The paragraph introduces the RTX First Quarter 2025 Earnings Conference Call, hosted by operator Latif. Participants in the call include Chris Calio, the President and CEO; Neil Mitchill, the CFO; and Nathan Ware, the VP of Investor Relations. The call, which is being webcast live and recorded for replay, discusses the company's financial results, focusing on continuing operations and excluding certain adjustments. The company cautions that forward-looking statements are subject to risks and uncertainties, detailed in RTX's SEC filings. Participants are encouraged to ask one question per round during the Q&A session. Chris Calio highlights the company's strong financial and operational performance in the first quarter, noting 8% organic sales growth and a 120 basis point expansion in segment margins.

The company reported a significant improvement in free cash flow, with notable increases in commercial aftermarket, original equipment (OE), and defense sales. The GTF program saw a substantial rise in maintenance, repair, and overhaul (MRO) output, aiding in reducing aircraft on ground (AOG) issues. Isothermal forging output also improved, and supply chain efficiencies yielded positive results. Pratt received FAA certification for the GTF Advantage engine, which promises enhanced durability and is set for delivery to Airbus later this year. An upgrade package for existing engines is in development to incorporate most of these improvements, aiming for availability next year.

Raytheon has completed the prototyping and development phase of its LTAMDS program, which offers advanced 360-degree performance and more than double the tracking range of the existing Patriot radar, enhancing defense against complex threats like unmanned aircraft systems and hypersonic weapons. The system is now moving into production with deliveries planned for the US this year and the next, followed by European customers. Additionally, Raytheon operates in a largely duty-free environment essential to maintaining a significant trade surplus in the aerospace and defense industry. Most of their operations and employees are based in the US, and they've spent $10 billion in the past five years enhancing domestic manufacturing, with plans for further investment. A $60 million expansion in Tucson, Arizona, has increased their capacity to meet growing demand.

Pratt has initiated a $285 million expansion of its Asheville, North Carolina foundry as part of its strategy to meet increasing turbine airfoil demand and maintain competitive costs. Despite being a net exporter with exports exceeding imports by over $12 billion last year, the company's global supply chain means it imports various components, making it vulnerable to tariffs. The company acknowledges the complexity and fluid nature of the tariff situation, including potential disruptions and customer reactions, and has not factored tariff impacts into its current outlook. However, they plan to share estimates of direct tariff impacts for the year, excluding secondary effects, with Neil Mitchill set to discuss the assessed pre-tax operating profit impacts, after mitigations, in various categories.

The paragraph discusses the estimated financial impact of current tariffs on a company's operations across different regions. For Canada and Mexico, the USMCA agreement implies a cost impact of $250 million if current tariffs persist. Similarly, the tariff impact with China would also be $250 million, with China making up a small fraction of the company's global imports. The rest of the world is expected to see a $300 million cost impact from a 10% tariff rate. Steel and aluminum tariffs are anticipated to cost around $50 million. Most impacts will be realized in the latter half of the year, affecting cash flow due to inventory consumption and duty recovery timing. The company plans to adapt to evolving trade conditions and implement mitigations, including using exemptions, regulatory mechanisms, and operational changes, like sourcing from different suppliers.

The company is optimistic about its positioning in key markets despite near-term uncertainties, demonstrating strength in its product portfolio and a $217 billion backlog, an 8% increase year-over-year. This includes $125 billion in commercial orders and $92 billion in defense awards. The company is cautiously optimistic about aftermarket demand tied to aircraft utilization and strong production of new aircraft by OEM customers. In defense, the company benefits from recent funding for key priorities and a global increase in defense budgets, particularly in Europe, which aligns with its core capabilities such as the Patriot and NASAMS systems. The company also has strong international partnerships that enhance its ability to meet growing demand. Overall, the company's performance in the first quarter and progress on strategic priorities are viewed positively.

In this paragraph, Neil Mitchill discusses the company's strong start to the year, highlighting key financial results from the first quarter. Adjusted sales reached $20.3 billion, marking a 5% increase, with an 8% organic growth driven by the commercial aftermarket. Segment operating profit rose by 18%, contributing to a 120 basis-point margin expansion due to higher volumes and cost reduction efforts. The company reported adjusted earnings per share of $1.47, up 10% from the previous year, though partially offset by a higher tax rate and share count. Free cash flow was $792 million, influenced by $200 million in powder metal-related compensation, and $890 million was returned to shareholders mainly through dividends. Progress continues on the sale of Collins' actuation business, with key milestones being met. Nathan Ware is set to discuss the segment results next.

In the reported quarter, sales at Collins were $7.2 billion, with an 8% adjusted increase and a 9% organic rise, mainly due to strong commercial aftermarket and defense sectors. Commercial aftermarket sales increased by 13%, with notable gains in parts, repair, mods, upgrades, and provisioning. Defense sales grew by 10%, driven by increased volume in various programs. Commercial OE sales rose by 2%, with varying performance across different aircraft models. Adjusted operating profit reached $1.2 billion, reflecting a $179 million increase from the previous year, and Collins' margins expanded by 130 basis points. For the full year, Collins anticipates low-single-digit adjusted sales growth and mid-single-digit organic growth in sales, with operating profits increasing by $500 to $600 million compared to 2024. Meanwhile, Pratt & Whitney reported $7.4 billion in sales, showing a 14% rise in both adjusted and organic terms due to growth in all channels. Their commercial aftermarket sales surged by 28%, driven by higher volumes and favorable mix in large commercial engines. Military engine sales increased by 4%, mainly from engine deliveries on specific programs, while commercial OE sales went up by 3%, following a significant rise in Q1 2024.

The paragraph discusses the financial performance and outlook for Pratt and Raytheon. Pratt's adjusted operating profit increased by $160 million due to higher commercial engine deliveries and reduced R&D expenses, leading to a 130 basis point margin expansion. Excluding tariffs, Pratt expects high-single-digit sales growth and operating profit increase between $325 million and $400 million for the full year. Raytheon's quarterly sales were $6.3 billion, down 5% due to a cybersecurity divestiture, but up 2% organically. Adjusted operating profit rose by $48 million due to a favorable mix and productivity improvements, with margins expanding by 120 basis points. The quarter’s bookings were $4.4 billion, resulting in a book-to-bill ratio of 0.7, with notable awards from the Netherlands, classified projects, and Japan. The section ends by transitioning to Raytheon's full-year outlook.

In the paragraph, the company anticipates low-single-digit sales growth on an adjusted basis and mid-single-digit growth organically, along with an increase in operating profit between $150 million and $225 million compared to 2024, excluding the impact of tariffs. Chris Calio emphasizes the resiliency of RTX, highlighting strong business fundamentals, innovative products, and significant demand for their defense solutions. He expresses confidence in future growth driven by trends in commercial aerospace, defense, and the ReArm Europe effort. Peter Arment from Baird asks about opportunities and award timings related to ReArm Europe and if Raytheon's business will maintain a book-to-bill ratio above 1 for the year.

The paragraph discusses Raytheon's opportunities in the European defense market, highlighting increased defense spending by EU countries like Poland, the UK, and Germany. The EU's commitment to an additional $850 billion in defense spending offers a clear opportunity for Raytheon, known for its integrated air and missile defense systems such as the Patriot and NASAMS. Raytheon has an established presence in Europe with strong partnerships and co-production arrangements, including nine suppliers in Poland. Despite some timing issues, global demand for Raytheon's products remains strong with expected book-to-bill ratios of 1.0 or more. Additionally, a discussion touches on mitigating the impact of costs related to a trade war, with the $850 million figure considering these mitigations. Competitors are looking to pass on costs as a surcharge to customers, a strategy Raytheon may also consider.

The paragraph discusses strategies for mitigating tariff impacts through regulatory, contractual, and operational means, such as optimizing material flow and adjusting pricing. The speaker, Chris, highlights their proficiency in managing pricing in an inflationary environment and their preparedness to adjust strategies based on market changes. They are cautious about balancing pricing changes with customer relations. In response to Myles Walton’s question, Chris addresses concerns about potential changes in customer behavior and supply chain disruptions, particularly related to tariffs on aircraft and parts. He notes steady improvements in their supply base, indicating ongoing efforts to manage supply chain issues.

The paragraph discusses the improvements and stability in the supply chain for companies like Pratt, Raytheon, and Collins, highlighting substantial year-over-year growth in structural castings and rocket motors. It emphasizes the importance of maintaining strong relationships with the supply base to manage tariff mitigations and ensure the smooth flow of parts, especially considering past disruptions like those during COVID-19. The writer acknowledges China's significance in the commercial aerospace market, while also stressing the importance of developing multiple global sourcing options to enhance resilience and adaptability in the supply chain. Overall, there is an emphasis on the US aerospace and defense industry's competitiveness and advanced manufacturing leadership.

The paragraph features a Q&A segment from a conference call. Ronald Epstein from Bank of America asks about the NGAP program, particularly regarding engine contributions from Pratt & Whitney or its competitor. Chris Calio responds by mentioning a $550 million award to continue NGAP development and expresses satisfaction with the testing progress and feedback, noting Pratt's success in advancing propulsion technologies. The conversation shifts to Scott Deuschle from Deutsche Bank, who inquires about operational impacts from an SPS fire on Collins, Pratt, and RTX. Chris Calio states that their team, alongside SPS, is assessing the situation, exploring alternatives for impacted fastener capacity.

The paragraph discusses the impacts of tariffs on a company, particularly focusing on an $850 million net impact estimation. Neil Mitchill explains that this figure accounts for various mitigations and assumes current tariff rates will remain for the rest of the year. The impact on Raytheon is minimal, equating to about $0.01 per share, while the remaining impact is evenly divided between Collins and Pratt. The company is working with alternative suppliers and strategic mitigations to handle the situation.

The paragraph discusses financial aspects related to tariffs and inventory management, indicating that earnings will be back-loaded as inventory turns through the P&L when sold. It mentions that the cash flow impact will be larger due to a delay in receiving duty drawback cash, estimated at 15% to 20% above the rough estimate provided. The speaker emphasizes the variability in the situation and the intent to provide a framework for understanding changes based on tariffs and countries involved. In a separate discussion, Seth Seifman from JPMorgan inquires about order activity and potential impacts of a slowdown in air traffic on Collins' aftermarket. Neil Mitchill responds, noting strong order activity in the first quarter despite recent changes.

The paragraph discusses strong performance in the aftermarket and sustained demand for new aircraft, particularly emphasizing the robust demand for Pratt and Whitney's GTF aftermarket and the consistent shop visits for V2500, PW2000, and PW4000 engines. It notes that despite challenging comparisons, orders remained stable in April, supporting their optimistic outlook. The company anticipates that their operational ranges can handle potential softening later in the year, given the upcoming crucial travel season, which will drive continued demand for maintenance and parts.

In the paragraph, Chris Calio and Neil Mitchill discuss their company's approach to working with airline customers through embedded service reps and customer-facing teams that perform detailed analysis of customer needs and plans. They monitor buying patterns daily and respond quickly to changes. Jason Gursky from Citi then asks Neil about the gross impacts of tariffs, and he also asks Chris about his views on recent executive orders from the White House related to procurement reform and changes to federal acquisition regulation. Neil emphasizes focusing on the net impact of tariffs.

The paragraph discusses the impact of tariff rates on gross imports and cross-border movements, noting that mitigations like the USMCA and military duty-free options help reduce the impact. Despite challenges with paperwork for temporary imports under bond and drawbacks, the company is working to ensure products meet necessary qualifications. The focus is on implementing mitigation efforts effectively over time. Chris Calio adds that the administration's effort to streamline procurement is beneficial, as it allows for quicker contract awards, better labor alignment, and reduced risks in bids, aiding in executing their backlog.

The speaker discusses the strong demand for their products and the need to address supply chain bottlenecks in partnership with the administration and supply chain partners. Progress has been made in key programs like GEM-T and Coyote. When asked about original equipment (OE) production rates and supply chain constraints, they emphasize that airframers have strong backlogs and are focused on ramping up production. There are no significant changes in demand. They report progress in addressing constraints related to rocket motors, structural castings, and heat exchangers for the 787, reflecting improved collaboration with Boeing and continuing plans for further improvements.

In the paragraph, Kristine Liwag from Morgan Stanley asks about the discussions the aerospace defense industry is having amidst trade deficit concerns and any resulting international demand impacts. Chris Calio responds by emphasizing the US aerospace and defense industry's role as a significant net exporter and a model of US competitiveness and manufacturing strength. He notes their ongoing advocacy efforts with the government and highlights their investments in personnel, factories, and technologies. Regarding the upcoming 2026 defense budget, Calio mentions staying focused on areas like integrated air and missile defense and counter-UAS, aligning with their core competencies.

The paragraph discusses the company's efforts to increase capacity to meet strong demand, citing examples of expanding in Tucson, Huntsville, and Camden, Arkansas. David Strauss from Barclays asks about assumptions and capacity related to V2500 shop visits, particularly in a recession scenario, and the need for increased powder metal and MRO capacity for GTF engine repairs. Chris Calio responds, highlighting the improvement in MRO output and turnaround times, indicating that shop capacity is not a significant issue.

In the paragraph, the discussion focuses on optimizing material flow within the existing network of shops, specifically improving the flow at Gate 2 to reduce turn times significantly. Neil Mitchill highlights that they targeted 800 shop visits for V2500 engines this year and saw a 7% increase in the first quarter, aligning with their annual goals. The shop visits are trending towards heavier overhauls due to the aging fleet, and although there were 11 aircraft retirements, the demand for narrow-body aircraft remains strong. This demand is expected to keep shop visits steady even in a lower demand setting, until the GTF fleet becomes fully operational again. The operator then introduces the next question from Doug Harned.

The paragraph discusses Raytheon's backlog growth, largely driven by European demand, and addresses concerns about the timing of revenue recognition from this backlog. Chris Calio highlights the opportunities presented by increased European defense spending, particularly in integrated air and missile defense systems, which align with Raytheon's strengths. He emphasizes the importance of partnerships in Europe and notes that revenue timing depends on contractual terms and long lead times for materials. Efforts to streamline processes, like Foreign Military Sales (FMS), are seen as beneficial to faster revenue realization.

The paragraph discusses efforts to streamline supply chain processes to improve delivery cycles, with a focus on Raytheon's land and air defense systems, which are experiencing strong growth. Despite some timing-related headwinds in lower development programs, Raytheon remains optimistic about achieving mid-single-digit sales growth for the year. There is confidence in the execution and capacity increases within the portfolio. Additionally, the paragraph addresses a labor negotiation at Pratt, with the company remaining cautiously optimistic about reaching an agreement with the union without any interruptions, given their positive track record in previous negotiations.

In the paragraph, there's a discussion about the challenges faced in passing through $850 million in tariff-related costs to customers. Chris Calio explains that although there are new processes to mitigate these costs, more experience is needed to optimize them. He also mentions the company's ability to pass along higher costs through pricing but acknowledges that this is not a complete solution. They aim to balance various factors, such as existing contracts and market conditions, when considering price increases. The response suggests exploring opportunities for cost recovery while recognizing limitations.

In the paragraph, during a Q&A session, Noah Poponak from Goldman Sachs asks Neil Mitchill about the full-year guidance for segment EBIT at Pratt and Collins, noting that the margins appear flat or slightly down at Collins. Neil explains that despite the uncertain environment, he started the year with optimism due to strong first-quarter margins. He highlights a favorable mix in installed versus spare engines at Pratt, but anticipates some headwind from higher installations for the rest of the year. Neil is cautiously optimistic and feels prepared to absorb potential market softening. He plans to revisit the outlook in 90 days for updates. Noah thanks Neil, and the session proceeds with a question from Gavin Parsons of UBS.

The paragraph is a discussion about Raytheon's financial performance and future margin expectations. Gavin Parsons asks about Raytheon's projected margins for the year, noting a 10.7% margin in the first quarter with minor productivity gains. Neil Mitchill responds that while the first quarter margins are satisfactory, the company aims for a 12%-plus range. He notes a $15 million productivity improvement year-over-year, with a target of $100 million for the full year. The mix of sales is trending more internationally, contributing to margin variability, but the overall outlook for the year remains positive, contingent on supply chain stability. Mitchill expresses confidence in continued growth throughout the year.

The paragraph summarizes the conclusion of a conference call, with thanks given to a person named Latif and the participants. It informs attendees that the Investor Relations team is available for follow-up questions, and the operator announces the end of the conference, allowing participants to disconnect.

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