RTX Corp ($RTX) Q2 2026 Earnings Call

Good day, ladies and gentlemen, and welcome to the RTX second quarter 2026 earnings conference call. My name is Livia and I'll be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Chris Calio, chairman and chief executive officer, Neil Mitchell, chief financial officer, and Nathan Wear, vice president of investor relations. This call is being webcast live on the internet and there is a presentation available for download from RTX website at www.rtx.com. Please note except where otherwise noted the company will speak to results from continuing operations excluding acquisition accounting adjustments and net non-recurring and or significant items often referred to by management as other significant items. The company also reminds listeners that the earnings and cash flow expectations and any other forward-looking statements provided in discourse subject to risk and uncertainties. RTX SEC filings including its forms 8K, 10Q, and 10K provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. Once the call becomes open for questions, we ask that you limit your first round to one question per caller to give everyone the opportunity to participate. To ask a question, you will need to press star one on your telephone. You may ask further questions by reinserting yourself into the queue as time permits. With that, I will turn the call over to Mr. Calio.

All right, thank you. I'm on slide five. In the second quarter, adjusted sales of 24.7 billion were up 14% on an adjusted basis and 16% organically year-over-year. This strong organic growth was driven by all three channels with commercial OE up 9%, commercial aftermarket up 18% and defense up 16%. Adjusted segment operating profit of 3.2 billion was up 18% year-over-year, primarily driven by the drop-through on higher volume. And segment margins expanded 40 basis points in the quarter with contributions from all three segments. Adjusted earnings per share of $1.89 was up 21% from the prior year, driven by the strong segment operating profit growth I just mentioned. On a GAAP basis, earnings per share from continuing operations was $1.57 and included 27 cents of acquisition accounting adjustments and 5 cents of restructuring and all other non-recurring items. We generated 2.9 billion of free cash flow in the quarter driven by segment profit growth, increased engine deliveries at Pratt and advanced payments from international customers at Raytheon, and powder metal related compensation was approximately $150 million. Lastly, we entered into an agreement to sell Raytheon's Blue Canyon Technologies business for $620 million as we continue to focus on our core capabilities. So overall, I'm pleased with our strong financial performance through the first half of the year and our continued execution across the business. Okay, let's turn to slide six and I'll take you through our updated outlook for the full year. As Chris said up front, we are updating our full-year outlook based on our first half performance and our strong backlog position. On the top line, we're raising our full-year adjusted sales outlook by 2.5 billion to a new range of 95 billion to 96 billion, up from our prior range of 91.5 to 93.5 billion. The majority of the sales increase is driven by the performance we're seeing in our defense channel across the company, primarily at Raytheon, as well as higher GTF aftermarket volume at Pratt. Additionally, we're seeing strength in commercial OE at Collins, which is also reflected in this increased topline outlook. This translates to full-year RTX organic sales growth of between 8 and 9%, up from our prior range of between 5 and 6%. Breaking this down further, we now expect commercial OE sales to grow mid to high single digits, up from the prior expectation of mid single digits, primarily attributable to the production ramp at Collins. Within commercial aftermarket, we now expect sales to grow low double digits across the company this year, up from our prior expectation of high single digits driven by the strength of Pratt that I mentioned earlier. And with respect to defense sales, we now see growth of high single digits, which is at the higher end of our prior range of mid to high single digits. This improvement is principally driven by the first half performance and continued execution at Raytheon. On the bottom line, we're increasing our outlook for adjusted earnings per share by 40 cents on the low end and 35 cents on the high end. We now see adjusted EPS of between $7.10 and $7.25 for the full year, up from our prior range of 6.70 to 6.90. At the midpoint of our updated outlook, this increase is driven by approximately 26 cents of higher segment operating profit, principally from the net drop through on the higher volume across the segments, as well as favorable defense mix and improved productivity primarily at Raytheon. We're also seeing improvement in some below the line items and we've provided an updated outlook for these items in the appendix of our webcast. Finally, we now expect free cash flow to be between 8.5 billion and 8.75 billion for the full year, up from our prior range of 8.25 to 8.75 billion, primarily driven by higher segment operating profit. With that, I'll hand it over to Nathan to take you through the segments in more detail. Nathan.

Thanks Neil. Starting with Collins on slide seven, sales were $8.2 billion in the quarter, up 8% on an adjusted basis and 13% organically, driven by strength across all channels. Adjusting for divestitures by channel, commercial OE sales were up 26% driven by higher volume on narrow body and widebody platforms. Commercial aftermarket sales were up 10% driven by an 11% increase in parts and repair, an 11% increase in mods and upgrades, and a 7% increase in provisioning. Defense sales were up 7% versus the prior year, driven by higher volume across multiple programs. Adjusted operating profit of 1.44 billion was up 121 million versus the prior year driven by drop through and higher commercial and defense volume. This was partially offset by defense mix, higher SG&A expense, and the impact of divestitures completed in 2025. In the quarter, Collins expanded margins by 30 basis points year-over-year. Turning to Collins' full-year outlook, based on the continued commercial OE production ramp and defense strength, we now expect sales to grow mid to high single digits on an adjusted basis, up from our prior range of mid single digit. And organically, we now expect high single digit to low double digits growth, up from our prior range of high single digit. With respect to operating profit, we now expect growth between 550 and 625 million versus 2025, up from our prior expectation of between 425 and 525 million, driven by drop through on increased sales volume and ongoing cost reduction initiatives.

Shifting to Pratt and Whitney on slide 8. Sales of $8.9 billion were up 16% on an adjusted basis and 17% organically driven by strength in commercial aftermarket and military. Recall that Q2 2025 was impacted by a 4-week work stoppage. Commercial OE sales were down 8% as increased engine deliveries were more than offset by large commercial engine mix, and commercial aftermarket sales were up 25% driven by higher MRO volume. In military engines, sales were up 23% driven by higher F-135 volume. This year-over-year increase benefited from the timing of the F-135 lot 18 contract award which was received in Q3 of last year. Adjusted operating profit of $740 million was up 132 million versus the prior year driven by drop through higher commercial aftermarket and military volume as well as military mix. This was partially offset by increased engine deliveries, large commercial engine mix, and higher SG&A expense. In the quarter, Pratt expanded margins by 30 basis points year-over-year. Turning to Pratt's full-year outlook, we now expect sales to grow high single digit on both an adjusted and organic basis, up from our prior range of mid single digit due to the strength in commercial aftermarket, partially offset by commercial OE mix. With respect to operating profit, we now expect growth between 275 and 350 million versus 2025, up from our prior expectation of between 225 and 325 million, primarily driven by drop-through on increased sales volume.

Turning to Raytheon on slide nine, sales of $8.3 billion in the quarter were up 18% on both an adjusted and organic basis driven by higher volume on land and air defense systems, naval programs, and air and space defense systems, including Patriot, Standard Missile, and AMRAAM. Adjusted operating profit of $1 billion was up 234 million versus the prior year, driven by higher volume, favorable mix, including Patriot programs, and improved productivity. In the quarter, Raytheon expanded margins by 100 basis points year-over-year. Bookings in the quarter were $19.9 billion, resulting in a book-to-bill of 2.42 and a backlog of 86 billion. On a rolling 12-month basis, Raytheon's book to bill is 1.77 and Raytheon's backlog is now 48% international, up four points year-over-year. In addition to the awards Chris mentioned earlier, other key awards in the quarter include 1.1 billion for AIM 9X and approximately 800 million for LTAMDS. Turning to Raytheon's full-year outlook, we now expect sales to grow high single digits to low double digits on an adjusted and organic basis. This is up from our prior range of high single digit due to the strength Neil mentioned. And we now expect operating profit to grow between 575 and $650 million versus 2025, up from our prior expectation of between 275 and 375 million, driven by the drop through on increased sales volume, favorable program mix, and improved productivity. With that, I'll hand it back over to Chris for some closing remarks.

Thank you, ladies and gentlemen. As a reminder, in the interest of time and to allow for broader participation, you are asked to limit yourself to one question per person. To ask a question, you will need to press star one on your telephone. And the first question will come from the line of Peter Arman from Barry Delan is now open.

Hey, good morning Chris, Neil, Nathan. Um, great results.

Morning, Peter. Good morning.

Hey, Chris. Um, maybe if you could just give us an update on the latest status with all your framework agreements or, you know, the progress that you're making there and if you could just tie it into how you think with the budget environment. I think everyone's expectations are we start the year with a CR and how that would affect things and just latest status on both. Thanks.

Thank you. The next question in queue will come from the line of Robert Stallet from Vertical Research. Your line is now open.

Thanks very much. Good morning.

Um, Neil, just a couple of quick questions on the 2026 guidance. Firstly on the free cash flow, you didn't raise the top end of the free cash flow guide I was wondering if timing was anything to do with that very strong performance in Q2 and then secondly on the revenue guidance you have raised it but you are factoring in a slowdown in revenue growth in the second half versus the first half. I was wondering what the key drivers are there. Thank you.

Yeah thanks Rob. Good morning. Let me start with the free cash flow. Obviously really pleased with the first half performance of cash flow. To your point, there was some timing. There always is with the free cash flow in the quarter, but I'll point to a couple of things. The first is you'll recall last year in the second quarter Pratt was undergoing a 4-week work stoppage that delayed some engine deliveries that therefore delayed cash collections. We've been able to, if you will, catch up on that. And so that's benefiting the second quarter. And the other thing to a lesser extent that's helping the second quarter is international advances on all those awards that we got most particularly within the Raytheon segment. So as I think about the rest of the year clearly we're about at the halfway mark of our full year outlook. So we feel good about the second half but a little bit of timing there between what we had penciled in for Q3 versus Q2. As far as the outlook, we took the bottom end of the range up $250 million to reflect the higher segment operating profit that we're putting through in our guidance updates today. That's offset a little bit by some working capital headwind. So, when we started the year, we thought we'd see a slight tailwind from working capital. As we sit here today, given we've added three points of organic growth to our outlook for the year, we're going to be building a little bit of inventory to make sure that we're prepared to deliver the continued ramp not only in the second half of the year, but the growth that we see coming through in early 2027. So, those things kind of offset a little bit. Again, feel good where we are and we'll continue to monitor this as we go through the rest of the year. As far as the revenue, you know, the second half, let me share a few thoughts here. I think it comes down particularly to some comparisons, and I'll walk you through those pieces. For the full year, our organic sales are going to be up 8 to 9%, so very strong growth. Like I just said, up three points from where we were in the first half. We saw 13% organic growth. And then the second half, you'll see in our outlook, it implies somewhere in the 5% range at the midpoint of our outlook. So, still growing, still really strong, but again, some unique comparisons. Let me start with Pratt because I think that's the most pronounced. I just talked about the four-week work stoppage and so that happened last year in the second quarter. We caught up in the second half of 25. So you've got that comparison to deal with here in the third and fourth quarter. And also last year in the third quarter, we reached an agreement on the lot 18 F-135 engine production contract. And that brought with it some higher sales that we had been having costs sit on the balance sheet in the second quarter last year. And so again, that won't repeat. And so you'll have that comparison to deal with in the third quarter in particular. And then, another point I would make about the second half for Pratt on the large commercial engine side, our install engines will continue to grow. But there'll be some lower revenue as the mix shifts more towards installs and away from spares. And in fact, we now think our OE sales for Pratt will be down in the low single digit range as we continue to support that really strong material growth on the MRO side and you saw that in the second quarter numbers. On the Raytheon side, also some difficult compares. In the first half of last year...

Year, sales were up about 4%. So obviously we had a really strong 14% first half this year. We had 9% growth in the second half of last year. So we're starting to see the material receipts normalize throughout this year. And so that's really good for getting product out the door, but it does put a little bit of pressure on the growth rate, which is still fairly robust in the mid-single-digit range in the second half. Collins is a little bit more normalized. So, you know, 12% growth in the first half, seeing in that 8-9% range in the second half. Again, we're continuing to ramp with our airframers on the OE side in particular. And so we're also staying fairly prudent on the commercial aftermarket side. So we haven't changed our outlook there as we continue to monitor the macro situation. But again, all indications are from the orders that we saw in the second quarter for Collins that the aftermarket remains strong and our customer behaviors remain unchanged.

Thank you. The next question in queue will come from the line of Sheila Kayagu from Jeffree. The line is now open.

Um, great. Thank you guys and great quarter. Um, maybe Neil, you just covered a ton. Maybe if we could just tease out the puts and takes in Pratt sales growth for the quarter. Aftermarket up 25%, military up 23, OE down eight. Um, how are you thinking about just the contribution of each going into the full year? And on the Pratt OE down low single digits now, what's driving that? Is it more allocation to Airbus pricing? Something else driving that headwind.

Yeah, thanks Chris. I would just add a couple things there or reinforce a couple points. One is the work scope. And so as we think about the rest of the year and the total outlook for Pratt, we're taking up the top line by about $900 million at the midpoint. The vast majority of that is aftermarket and it's really on the back of that higher work scope. So we're seeing good material flow which is driving those heavy shop visits. And it's not just the PW100 though that is the predominance of it. The V2500 shop visits remain right on track at the midpoint of the year to our full-year induction expectations and the content there continues to be strong too. So I think what's important here even as we see OE sales down a little bit is that it's really about the material allocation and we're taking up the profit for Pratt. So we still see the margin expansion not just this year but we expect that to continue in years thereafter as this aftermarket continues to gain further traction and the profitability continues to accrue to those contracts. So feeling good about where we are and I think just a few tweaks around the edges in terms of our allocation of material between the different channels.

Thank you. The next question comes from the line of Gam from Tawan. Yan is now open.

Yeah. Thanks. Good morning guys.

Good morning.

I was wondering if you could talk a little bit about Raytheon Defense's margin opportunity over several years. It's done very well in recent years in terms of rate of improvement. And you know, in the past, you've commented on productivity mix, mix foreign versus domestic, mature programs versus newer programs. If you could just talk about the evolution there and what do you see as sort of the art of the possible over the next couple years. Thanks.

Gotham, the thing I would add too around productivity, I agree with everything that Chris said, is we saw about $20 million of favorability from productivity in the second quarter. So cumulatively year-to-date we're about 40, which frankly isn't that significant which tells me that we've got a good solid base margin in the business in the backlog and that's what the Raytheon team has been focused on for the last couple of years as we've onboarded a lot of new work. It will of course ebb and flow a little bit based on the mix of the timing of deliveries but again having achieved the 12 plus percent margin here and then as you look at the outlook for the rest of the year seeing it still in the mid-12% range, we feel really good about the trajectory that we're on and all the while we're able to make investments that we need to do to not just support the new capacity for additional current products but to invest in new products as well. So feeling good where we are. Still a lot more to do.

Thank you. The next question comes from the line of Ron Epstein from Bank of America. Yanis Malin.

Hey, good morning guys. Um, can we talk maybe a bit about capital deployment? So in the quarter you're being divested under spending, you're generating a bunch of cash, there is a complicated narrative around share buybacks and dividends. So how are you thinking about deploying capital, how are you looking at the portfolio, and how do you think about it?

Thank you. The next question comes from the line of Scott from Deutsche Bank is now open.

Hi, good morning Neil or Chris. Can you share your latest thoughts on the durability of the shop visit demand for PW4000 and V2500 over the next few years based on the utilization you're seeing on those engines today and the conversations you're having with customers? And then Neil, if you could also share an update on GTF aftermarket margins, that would also be helpful. Thank you.

Yeah. Thanks, Chris. And a couple more points there. I think building on the content theme that we're seeing here in 2026, even as the V2500's in terms of number of shop visits tail off, the heavier shop visit scope will continue to build. And so, we still see very steady and growing revenues in that portfolio through the end of this decade. So big picture at Pratt, the size of the GTF fleet and the aftermarket that it is and will generate and continue to grow over the next 5 to 10 years will offset any of the managed decline on the legacy fleets. And then some. In particular with respect to the margins, we continue to have low double-digit margins in the GTF aftermarket. I think that there continues to be opportunity there that we've talked about. These are long-term contracts. We remain prudent in the way we look at the booking rates on those. And we're introducing a lot of new material and additional benefits to the GTF engine over the coming couple of years. We expect that to further benefit the GTF aftermarket margins as well. So it's on the right trajectory and no changes from what we've talked about in the past.

Thank you. The next question comes from the line of Miles Walton from Wolf Research. Your line is now open.

Thanks so much. Um, good morning. First a clarification. Are you planning to deliver more on-wing engines to Airbus this year than you were at the start of the year? And then on Collins, could you comment on what your outlook is for the OE portion of the business? That seems like it's probably the biggest contributor to the raise there on the top line. And where are you seeing that relative to your production channels in terms of better performance? Thanks.

Yeah, thanks Miles. I'll start here and Chris can pile on. As it relates to our plans with Airbus, no change to our installs in terms of the full year. We're really just swizzling some product between the spare engines and the aftermarket. That will grow in the second half, the installs, and Chris talked about just a few minutes ago that we'll deliver a record number of engines to Airbus this year and ahead of our market share. On the Collins side, you're right. We're pleased by the rate increases that we're seeing. On the OE side, I would put about $525 million at the midpoint of our increase at Collins to the commercial OE side. And it's really across both narrow body and widebody. As you know, we have some really heavy content on the widebody. It doesn't come with profit, but nonetheless building confidence in the supply chain performance there and that's enabled us to sort of take up the top line as it relates to those deliveries that we see coming in the second half.

Thank you. The next question comes from the line of John Gooden from CD Yolanis. Your line is now open.

Hey guys, thanks for taking my question. I wanted to just spend a second on the international opportunity in defense. That's something that kind of has been sprinkled throughout some of your answers to the questions and I was hoping to just kind of put it in one place. I thought I heard you guys say international bookings were up 2x year-over-year. It seems like there's a huge opportunity out there internationally that may not be fully appreciated. And even when these framework agreements come through, there might be international demand on top of that. Maybe you guys could just sort of reflect on that and how the international opportunity is going to kind of flow through the numbers over the next few years. Thanks.

Thank you. The next question comes from the line of Zipman from JP Morgan. Your line is now open.

Hey. Thanks very much and good morning. I wanted to ask a little bit about Collins and expected profitability there. You raised sales and profit guidance. Looks like expected margin rate roughly similar despite the increase in OE sales. There's still a significant margin opportunity at Collins and maybe if you could talk a little bit about the pace of realizing that opportunity and what's in front of us as we think about both the things that you guys can do from a self-help perspective and then also maybe some of the headwinds that might emerge from a mix perspective.

Yeah, thanks. Let me start, Seth, on that one. Let me start with this year. Again, you're right. We're seeing call it 17% return on sales and a significant increase despite some tariff headwind that we're still going to see this year at Collins. So really good performance. There's a big step up in the second half. And just to help you with the drop through, just talked about the top line going up about $525 million for higher OE sales. Keep in mind the 787 is a piece of that and there's not a lot of profit contribution there. So hence the lower drop through but there's a huge step up between the first half and the second half. And when I think about that, about 60% of that step up is going to come from drop through on the higher volume that we're going to see across all the channels at Collins in the third and fourth quarter, and the rest 40% of that's going to come from cost reduction actions. Collins has taken on some really significant structural changes to their business. They've invested a bit in the first half of this year to begin the realization of those cost reductions which we expect to start to play through in the second half and then continue out over the next several years. And so as we step further back and look at the margin opportunity at Collins, we've always talked about our ability to get back to call it 19-20% type margins. And we see no reason why when you think about the growth drivers of that business, more and more out of warranty flight hours, a larger installed base, continued ramp on the OE side, really significant and healthy mission systems defense business at Collins as well. All of those things we see growing over the next few years and that additional volume is going to help with absorption and you couple that with this cost reduction what you've called self-help and we agree, all that puts us in a good position to continue to drive these margins higher over the next several years.

Thank you. The next question comes from the line of Scott Nichas from Millius Research. Your line is now open.

Morning Chris, Neil, and Nathan. Chris, a high level question at Farnborough. Airbus mentioned they see the launch of the next clean sheet aircraft program as an opportunity to rebalance the business model of the industry. Just curious what your thoughts are on that. Are they looking to become a risk sharing partner in future engine programs or are they thinking about taking royalties on your aftermarket sales in exchange for maybe a higher ASP on the install engines? Just curious your thoughts.

Thank you. The next question comes from the line of Douglas Horn from Bernstein. Your line is now open.

Good morning. Thank you. Hey Doug, you know Chris, when you're talking about this high demand for tactical missiles, interceptors, this has been a really strong position even a year ago, as you had huge export demand. You added on top of that Golden Dome, now we have the war in Iran and more export orders. So when you look at the trajectory and particularly with respect to the frameworks you were already really pushing for higher production rates over the next 3 years or so before. How do you see this higher demand today in terms of what the shape of that trajectory can look like given the efforts you would have to invest to bring the rate up?

Thank you. This now concludes our Q&A session. I will now send the call back to Nathan Wear.

All right. Thank you, Libby. That concludes today's call. As always, the investor relations team will be available for follow-up questions. Thank you all for joining us and have a good day. Thanks, everybody.

This now concludes today's conference. You may now disconnect.