Q1 2025 Earnings Summary
- Resilient Order Flow & Aftermarket Demand: Executives noted that despite market uncertainties, order activity remained strong in the first quarter—with aftermarket orders and gang demand proving resilient even as customers navigate a dynamic environment—indicating robust near-term revenue visibility.
- Robust European Defense Tailwinds: The management highlighted Europe’s increased defense spending—citing an additional $850 billion over the next 4–5 years and strong partnerships (e.g., 9 suppliers in Poland for Patriot)—which, along with a book-to-bill ratio at or above 1.0, underscores significant long-term tailwinds for Raytheon’s defense portfolio.
- Effective Mitigation of Tariff & Supply Chain Risks: Leadership detailed proactive strategies—including regulatory mechanisms, adjusted pricing actions, and improved supply chain management—to mitigate a net estimated tariff impact (approximately $850 million net impact split between Collins and Pratt) while maintaining margin strength, thereby preserving earnings stability.
- Tariff and Cost Pressures: The call highlighted an estimated net tariff impact of approximately $850 million, with potential additional drag on cash flow due to delayed duty drawback recoveries and back-half loading of inventory impacts, which could pressure margins if tariffs persist. [Index 17][Index 20]
- Supply Chain Vulnerabilities: Concerns were raised about supply chain disruptions—for example, the SPS fire and the challenges in adapting to a duty-laden environment may impact timely parts flow and operational efficiency, recalling past disruptions seen during COVID. [Index 11][Index 18]
- Labor Negotiation Risks: Ongoing discussions regarding labor negotiations, particularly at Pratt, pose a risk of potential strikes or disruptions that could delay engine deliveries and maintenance operations, negatively affecting revenue and demand fulfillment. [Index 21]
Metric | YoY Change | Reason |
---|---|---|
Total Revenue | +5.1% (from $19,305M to $20,306M) | Total Revenue increased by $1,001M driven by stronger performance in key business segments—most notably, Pratt & Whitney (+14%) and Collins Aerospace (+7.9%)—which partially offset the decline in the Raytheon segment; this mixed performance reflects strategic adjustments compared to previous periods. |
Collins Aerospace | +7.9% (from $6,673M to $7,217M) | Revenue grew due to higher commercial aftermarket and defense sales, boosting performance compared to last year, as the segment capitalized on rising demand and improved operational metrics. |
Pratt & Whitney | +14% (from $6,456M to $7,366M) | A strong rebound driven by increased engine deliveries, enhanced military sales, and higher OEM sales pushed revenues higher; this recovery marks a significant improvement over the previous period. |
Raytheon (Consolidated) | -4.8% (from $6,659M to $6,340M) | Despite overall stability in some defense contracts, the segment suffered from lower contract volume and underperformance in specific areas, which dragged the consolidated revenue down compared to Q1 2024. |
Raytheon – Cost-type Subsegment | -19% (from $3,337M to $2,695M) | A sharp decline of $642M is attributed to reduced cost-type contract volumes and a shift in contract mix relative to the prior period, significantly impacting this subsegment. |
U.S. Revenue | -0.8% (from $11,361M to $11,266M) | The slight decrease is likely due to marginal contraction in domestic orders despite overall robust business performance, reflecting a relatively stable but modest impact compared to other regions. |
Europe Revenue | +15.2% (from $3,833M to $4,413M) | A notable increase of $580M resulted from robust recovery in both defense and aerospace sales in Europe, revealing strong regional demand relative to the previous period. |
Asia Pacific Revenue | +6.7% (from $2,427M to $2,592M) | Growth was driven by improved commercial and defense sales as the region recovered with increased flight activity and higher demand, marking a healthy, though moderate, advance over last year. |
Other Regions Revenue | +42% (from $835M to $1,187M) | An impressive surge of $352M indicates strong organic growth and possibly the absence of prior negative adjustments, propelling Other regions well ahead compared to the prior period. |
Operating Profit | +8.7% (from $1,870M to $2,035M) | Enhanced operational efficiencies and improved margin profiles in key segments contributed to a $165M increase in operating profit, underscoring better cost control and performance improvements relative to Q1 2024. |
Net Income from Continuing Operations | -6.7% (from $1,743M to $1,625M) | Despite revenue gains, increased costs and possibly higher tax expenses resulted in a $118M decline in net income from continuing operations compared to the prior period. |
Basic EPS | -10.9% (from $1.29 to $1.15) | A decrease in Basic EPS by $0.14 reflects the lower net income and potential share dilution, highlighting the sensitivity of EPS performance to underlying profitability despite robust revenue growth. |
Operating Cash Flow | +280% (from $342M to $1,305M) | A dramatic increase was driven by improved working capital management, better collections, and significant factoring activity, which enhanced cash generation relative to Q1 2024. |
Cash and Cash Equivalents | -8% (from $5,607M to $5,157M) | The decrease in liquidity is primarily due to higher outflows in financing activities, including debt repayments and dividend payments, which outweighed the gains from operating cash flow improvements. |
Metric | Period | Previous Guidance | Current Guidance | Change |
---|---|---|---|---|
Collins Aerospace – Sales Growth | FY 2025 | Expected to grow low single digits on adjusted basis and mid‑single digits organically | Expected to grow low single digits on an adjusted basis and mid‑single digits organically | no change |
Collins Aerospace – Operating Profit Growth | FY 2025 | Expected to grow between $500 million and $600 million | Expected to grow between $500 million and $600 million versus FY 2024 | no change |
Pratt & Whitney – Sales Growth | FY 2025 | Expected to grow high single digits on both adjusted and organic bases | Expected to grow high single digits on both an adjusted and organic basis | no change |
Pratt & Whitney – Operating Profit Growth | FY 2025 | Expected to grow between $325 million and $400 million | Expected to grow between $325 million and $400 million versus FY 2024 | no change |
Raytheon – Sales Growth | FY 2025 | Expected to grow mid‑single digits organically | Expected to grow low single digits on an adjusted basis and mid‑single digits organically | no change |
Raytheon – Operating Profit Growth | FY 2025 | Expected to grow between $150 million and $225 million | Expected to grow between $150 million and $225 million versus FY 2024 | no change |
Overall Company – Backlog | FY 2025 | no prior guidance | $217 billion, up 8% year‑over‑year, including $125 billion in commercial orders and $92 billion in defense awards | no prior guidance |
Overall Company – Free Cash Flow | FY 2025 | Expected to be between $7 billion and $7.5 billion | Generated $792 million (including $200 million for powder metal-related compensation) | lowered |
Metric | Period | Guidance | Actual | Performance |
---|---|---|---|---|
Sales YoY Growth | Q1 2025 | 4% to 6% organic growth | 5.2% YoY growth (19,305→ 20,306) | Met |
Operating Profit YoY | Q1 2025 | Increase of 10% to 13% | 8.8% YoY growth (1,870→ 2,035) | Missed |
Adjusted EPS YoY Growth | Q1 2025 | 5% to 7% increase | -10.9% YoY (1.28→ 1.14) | Missed |
Topic | Previous Mentions | Current Period | Trend |
---|---|---|---|
Resilient Aftermarket Demand and Order Flow | Consistently discussed across Q4 2024, Q3 2024, and Q2 2024 with robust commercial aftermarket growth (e.g., 15%–14% organic increases), record backlogs, and strong order flows ( ). | Q1 2025 reported very strong commercial aftermarket performance with 21% organic growth, stable customer behavior, and proactive monitoring of order flow ( ). | Consistently strong with incremental improvements. |
Robust Defense Programs and International Spending | Previously emphasized in Q4 2024, Q3 2024, and Q2 2024 with healthy defense orders, strong international mix (up to 44% internationally) and record backlogs ( ). | Q1 2025 highlighted increased European defense spending opportunities, a strong defense backlog, and active international partnerships ( ). | Consistent and reinforcing focus, with rising international opportunities. |
Evolving Supply Chain Challenges and Mitigation Strategies | Q4 2024, Q3 2024, and Q2 2024 covered issues such as structural castings constraints, microelectronics lead times, and emphasized embedding supplier teams and digital tools to mitigate bottlenecks ( ). | Q1 2025 noted steady improvements in key part families, proactive supplier collaboration, and effective mitigation protocols to address evolving supply chain challenges ( ). | Ongoing challenge with notable mitigation gains. |
Advancements in Engine Technology and GTF Advantage | Across Q4 2024, Q3 2024, and Q2 2024, there was a consistent focus on rigorous testing, endurance routines, and progress in integrating advanced technologies (e.g., powder metallurgy, durability improvements) with clear certification milestones ( ). | Q1 2025 announced FAA certification for the GTF Advantage and the development of an upgrade package to bring durability improvements to the existing fleet ( ). | Steady technological progress with clear certification milestones. |
Strong Free Cash Flow Generation and Margin Expansion | Q4 2024, Q3 2024, and Q2 2024 reported robust free cash flow generation with billions in FCF, significant segment margin expansion, and supportive operational improvements ( ). | Q1 2025 showcased strong free cash flow (792 million for the quarter) and 120 basis points of segment margin improvement across all segments ( ). | Consistently growing and improving margins. |
Increased Investment in R&D and Product Innovation | Q4 2024 highlighted heavy R&D spending (over $7.5 billion), rapid product cycles (e.g., the Coyote Effector), and Q3 2024/Q2 2024 noted investments in hybrid electric propulsion, advanced materials, and digital/AI enhancements ( ). | Q1 2025 reaffirmed the focus with innovations like the GTF Advantage program and LTAMDS, along with further defense innovation initiatives ( ). | Sustained high investment fueling continual product innovation. |
Tariff and Trade Policy Impacts | Not mentioned in Q4 2024, Q3 2024, or Q2 2024. | Q1 2025 provided detailed discussion of tariff impacts (net operating profit impact estimated at $850 million) and outlined mitigation strategies ( ). | Reintroduced emphasis; previously absent, now receiving detailed focus. |
Labor Negotiation and Workforce Risks | No discussion in Q4 2024, Q3 2024, or Q2 2024 excerpts. | Q1 2025 addressed upcoming labor contract negotiations with Pratt & Whitney, noting a strong track record and expressing cautious optimism ( ). | Newly emphasized due to imminent contract votes. |
Emerging Underperformance in Airborne and Space Systems | Q3 2024 mentioned challenges in the airborne and space systems segment with portfolio evaluations underway, while Q4 2024 noted some lower volumes partially offset by other factors; Q2 2024 did not address this explicitly ( ). | Q1 2025 noted lower development program volume within air and space defense systems, impacting adjusted sales at Raytheon ( ). | Increasing concern with mixed sentiment. |
New Regulatory and Certification Delays (FAA Impact) | Q4 2024 and Q3 2024 described challenges in seating and interiors certification (complex requirements and high certification bar) while Q2 2024 also mentioned wide-body seating certification hurdles ( ). | Q1 2025 did not reference any new regulatory or FAA certification delays. | De-emphasized in the current period. |
Geopolitical Adjustments in Supply Chain Sourcing (Russia/Ukraine) | Q4 2024 reported sales losses due to the Russia‐Ukraine conflict; Q3 2024 referenced shifting heat exchangers from Russia to the US/UK; Q2 2024 discussed relocating heat exchanger production from Russia ( ). | Q1 2025 did not mention any geopolitical supply chain adjustments related to Russia/Ukraine. | Less prominent in current discussions. |
Declining Pension Income Impact | Q4 2024 detailed a $0.15 headwind from declining pension income and discussed funded status improvements; Q3 2024 and Q2 2024 noted it as a headwind influencing EPS ( ). | Q1 2025 did not mention pension income impacts. | No longer emphasized in the current period. |
Changing Sentiment on Engine Margin Pressures | Q4 2024 highlighted negative margin headwinds on new engine deliveries offset by profitable aftermarket growth; Q3 2024 briefly noted margin improvements; Q2 2024 did not focus on this specifically ( ). | Q1 2025 expressed cautious optimism regarding engine margins, acknowledging headwinds from a mix of spare versus installed engines and planning a reassessment in 90 days ( ). | Evolving cautiously amid headwinds; sentiment remains guarded but positive if trends persist. |
-
Tariff Timing
Q: Tariff impact timing for Q2–Q4?
A: Management stated the $850 million net tariff impact will mainly hit in the back half of the year, split roughly evenly between Collins and Pratt, with Raytheon seeing minimal effect. -
Tariff Impact
Q: Is the $850 million tariff gross or net?
A: They clarified the figure is net of available mitigations, incorporating regulatory and operational adjustments. -
Tariff Recovery
Q: Why not pass through all tariff costs?
A: Management noted that while pricing adjustments are possible, the new mitigation processes and contract nuances limit passing through the full cost immediately. -
Margin Outlook
Q: How are Collins’ margins trending?
A: They explained margins are staying near expectations despite some headwinds from mix shifts, with a cushion to absorb tariff pressures and operational changes. -
Europe Demand
Q: Does rearm Europe boost Raytheon?
A: Management sees Europe’s rearmament as a clear opportunity, highlighted by strong coproduction partnerships and stable book-to-bill ratios. -
Order Activity
Q: How is aftermarket order activity evolving?
A: They reported robust order activity in the aftermarket, with no major changes observed even as market conditions evolve. -
Shop Visits & Capacity
Q: What’s the status on V2500 shop visits and capacity?
A: The V2500 shop visits are on track, and management is focused on optimizing MRO capacity to handle required parts replacements efficiently. -
China & Supply
Q: What’s the approach to China and supply concerns?
A: They remain watchful of China’s role and any supply chain disruptions, working on diversifying sources and monitoring the global environment closely. -
Production & Supply
Q: Any declines in A350/787 production rates?
A: Management noted that aircraft OEMs have strong backlogs, and current supply chain improvements, such as better heat exchanger performance on the 787, keep production on track. -
Procurement Reform
Q: How will new procurement orders affect contracts?
A: The streamlined procurement efforts, including regulatory reforms, are seen as beneficial for speeding up contracting and enhancing supply chain flow. -
Labor Negotiation
Q: Could a Pratt union strike disrupt operations?
A: With a history of smooth union negotiations, management is cautiously optimistic that labor talks will resolve without impacting critical operations like GTF AOG support. -
Backlog Timing
Q: When will backlog convert to revenue?
A: They expect backlog conversion to occur over extended periods due to long lead times, with European defense contracts being subject to contractual timing. -
Margin Drivers
Q: What’s influencing Raytheon’s margin mix?
A: Margin improvements are largely driven by an increased international mix and productivity gains, with expectations to reach over 12% margins as conditions normalize. -
SPS Impact
Q: Has the SPS fire disrupted fastener supply?
A: They indicated that while the fire was a concern, alternate suppliers and internal mitigations are on track, preventing any significant operational impact. -
Manned Aircraft
Q: When is the engine decision expected for manned aircraft?
A: An award was received, and positive testing feedback was reported, showing that the program is progressing well with advanced engine technology.
Research analysts covering RTX.