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    Q1 2025 Earnings Summary

    Reported on Apr 22, 2025 (Before Market Open)
    Pre-Earnings Price$126.12Last close (Apr 21, 2025)
    Post-Earnings Price$114.53Open (Apr 22, 2025)
    Price Change
    $-11.59(-9.19%)
    • 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]
    MetricYoY ChangeReason

    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.

    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    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

    MetricPeriodGuidanceActualPerformance
    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
    TopicPrevious MentionsCurrent PeriodTrend

    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.

    1. 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.

    2. 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.

    3. 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.

    4. 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.

    5. 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.

    6. 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.

    7. 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.

    8. 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.

    9. 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.

    10. 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.

    11. 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.

    12. 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.

    13. 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.

    14. 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.

    15. 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.