The paragraph is an introduction to the RTX Fourth Quarter 2024 Earnings Conference Call, hosted by Latif and featuring key executives Chris Calio, Neil Mitchill, and Nathan Ware. The call is webcast live, and a presentation is available on RTX's website. Listeners are reminded that the company's financial results are discussed excluding certain adjustments, and forward-looking statements are subject to risks. Participants are encouraged to ask one question each during the Q&A session. Chris Calio highlights RTX's strong 2024 performance, including $80.8 billion in adjusted sales with significant growth across commercial OE, aftermarket, and defense sales, and a 13% increase in adjusted EPS to $5.73.

The paragraph highlights the company's strong financial performance, reporting a significant margin expansion and $4.5 billion in free cash flow, supported by robust customer demand. It mentions a substantial backlog, particularly in defense, with a notable international mix. The company anticipates growth in 2025 due to strong demand in both commercial aerospace and defense sectors. Key defense products like Patriot and NASAMS are in high demand worldwide, and there is expected continued international interest, especially among NATO and Indo-Pacific partners. Despite macroeconomic challenges, the company feels prepared to thrive with a strengthened supply chain and investments in infrastructure and global partnerships.

The paragraph discusses RTX's optimistic financial outlook for 2025, with expected adjusted sales between $83 billion and $84 billion, indicating 4% to 6% organic growth. Segment profit is anticipated to grow by 10% to 13%, aiding margin expansion. EPS is projected between $6.00 and $6.15, a 5% to 7% increase, while free cash flow is expected to be $7 billion to $7.5 billion. The company has already returned over $33 billion to shareholders since a merger, with plans to reach $36 billion to $37 billion by year-end. RTX aims to continue its strong capital deployment strategy, driven by strategic priorities like executing commitments, innovation, and leveraging scale. Their GTF fleet management plan remains on track, with intentions to reduce PW1100 AOGs and increase MRO output by over 30%, utilizing Industry 4.0 improvements for enhanced productivity.

The company achieved an 11% organic sales growth last year with minimal headcount increase, focusing on productivity enhancements through core projects such as improving on-time delivery, reducing inventory, and cutting costs. Notably, 40 top factories are now connected to a data analytics platform, leading to significant improvements like a 50% increase in on-time delivery and equipment utilization. This year, the company plans to expand the use of digital infrastructure, data, and AI to enhance operations and product development. Additionally, $7.5 billion was invested in research and development to advance technology, allowing rapid production and meeting customer needs, exemplified by Raytheon’s upgraded Coyote effector effectively intercepting threats.

The company is utilizing a rapid development cycle across its projects, including classified programs, to address urgent customer needs. They are making significant progress on the GTF Advantage engine at Pratt, with all testing completed and certification expected in the first half of the year, followed by deliveries in the second half. The company plans to invest over $7.5 billion in R&D in 2025 to develop next-generation commercial and defense platforms, focusing on innovations like fuel efficiency, AI, and advanced materials. They are also advancing operational processes through AI applications, which have improved software testing cycle times and plan to deploy 40 more use cases. Collins is expanding production space in Raytheon's Texas facility to support new contracts, like the Survivable Airborne Operations Center program.

The paragraph discusses the company's financial performance and strategic initiatives. By utilizing an existing RTX facility, they've cut investment costs for capacity expansion by 50%. They've also undertaken projects to optimize their manufacturing space, reduce fixed costs, and create additional capacity, setting positive momentum for 2025. The fourth-quarter financials show strong results, with adjusted sales rising to $21.6 billion—a 9% increase, or 11% organically—driven primarily by commercial OE at Pratt and notable growth in the commercial aftermarket and defense sectors. Segment operating profit increased by 29%, and adjusted earnings per share rose by 19%, despite higher taxes and lower pension income. GAAP EPS from continuing operations was $1.10, affected by acquisition accounting adjustments and other one-time items. Free cash flow for the quarter was $492 million, totaling $4.5 billion for the year, factoring in powder metal compensation and year-end disbursements.

The paragraph provides a financial update for the company, highlighting several key points. For the full year, there were impacts totaling $2.6 billion from powder metal, legal issues, and a Raytheon contract. The Collins Hoist & Winch business was sold in the fourth quarter to focus on core investments. The company returned $852 million to shareholders, mainly through dividends, and reduced debt by $800 million in the quarter, totaling $2.5 billion in debt reduction for 2024. Nathan Ware discusses segment results, noting Collins' $7.5 billion in quarterly sales, an 8% increase due to strong defense and commercial aftermarket channels. Adjusted operating profit rose by $172 million to $1.2 billion. For the full year, Collins' sales reached $28.3 billion with a $4.5 billion operating profit, achieving a 100 basis point margin expansion. Pratt & Whitney's sales grew 18% to $7.6 billion, with growth across all channels.

The paragraph reports on the financial performance of Pratt & Whitney and Raytheon. Pratt & Whitney saw a 31% increase in commercial OE sales due to increased deliveries and a favorable mix in Large Commercial Engines, and a 17% rise in commercial aftermarket sales driven by higher volume, notably in GTF and Pratt Canada engines. Military Engines sales grew 8%, attributed to higher F135 engine activity, though offset by reduced sustainment in legacy platforms. The adjusted operating profit rose by $312 million to $717 million, boosted by various factors including a $70 million insurance recovery. Pratt secured $8.9 billion in awards in the quarter, including $1.4 billion for F135 sustainment. For the year, Pratt & Whitney reported $28.1 billion in adjusted sales and a $2.3 billion operating profit with improved margins. GTF engine shipments rose 14% year-over-year in 2024. Raytheon experienced a 4% rise in adjusted sales and 10% organic growth, driven by increased volume in defense systems and contracts with a Middle East customer, despite some offset by divestiture and lower volume in certain defense areas.

In the paragraph, Raytheon reports an adjusted operating profit of $728 million, up $110 million from the previous year, driven mainly by higher volume, better productivity, and favorable product mix despite the impact of a cybersecurity divestiture. The company saw $9.5 billion in bookings, with key awards including defensive systems for Romania and classified projects. For the year, Raytheon achieved $26.8 billion in adjusted sales and $2.7 billion in adjusted operating profit, with a margin expansion of 100 basis points. Looking ahead to 2025, Raytheon expects total sales between $83 billion and $84 billion, anticipating 4% to 6% organic growth and approximately 10% growth in commercial aftermarket sales, assuming a completed Collins divestiture by mid-year.

The company expects mid-single-digit growth in defense sales and a 12% increase in operating profit, contributing $0.66 to EPS growth. This growth is partly offset by a $0.07 impact from divestitures, a $0.15 reduction due to lower pension income, and a $0.16 impact from other factors, including higher corporate expenses and taxes. The adjusted EPS outlook is $6 to $6.15 per share. Cash growth will benefit from a $2.3 billion improvement in operating profit and working capital, with a $1.3 billion boost from working capital improvements related to inventory, contract assets, and supplier efficiencies. The company plans to invest $2.5 to $2.7 billion in capital expenditures to expand capacity and automation for long-term growth.

The paragraph discusses the financial outlook for the company in 2025. It highlights that one-time legal and contract expenses from the previous year will not recur, offering a $1.5 billion benefit. However, there will be a $900 million negative impact due to the loss of an R&D tax benefit and higher taxes in 2025. Powder metal compensation costs are expected to rise by $100 million. Overall, free cash flow is projected to be between $7 billion and $7.5 billion. For Collins, sales are expected to rise slightly, with commercial aftermarket sales driven by increased air travel and upgrades. Commercial original equipment (OE) sales are also expected to increase. Defense sales are predicted to rise moderately after significant growth in 2024. Collins' operating profit is projected to grow by $500 million to $600 million, despite a $80 million impact from an actuation business divestiture. Pratt & Whitney's sales are expected to increase by high single-digits both on an adjusted and organic basis.

The paragraph provides an outlook for various business channels and financial expectations for RTX in 2025. It predicts low double-digit growth in the commercial aftermarket, mid-single-digit growth in both Commercial OE and military sales, and significant growth in Pratt's adjusted operating profit by $325 million to $400 million, mainly from commercial aftermarket and military growth. Raytheon's sales are projected to grow mid-single-digits organically, with operating profit rising by $150 million to $225 million. However, a $35 million headwind from the sale of the cybersecurity business is noted. Overall, RTX anticipates a strong performance in 2025, with fundamental drivers and cash generation potential remaining stable despite modifications to the original targets. The paragraph closes with a transition back to Chris Calio, who expresses satisfaction with the results from 2024 and optimism for 2025.

The paragraph discusses the company's optimistic outlook for its future growth, highlighting its strong market position, technology investments, and favorable macroeconomic conditions in the aerospace and defense industry. The company is confident in its ability to achieve sustainable growth in sales, margins, and cash flow, offering significant long-term returns to shareholders. During a Q&A session, Myles Walton of Wolfe Research inquires about the powder metal and GTF (Geared Turbofan) projects, noting the absence of detailed discussion and asking about financial expectations through 2026. Chris Calio responds, confirming that the projects are on track and emphasizing the importance of Maintenance, Repair, and Overhaul (MRO) output. He details the progress made in material flow and performance, noting expected growth in output and the critical role of the supply chain in reaching these targets.

The paragraph discusses the performance and future expectations of a company's manufacturing output and financial management. Structural castings increased by 12% year-over-year, and isothermal forgings output also saw significant growth, which is crucial for incorporating full-life powder metal parts into MRO. The company's current focus is on returning assets to customers quickly. Financially, they have adjusted cash flow estimates over the years, increasing from an initial $0.5 billion placeholder to ending at $1.1 billion in '24, with expectations of $1.1 billion to $1.3 billion for '25. They are working on customer agreements to manage cash flows and feel confident about the agreements in place. The paragraph ends with a question from Peter Arment regarding Raytheon's alignment with new administration spending priorities and their international mix.

The paragraph features a discussion led by Chris Calio about the strong demand for Raytheon products, evidenced by a $63 billion backlog and a 1.48 book-to-bill ratio. The demand is driven by international markets, especially in Europe for air and missile defense systems, and in Asia-Pacific for naval munitions like SM-3 and SM-6. NATO countries, particularly Poland, are increasing defense spending. This international demand is seen as a positive factor for Raytheon's business. The conversation then shifts to Ron Epstein from Bank of America, who asks about the NGAP program, noting that the Air Force increased its contract value to $3.5 billion. Chris Calio acknowledges the program's public attention and affirms Raytheon's continued development of their NGAP solution.

The paragraph discusses a discussion between Ron Epstein and Neil Mitchill regarding Pratt's financial outlook, especially in relation to the F135 engine core upgrade and other projects. Neil mentions that Pratt's military business is expected to see mid-single-digit growth, benefiting from ongoing projects and aftermarket strength. Scott Deuschle from Deutsche Bank then asks about the components of the free cash flow outlook in 2025 and whether the improvements are expected to be sustained beyond that year. Neil acknowledges the focus on cash flow and indicates it is a priority for the company.

The paragraph discusses the financial outlook for 2025, projecting $8.4 billion operationally, with a $1.3 billion improvement from working capital due to reduced inventory and contract assets. They are confident about supporting customer demands despite not meeting targets the previous year. Additionally, there's a mention of a few hundred million dollars earmarked for an international tax payment after a court ruling. The overall $8.5 billion range is seen as a strong baseline. Scott Deuschle inquires about Boeing's purchase orders for 737 MAX avionics, to which Chris Calio confirms that they are collaborating on ramping up production post-strike. Rob Stallard from Vertical Research asks about the conservative nature of the 2025 aerospace OEM guidance compared to Airbus and Boeing.

In the paragraph, Neil Mitchill discusses the approach taken by Collins and Pratt towards inventory and production forecasts. For Collins, he notes that despite increased production rates leading to some inventory buildup, they are well-positioned to handle a rising production ramp and have considered targeted inventory adjustments in specific narrow-body systems. For Pratt, Mitchill highlights strong growth in Large Commercial Engines with a 14% increase in unit deliveries last year and anticipates similar growth by 2025. Pratt Canada experienced a modest 1% increase but is expected to see growth similar to the Large Commercial Engines by 2025. Despite some headwinds due to product mix, Pratt's performance and engine pricing have been strong. Mitchill expresses confidence in their ability to meet increased demand, indicating preparedness for future growth.

The paragraph discusses Pratt & Whitney's financial outlook, specifically focusing on their Original Equipment (OE) growth, GTF engine deliveries, and EBIT growth projections for 2024 and 2025. Neil Mitchill explains that Pratt & Whitney experienced strong demand and pricing for their spare engines. Looking towards 2025, most of the profit growth is expected to come from the aftermarket segment, with significant drop-through profiting estimated at around $500 million. Although there will be some headwinds from negative engine margins due to increased volumes, the aftermarket phase for the GTF is described as robust and profitable. Overall, the emphasis is on long-term profitability as the engines enter the aftermarket stage.

The paragraph discusses the aftermarket growth prospects for Collins and Pratt & Whitney. Sheila Kahyaoglu opens the discussion with a focus on future shop visits and cash payments that will benefit Pratt & Whitney and RTX over the next few years. Seth Seifman from JPMorgan then inquires about how the aging fleet and planes coming off warranty could impact aftermarket growth for Collins. Neil Mitchill responds, noting that aircraft deliveries have been increasing since the lows of 2020 and 2021, resulting in more planes coming off warranty and boosting aftermarket demand. He highlights Collins' $160 billion installed base and its potential for generating more aftermarket activity. Mitchill also mentions that Pratt & Whitney is seeing similar trends, with about 800 V2500 shop visits expected in 2024.

The paragraph discusses the company's current priorities and future outlook. They are experiencing strong and consistent demand for their products, with a significant backlog of $218 billion. Their focus is on fulfilling this backlog and improving productivity, particularly through the GTF recovery plan and ramping up maintenance, repair, and overhaul (MRO) operations. Despite low retirement rates and robust demand in both the defense and commercial sectors, a key challenge is increasing productivity to pre-pandemic levels. Additionally, they see potential opportunities with the implementation of an Iron Dome system in the United States.

The paragraph discusses Raytheon's efforts to maintain a healthy supply chain and highlights their seventh consecutive quarter of material receipt growth. They aim to improve productivity through initiatives like automation and AI, while only increasing headcount minimally. The discussion also touches on their involvement with Israel's Iron Dome, suggesting potential opportunities for advancement in air and missile defense systems to cater to evolving threats. The company sees this as a significant opportunity aligned with their expertise.

In the paragraph, Gautam Khanna from TD Cowen asks Chris Calio about supply chain constraints impacting the company, previously identified as heat exchangers and seats. Chris Calio responds by acknowledging ongoing challenges in areas like structural castings, isothermal forging production, and rocket motors. He mentions improvements in microelectronics and highlights the concentration of overdue items with 33 key suppliers at Collins, where focused efforts are being made. Despite these challenges, Calio notes positive growth in Collins' interiors business and the need to continue improving the supply chain to manage the company's backlog.

The paragraph discusses the company's progress and outlook in two main areas: seat certifications and heat exchanger production. The certification process for first class and business class seats is complicated and has high standards, but the company is confident in meeting these requirements to deliver to airframers and customers. Additionally, they are making significant progress in ramping up heat exchanger production, having doubled output in the previous year and aiming to meet customer needs by 2025. The conversation then shifts to a financial aspect where Matt Akers asks about pension-related headwinds, specifically regarding FAS/CAS. Neil Mitchill responds by acknowledging a $0.15 headwind, explaining their de-risking strategy, and stating that, although income from pensions will decrease slightly each year after 2025, the pension plans remain well-funded and strong.

In this discussion, Ken Herbert asks Chris Calio and Neil Mitchill about the factors driving Collins Aerospace's aftermarket growth, particularly focusing on provisioning versus repair. Neil Mitchill responds that they haven't observed significant destocking by airlines and anticipate about 10% growth for Collins and RTX overall in 2025. He mentions that parts and repair growth is expected to be in the high single digits, while provisioning is likely to align more with original equipment growth, in the mid-single digits. Mods and upgrades are projected to grow over 10%, driven partly by regulatory requirements, marking a strong area for Collins. Overall, the company feels optimistic about aftermarket growth, supported by a substantial installed base.

In the paragraph, David Strauss from Barclays asks about the current and future performance of the GTF aftermarket and Collins margins. Neil Mitchill responds by indicating that the GTF aftermarket is growing and achieving near double-digit margins, slightly below mid-teens expectations, but showing improvement over the years. He explains that as older contracts are replaced with new ones, pricing has improved due to the engine's strong performance and enhancements for durability. Mitchill also mentions upcoming developments with the GTFA.

The paragraph discusses the positive growth outlook for Pratt & Whitney, highlighting consistent profitability and future prospects, especially concerning the V2500 and GTF engines. It also outlines Collins Aerospace's efforts to return to pre-COVID margins through cost reduction and strategic actions planned for 2025, despite challenges like inflation and lower-than-expected OE volumes. Chris Calio adds that improving GTF aftermarket margins will focus on enhancing the time on wing of the installed fleet, emphasizing ongoing development of enhancements like additional cooling holes and coatings.

In the paragraph, the discussion is centered around the progress of GTFA certification and its potential impact on the base program and GTF aftermarket margins. David Strauss thanks the speaker, and Noah Poponak from Goldman Sachs asks about the achievability of 2025 segment margin targets set in 2021, questioning whether they are still feasible given changes and challenges like cost inflation. Neil Mitchill responds, stating that the targets remain achievable in the long term. He notes Collins’ margin improvement and adds that further progress is expected. However, several challenges, like unforeseen headwinds and lost sales due to the Russia-Ukraine conflict, have impacted the original outlook.

The paragraph discusses the financial performance and outlook for Pratt and Raytheon. Pratt has seen good margins in the fourth quarter, and although its margins haven't reached the anticipated levels, there is significant top-line growth driven by aftermarket and the GTF, which offers a lighter but still positive margin. Raytheon is expected to achieve margins over 12%. Productivity at Raytheon improved significantly in 2024, with expectations of an additional $100 million improvement in 2025. Despite challenges, the fundamentals of the businesses remain strong, and inflation posed a significant challenge in 2021. Regarding the GTF powdered metal cash flow headwind, Neil Mitchill notes it's parked in 2026, with a potential tailwind transitioning from 2025 to 2026. The conversation wraps up with a question from Scott Mikus of Melius Research.

In the paragraph, Chris Calio addresses questions about production rates for aircraft models 737, A320, and 787, indicating they expect mid-single-digit growth in commercial original equipment. He emphasizes collaboration with the supply chain to ensure synchronization and support for customers. Regarding Collins' new business class seat certification, Calio mentions that they are navigating complex certification requirements but have a clear path forward. The discussion concludes with Nathan Ware noting the availability of the Investor Relations team for follow-up questions.

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