RTX Corp. (Raytheon Technologies Corporation) — Q1 2023 Form 10-Q
Business context and reporting period
The filing covers the quarter ended March 31, 2023, compared with the quarter ended March 31, 2022. RTX operated through Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space (RIS), and Raytheon Missiles & Defense (RMD). The company planned to reorganize into three principal segments beginning in July 2023. RIS and RMD use a 4-4-5 fiscal calendar.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $17.214 billion | $15.716 billion |
| Operating profit / margin | $1.652 billion / 9.6% | $1.080 billion / 6.9% |
| Net income attributable to common shareowners | $1.426 billion | $1.084 billion |
| Diluted EPS attributable to common shareowners | $0.97 | $0.72 |
| Operating cash flow | $(863) million | $476 million |
| Capital expenditures | $520 million | $439 million |
- Sales rose about 9.5%; products sales were $12.787 billion and services sales were $4.427 billion. Cost of sales was 79.3% of sales, implying a 20.7% gross margin, versus 79.9% and 20.1% a year earlier.
- Cash and cash equivalents were $5.893 billion at March 31, down from $6.220 billion at year-end 2022. Total debt was $34.486 billion; debt to total capitalization was 32%, versus 30% at year-end.
- RTX issued $3.0 billion of long-term notes during the quarter. It had $100 million of commercial paper outstanding and $7.0 billion of revolving credit facilities with no borrowings outstanding.
- Backlog and remaining performance obligations were each reported at approximately $180 billion. Management expects about 25% of RPO to be recognized as revenue over the next 12 months; approximately 45% relates to long-term Pratt & Whitney commercial maintenance contracts.
Material changes versus prior year
- Operating profit increased $572 million. Collins Aerospace operating profit rose to $794 million from $440 million, and Pratt & Whitney rose to $415 million from $151 million. RIS operating profit declined to $324 million from $378 million; RMD declined to $328 million from $387 million.
- Net contract estimate-at-completion (EAC) adjustments were unfavorable by $124 million, versus favorable adjustments of $36 million in Q1 2022, reducing 2023 diluted EPS by an estimated $0.07. Unfavorable changes were concentrated in RIS and RMD, spread across programs.
- Prior-year results included $290 million of pretax Russia-related charges. Their absence benefited the year-over-year comparison, including in Collins and Pratt & Whitney.
- Operating cash flow moved from a $476 million inflow to an $863 million outflow. Management cited higher receivables and contract assets, including sales ahead of billings; factoring activity was also less favorable year over year.
Outlook, commentary, risks and unusual items
- The filing provides no specific full-year revenue, earnings, or cash-flow guidance. Management said commercial air travel continues to recover and described the long-term aerospace outlook as positive, while noting uncertainty around the pace of recovery.
- Supply-chain, materials, labor, inflation, and delivery constraints persisted; timing of improvement is uncertain. The company also cited geopolitical, trade, export-control, and government-budget risks, including announced Chinese sanctions against RMD and pending or potentially refundable customer contracts subject to regulatory approvals.
- Approximately $395 million of advance payments from a Middle East customer relate to contracts RTX no longer believes it can execute or obtain approvals for; the payments may be refundable if the contracts are terminated.
- RTX accrued approximately $290 million for a DOJ investigation involving RMD financial accounting, internal controls, and cost reporting. The company could not estimate any additional loss. Other disclosed matters include significant government contract disputes, SEC/DOJ inquiries, and antitrust litigation; management generally stated it did not expect disclosed matters to materially affect results, financial condition, or liquidity.
- Potential tax items include a reasonably possible $185–$225 million net income benefit from expected closure of certain IRS audit phases in 2023, and a possible $250–$375 million reduction in unrecognized tax benefits within 12 months. These are estimates, not assured outcomes.
- Other notable items: a first-quarter land-sale gain; a $60 million favorable Pratt & Whitney contract matter; dividends paid of $0.55 per share, with a $0.59 dividend declared for June 2023; and a 2022 Russia-related charge that affected comparability. PwC performed a review of interim financial information, not an audit.
Important facts for investors to verify
- Whether operating cash flow recovers as receivables, contract assets, inventory, and customer billings evolve.
- Whether the unfavorable EAC trend at RIS and RMD persists, and how contract costs, schedules, and performance affect margins.
- Progress on the $395 million Middle East customer contracts and any refund or termination exposure.
- Developments in the DOJ/SEC matters, government contract claims, and the adequacy of related accruals, including the $290 million DOJ-related reserve.
- Execution of the planned segment reorganization and effects of supply-chain, labor, geopolitical, and regulatory constraints on delivery and growth.