftermarket and defense sectors. However, expectations for Collins' commercial OE sales have been adjusted downward. The overall adjusted EPS forecast has been raised as improvements at Pratt and Raytheon offset changes at Collins, alongside tax rate and below-the-line item improvements.

The paragraph outlines the company's financial outlook and strategies. It mentions the expectation of achieving approximately $4.7 billion in free cash flow for the year and anticipates increased disbursements related to powder metal and legal matters in the fourth quarter. The company now expects a reduction in powder metal outflows compared to previous estimates. It is forecasting another year of solid organic sales growth, segment margin expansion, and significant free cash flow generation, driven by continued global demand and a strong backlog. The company is addressing supply chain and inflation challenges through strategies like second sourcing and long-term supplier agreements. A complete outlook for the next year will be provided in January during the fourth quarter earnings call. Nathan Ware will provide further segment details.

In the quarter, Collins reported sales of $7.1 billion, a 6% increase due to strong commercial aftermarket and defense performance, but faced challenges with lower commercial original equipment (OE) volume. Commercial aftermarket sales rose by 9%, while defense sales increased by 14%. However, commercial OE sales declined by 8%, impacted by factors such as the Boeing work stoppage. Adjusted operating profit was up $53 million at $1.1 billion, with gains from aftermarket and defense offset by lower OE volume and higher R&D costs. For the full year, Collins anticipates high-single-digit sales growth, mainly due to increased defense volume, but operating profit projections have been lowered. On Slide 8, Pratt & Whitney's sales grew 14% to $7.2 billion, with all channels, including commercial OE, showing growth.

In the recent quarter, commercial aftermarket sales increased by 13%, primarily due to higher volume in large commercial engines and Pratt Canada. Military engine sales rose by 20%, driven by increased sustainment and development volumes, particularly related to the F135 engine core upgrade. Pratt's adjusted operating profit improved by $184 million, reaching $597 million, despite higher production costs. The company secured over $11 billion in awards, including $2.3 billion for F117 sustainment and $6.6 billion in commercial contracts. For the full year, Pratt anticipates sales growth in the mid-teens range and adjusted operating profit growth between $475 million and $525 million. Raytheon reported quarterly sales of $6.4 billion, down 1% due to a cybersecurity divestiture but up 5% organically, thanks to higher sales in land and air defense systems.

Raytheon reported an adjusted operating profit of $661 million, a $91 million increase from the previous year, driven by favorable product mix, improved productivity, and higher volume, despite some setbacks from a cybersecurity divestiture. Net productivity improved by $33 million year-over-year, although it faced a $53 million negative impact from a classified program. The company achieved its fourth consecutive quarter of year-over-year margin expansion, with bookings reaching $16.6 billion and a backlog of $60 billion, resulting in a book-to-bill ratio of 2.6. Raytheon's 12-month book-to-bill ratio stands at 1.48, with significant growth in international backlog. The company projects mid-single-digit organic sales growth for the year and increased its operating profit forecast to $200-$250 million above 2023 levels, revised from an earlier estimate. Christopher Calio highlighted the company's strong position for growth in aerospace and defense, emphasizing their commitment to customer support and successful execution, contributing to the robust third-quarter performance and an optimistic full-year outlook.

The paragraph features a discussion during a Q&A session with Christopher Calio regarding the management of competing demands for the GTF engines. Calio discusses the progress and challenges in balancing deliveries of original equipment (OE) and spares. They have increased deliveries by 16% year-to-date and 7% sequentially, with both OE and spares individually contributing to these increases. Deliveries are also surpassing 2019 volumes, indicating strong ramp-up efforts. The company must allocate resources among OE, spares, and maintenance, repair, and overhaul (MRO) services to support their fleet effectively. Calio emphasizes the need to focus on increasing production of critical parts like isothermal forgings, which have ramped up 38% year-over-year, and improving structural castings, with some parts on track and others requiring more time to recover.

The paragraph discusses the current state and future outlook for Raytheon, highlighting strong demand and significant bookings, with $16.6 billion in bookings for the quarter and a $60 billion backlog. International orders have increased to 44% of the backlog, but it will take time to work through these orders, so substantial impacts won't be seen by 2025. The supply chain is improving, with six consecutive quarters of growth, and capacity is being expanded in several locations like Texas, Arkansas, Redstone, and Tucson. The focus remains on managing the backlog and maintaining healthy supply chains.

The paragraph discusses Raytheon's financial performance and productivity improvements. Neil Mitchill mentions that the positive shift in their business mix has contributed to over 100 basis points of margin improvement despite facing some challenges. He also notes productivity improvements year-over-year. Despite supply chain issues, Raytheon anticipates growth as these issues are resolved, supported by a strong backlog. Jason Gursky of Citigroup asks about productivity expectations, and Christopher Calio acknowledges ongoing efforts to enhance productivity and starts to see progress in this area.

The paragraph discusses the company's focus on improving productivity and efficiency through quality improvements, automation, and factory connectivity to drive performance and reduce labor hours. The continuation of a strong backlog and healthy supply chain is critical for this progress. The business is experiencing significant productivity benefits, with $110 million realized year-over-year, largely on track to reach $200 million for the full year. Supply chain issues affecting backlog programs are decreasing, with new bookings being made at current prices and lead times.

The paragraph is part of a conference call where Sheila Kahyaoglu from Jefferies asks about Collins Aerospace's original equipment (OE) and aftermarket performance. OE sales were down 8%, with expectations for a further 15% decline in Q4, while aftermarket sales rose by 9%. Neil Mitchill explains that the decline in OE sales is due to reduced narrow-body volumes, particularly for the A320 and 737, as well as impact from a strike. The company has recalibrated its outlook for the year to reflect these factors and expects to resume some shipments later in the quarter. Mitchill also acknowledges a mix headwind affecting wide-body sales.

The paragraph discusses the mixed performance of wide-body aircraft sales, noting a slight increase in sales alongside a shift in demand towards the less profitable Boeing 787 over the Airbus A350. This profitability issue is exacerbated by changes in heat exchanger sourcing due to geopolitical factors. Despite challenges in original equipment (OE) profitability, there remains optimism regarding the aftermarket segment, especially at Collins, due to low retirement rates of older aircraft platforms and continued demand for repair and provisioning services. The segment is expected to maintain strength into the next year. Following this, Peter Arment asks about free cash flow projections and any future modifications. Neil Mitchill responds, expressing confidence in achieving the $4.7 billion target in 2024.

The paragraph discusses RTX's strategy to manage inventory amidst current challenges, aiming for a $700 million working capital benefit. With robust sales and a strong balance sheet, the company anticipates improving working capital turns and increasing free cash flow, having already achieved $4 billion year-to-date. They expect a strong fourth quarter and long-term free cash flow conversion of 90-100% against adjusted net income. The aftermarket sector, particularly profitable with 12% growth year-to-date, remains a significant cash flow driver, with ongoing strength in the Collins installed base and the V2500 line. Overall, the business fundamentals and demand are strong.

In the paragraph, Ronald Epstein asks Christopher Calio about the growing traction of new defense tech companies like Palantir and whether they are seen as competitive threats or potential partners. Christopher Calio acknowledges that these companies could be both, as they compete in the marketplace but also present partnership opportunities. He emphasizes the importance of agility, low cost, and speed to market and mentions that their company remains focused on innovation, R&D, and scaling production. Calio notes that while their product portfolio is critical to U.S. and allied defense, there is potential to integrate the software strengths of newer companies with their hardware expertise.

The article paragraph discusses Raytheon's ongoing efforts to improve defense productivity and invest in early-stage companies through RTX Ventures. Ronald Epstein asks about the timeline for significant productivity improvements at Raytheon. In response, Neil Mitchill highlights a $110 million year-over-year productivity improvement with expectations of nearing $200 million. Although acknowledging current and ongoing challenges, Mitchill anticipates continued productivity gains depending on the program mix and operational environment.

The paragraph discusses a backlog allowing for bulk material purchasing, which enhances productivity. To improve productivity further, especially on the factory assembly side, enhancements in the supply chain are necessary, with a focus on components like rocket motors. Although price inflation has impacted past pricing strategies, the international mix is improving, and there's optimism about large franchises like LTAMDS. Overall, there's a positive outlook on productivity and margin improvements, with expectations of seeing more benefits next year. Following this, Seth Seifman from JPMorgan asks about a shortfall at Collins due to the Boeing strike's impact and queries how this will affect future margins, especially in the fourth quarter. Neil Mitchill is prompted to respond.

In the quarter, the company experienced a 300 basis point improvement in ROS due to higher volumes in Collins' commercial aftermarket defense channels. However, this was offset by a 200 basis point decline from lower commercial OE volumes and associated challenges, as well as a 100 basis point headwind from increased R&D costs, slightly higher SG&A expenses, and issues in the interiors business. Despite these challenges, the company expects a 130 basis point margin improvement from Q3 to Q4 due to mitigation actions addressing temporary issues, and believes the underlying business remains strong.

The paragraph discusses the strong performance in the aftermarket and defense sector, with Collins taking proactive steps to maintain supply chain readiness for future Boeing deliveries. Noah Poponak from Goldman Sachs inquires about the Collins margin direction and details on GTF powdered metal engine processing. Christopher Calio responds, noting consistent production of full-life powdered metal parts and ongoing ramp-up efforts, expecting significant progress by 2025. Neil Mitchill is also referenced in relation to the Collins margin question.

The paragraph discusses the current state and future plans concerning powdered metal and engine production, highlighting a backlog of engines awaiting induction due to material flow issues. The turnaround times remain stable, particularly for heavy work scopes, but there's a push to improve material accumulation by 2025 to better balance workflow. Neil Mitchill comments on the Collins business, emphasizing the importance of original equipment (OE) levels and the need for increased volumes to improve unit costs. The business has the capacity for higher production levels than previous years, and achieving better absorption of these capacities is critical. A more detailed guidance will be provided in January.

The paragraph discusses Collins' strong market fundamentals, driven by high demand and robust operations across key platforms like Airbus, Boeing, and Embraer. Despite inflationary pressures on long-term agreements, Collins anticipates growth in margins, operating profits, and free cash flow in the coming years. Cost reduction strategies, including relocating operations to lower-cost areas and forming centers of excellence, are emphasized as essential for margin expansion. These efforts, alongside strong demand and platform presence, are expected to drive continued success for the business.

In the conversation, Neil Mitchill explains that the company expects to make about $1 billion in payments this year related to agreements with customers. As of the date of the discussion, they have made over $300 million in payments or credits. These transactions are considered cash equivalents. The delay in payments is due to the time required to finalize agreements, with 28 agreements covering 75% of the affected aircraft. The company anticipates a ramp-up in payments in the fourth quarter.

The paragraph discusses financial assumptions and payments related to a company's charge and reserve, noting consistency with underlying assumptions and agreements. While specific payment timelines weren't disclosed, transparency in spending is promised, showing the business's organic performance. Payments are expected over the next two years as certain obligations reduce. David Strauss questions payment timeline changes, suggesting delays. Neil Mitchill confirms full payment over the next two years, with updates planned. The conversation then shifts to questions from Doug Harned about Raytheon's strong performance in missiles and missile defense, and the challenges faced in their airborne and space systems segments.

In the paragraph, Christopher Calio discusses Raytheon's strategic evaluation of its business portfolio, specifically focusing on the company's strengths and growth potential. He acknowledges the challenges in certain areas, particularly in making some parts of the space domain profitable. Calio highlights the importance of focusing on high-demand sectors like integrated air and missile defense, which are expected to drive growth beyond 2025. He emphasizes avoiding unprofitable ventures with difficult margins, like fixed-price development programs, and prioritizing strengths in areas like space protection, ISR, and C2. The evaluation is ongoing as Raytheon seeks to refine its strategy for sustainable growth.

The paragraph is a conversation involving Gavin Parsons from UBS, Christopher Calio, and Douglas Harned, discussing business strategies related to Boeing. Christopher acknowledges the importance of the situation with Boeing and expresses optimism about resolving any issues, which would benefit the industry. He explains that despite work stoppages, they've maintained their supply chain's health by continuing to receive materials and build products for high-volume programs. This approach is to ensure readiness for when Boeing resumes operations and plans to ramp up in 2025 and beyond. While some parts of the Boeing product portfolio were paused, they have implemented cost-cutting measures to mitigate the impact.

The paragraph discusses the ongoing efforts to prepare for the resumption of production and deliveries of Boeing 787 aircraft. It highlights that Collins is the seating supplier for some of the 787s being prepared for airlines like Lufthansa and American. The certification process with Boeing and the FAA is in progress, while Collins focuses on maintaining its supply chain readiness for materials needed for future deliveries. The strike mentioned has not impacted the 787 program, allowing for uninterrupted preparations. The conversation also touches on the broader context of different components, such as heat exchangers, required for the 787's environmental control system, and emphasizes the importance of supporting Boeing's recovery. Additionally, a question is raised about the potential growth of the military aftermarket at Pratt next year, but details on this are not provided in the paragraph.

The paragraph discusses the growth and positive performance of Pratt's military business. Neil Mitchill highlights a 20% growth in the military sector at Pratt during the quarter, with aftermarket sales aligning with this growth. He is optimistic about continued top-line growth as the installed base expands, particularly for military programs like the F135 and F117. Orders have doubled from the previous year at Pratt and even more at Raytheon, signaling a strong backlog in their defense businesses. The conference concludes with Nathan Ware thanking participants and noting that the Investor Relations team is available for follow-up questions.

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