RTX Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with the corresponding 2023 quarter. RTX operates Collins Aerospace, Pratt & Whitney, and Raytheon. Interim results are unaudited and may not indicate full-year results.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net sales | $19.305 billion | $17.214 billion |
| Operating profit / margin | $1.870 billion / 9.7% | $1.687 billion / 9.8% |
| Net income attributable to common shareowners | $1.709 billion | $1.426 billion |
| Diluted EPS | $1.28 | $0.97 |
| Operating cash flow | $342 million | $(863) million |
| Capital expenditures | $467 million | $520 million |
Sales rose 12% year over year, with organic growth of $2.123 billion. Product sales were $14.303 billion and service sales were $5.002 billion. Cost of sales increased to $15.744 billion, or 81.6% of sales, from $13.645 billion, or 79.3%.
At March 31, 2024, cash and equivalents were $5.607 billion; total debt was $42.844 billion; and total equity was $62.100 billion. Debt was 41% of total capitalization, versus 42% at year-end 2023. RTX had no commercial paper outstanding and no borrowings under its $5.0 billion revolving credit facility. Current liabilities were $45.019 billion against current assets of $48.023 billion.
Segment performance and changes
| Segment | Sales | Operating profit | Margin |
|---|---|---|---|
| Collins Aerospace | $6.673 billion, up 9% | $849 million, down 5% | 12.7%, versus 14.7% |
| Pratt & Whitney | $6.456 billion, up 23% | $412 million, down 1% | 6.4%, versus 7.9% |
| Raytheon | $6.659 billion, up 6% | $996 million, up 74% | 15.0%, versus 9.1% |
Raytheon’s operating profit included a $0.4 billion pretax gain from the sale of its Cybersecurity, Intelligence and Services business, completed March 29 for approximately $1.3 billion in cash. The sale contributed to positive investing cash flow. Operating cash flow improved by $1.2 billion year over year, helped by receivables collection timing and factoring; factoring increased Q1 2024 operating cash flow by approximately $0.4 billion.
Net income and EPS benefited from a $285 million after-tax benefit related to the conclusion of tax audit examination phases and a $241 million after-tax CIS sale gain. These were partly offset by $389 million of after-tax acquisition-accounting adjustments and $175 million of Collins charges related to alternative titanium sourcing. The effective tax rate was 5.8%, compared with 18.4% a year earlier; the audit-related tax benefit was partly offset by $143 million of tax costs related to the CIS sale.
Cash and equivalents declined by $980 million during the quarter. Financing cash outflow was $2.007 billion, including repayment of $950 million of debt and $769 million of dividends. RTX paid $0.59 per share in dividends, compared with $0.55 in Q1 2023. The company also reported a $2.7 billion accrued liability related to the Pratt & Whitney powder metal matter.
Outlook, risks and contingencies
- Powder metal matter: Accelerated inspections and engine removals for PW1100 GTF engines are expected to drive significant incremental shop visits and elevated aircraft-on-ground levels through 2026. RTX estimates approximately $1.3 billion of related cash outflows in 2024. Outcomes depend on inspection results, shop capacity, parts availability, turnaround times, and customer compensation negotiations.
- Contracts and demand: Total backlog was approximately $202 billion, including $77 billion of defense backlog; about 25% of remaining performance obligations is expected to be recognized as revenue in the next 12 months. Defense bookings were approximately $11 billion, versus $12 billion in Q1 2023. These measures and timing depend on customer awards, budgets, approvals, and program execution.
- Operations and macro conditions: Management cited continuing supply-chain disruption, inflation, labor availability and costs, and higher interest rates. Fixed-price contracts may limit RTX’s ability to recover cost increases. Canadian sanctions affecting titanium sources resulted in $175 million of Collins charges; management expects supply-chain disruptions to continue.
- Regulatory and geopolitical exposure: Approximately $405 million of advance payments from a Middle East customer relate to contracts RTX no longer believes it can execute or obtain required approvals for; the amounts may be refundable if contracts terminate. RTX said the regional conflict’s impact had been minimal to date, while noting conditions could change.
- Legal and other exposures: The filing describes ongoing government investigations and contract disputes, including a DOJ investigation for which RTX accrued $306 million, as well as SEC and shareholder litigation concerning powder metal disclosures. RTX states it cannot predict some outcomes or estimate certain potential losses. It also faces a $12.5 billion notional value of offset/industrial participation obligations and approximately $14.5 billion of gross commercial aerospace financing and other contractual commitments.
- Liquidity and credit: RTX said cash and future operating cash flows should meet operating needs and reported adequate access to credit facilities and commercial paper markets. Its S&P rating was BBB+/negative and Moody’s outlook Baa1/negative; a downgrade could raise borrowing costs. RTX repaid a further $500 million term loan in April 2024, after quarter-end.
- Guidance: The supplied filing text does not provide a clear numerical full-year earnings or revenue guidance figure.
Most important facts for investors to verify
- Progress, cash costs, and any estimate changes for the PW1100 powder metal remediation, including the expected 2024 outflow.
- Underlying segment margins excluding the CIS gain, tax audit benefit, titanium charges, and acquisition-accounting adjustments.
- Whether operating cash flow improves without relying on receivables factoring or favorable collection timing.
- Resolution and potential financial exposure from government investigations, litigation, and the Middle East contracts with potentially refundable advances.
- Completion and final settlement of the $10 billion accelerated share repurchase, scheduled no later than Q3 2024.