Q2 2024 Summary
Published Jan 10, 2025, 5:10 PM UTC- RTX expects operational free cash flow of $7 billion to $7.5 billion, demonstrating strong underlying operations and sustainable cash flow once one-time items are resolved.
- RTX raised its sales guidance, driven by strong performance in Pratt & Whitney and Collins units, with increased demand in military (e.g., F135 and F117 engines) and commercial aftermarket segments, trending towards the high end of prior ranges.
- RTX is advancing engine technology with the GTF Advantage, which is 90% through testing, offering 1% improved fuel burn, 4% increased thrust, and enhanced durability, while investing in enabling technologies for future engines, positioning the company as a leader in next-generation propulsion systems.
- RTX is experiencing delays in certifying wide-body first-class seats with the FAA due to complex requirements, potentially impacting revenue in their Collins interiors business.
- Supply chain disruptions, such as the need to relocate 787 heat exchanger production out of Russia due to the conflict in Ukraine, have caused delays in ramping up output to meet Boeing's demand.
- Despite increasing sales guidance, RTX did not raise profit guidance due to higher product costs, lower OE rates, and increased R&D expenses, particularly in the defense segments of Pratt & Whitney and Collins, which may pressure margins.
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Free Cash Flow Target
Q: Does the free cash flow target for next year still stand?
A: Management affirmed that the free cash flow target for next year remains achievable, citing strong fundamental business drivers and resilient demand. They acknowledge potential risks like OE rates and supply chain challenges but express confidence based on current visibility. -
Cash Flow Gap and DOJ Impact
Q: How will the net income to cash flow gap close, and what's the DOJ cash impact beyond 2024?
A: Management expects the net income to cash flow gap to close over time, highlighting underlying operational free cash flow of $7–7.5 billion after adjusting for nonrecurring items. The DOJ settlements will impact cash flow primarily in 2024, with manageable residual payments of about $50 million per year thereafter. -
Terminated Contract Impact
Q: Details on terminated contract, other problem programs, and cash impact?
A: RTX proactively terminated a significant classified defense contract due to misalignment with core competencies, incurring a cash impact of about $500 million in 2024. Management feels they have a better handle on other classified fixed-price development programs and expects minimal lingering costs beyond 2024. -
Profit Guidance Unchanged
Q: Sales up but profit guidance unchanged; is that conservative?
A: While sales guidance increased by $625 million at the midpoint, profit guidance remains unchanged due to higher production costs, particularly in military programs, under-absorption from lower OE rates, and increased R&D spending. Management is confident in the updated outlook but opts for caution amid several moving pieces. -
GTF Fleet Management Plan
Q: Any improvements in GTF fleet management plan before 2026?
A: Management reports that key assumptions for the GTF fleet remain consistent or better, with MRO output up 10% from Q1 to Q2 and first-half output up over 30% year-over-year. While they are driving improvements in material flow and processes, no definitive indication of metrics improving before 2026 was provided. -
Structural Casting Issues
Q: Why are structural casting issues persisting, and what's being done?
A: Structural castings remain a constraint due to reliance on a few suppliers ramping up simultaneously. RTX is seeing sequential improvements but acknowledges the need for higher increases. They're enhancing demand forecasting, securing long-term agreements, and deploying teams to suppliers to accelerate production. -
Production Rates on MAX and 787
Q: Have you reduced production rates on MAX and 787?
A: RTX has adjusted its outlook for Boeing OE rates, reflecting a more gradual increase rather than reduction. They are currently in the low 30s per month and expect rates to ramp up over the year, aligning with airframers but monitoring the situation closely. -
V2500 MRO and GTF Inductions
Q: V2500 MRO status and long GTF induction wait times?
A: V2500 inductions are on track, with 369 inductions in the first half and heavier overhaul work scopes expected in the second half. For GTF engines, while shop turnaround times have improved when material is available, induction wait times remain lengthy due to a backlog of engines awaiting service. -
Future Engine Outlook
Q: Outlook for future engines and next-gen GTF efficiency?
A: RTX is focused on the GTF Advantage, nearing certification with over 90% testing complete, offering additional 1% fuel burn improvement and 4% thrust. For future engines, they are investing in technologies like composite fan blades, CMCs, planetary gear systems, and hybrid-electric applications, aiming for further efficiency gains while prioritizing durability and reliability. -
Divestitures and Hoist & Winch Deal
Q: Update on divestitures and hoist & winch deal contribution?
A: RTX is pleased with recent divestitures, including the hoist and winch business expected to close in Q4, though details on revenue and EBIT contributions were not provided. They continue to evaluate the portfolio rigorously and consider additional pruning and strategic investments through RTX Ventures. -
FAA Certification and 787 Output
Q: Progress on FAA certification of seats and 787 heat exchanger output?
A: RTX is making progress on certifying wide-body first-class seats, though acknowledging the complex and stringent certification process. For the 787 heat exchanger, they are ramping up production to meet Boeing's demand after relocating production due to the Russia-Ukraine conflict. -
Collins Interiors Update
Q: Update on Collins Interiors and expectations?
A: Collins Aerospace sees significant improvement in the interiors business, which is the only segment still lagging pre-pandemic levels. Management expects substantial growth in the second half driven by aftermarket mods and upgrades. -
Aligning Profit Drivers
Q: Will profit drivers be better aligned with airframers on future programs?
A: Management agrees that aligning business models with airframers is necessary to better serve customers and reduce tensions arising from misaligned incentives. They anticipate discussions to achieve better alignment on future clean-sheet aircraft programs. -
GTF Powdered Metal Impact
Q: Can you quantify engines affected by GTF powdered metal issue?
A: While specific numbers were not provided, management explained that all new engines since late last year have full-life powdered metal parts. The ramp-up of inserting these parts into MRO engines is ongoing and will accelerate into 2025 and 2026, with prioritization based on engine evaluations. -
Assumption Changes in Negotiations
Q: Any changes in assumptions during customer negotiations?
A: Management states that key assumptions remain similar, though agreements vary by customer based on operational specifics. Each negotiation is tailored, but overall output and assumptions are consistent with previous guidance. -
Airbus Forecast and Engine Deliveries
Q: Comments on Airbus forecast cut and engine deliveries?
A: RTX acknowledges they are not fully meeting Airbus's needs but are seeing sequential and year-over-year growth in OE deliveries. They continue to balance OE, spare engine, and MRO demands and expect to provide Airbus with the necessary engines in the second half.