RTX Corp. (Raytheon Technologies) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Amounts are in U.S. dollars.
Business context
RTX operates four principal segments: Collins Aerospace Systems, Pratt & Whitney, Raytheon Intelligence & Space (RIS), and Raytheon Missiles & Defense (RMD). Results reflected a recovery in commercial aerospace aftermarket activity, alongside supply-chain constraints and disruption from Russia-related sanctions and export controls.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $15.716 billion | $15.251 billion |
| Operating profit / margin | $1.080 billion / 6.9% | $1.013 billion / 6.6% |
| Net income attributable to common shareowners | $1.084 billion | $753 million |
| Diluted EPS | $0.72 | $0.50 |
| Operating cash flow | $476 million | $723 million |
| Capital expenditures | $439 million | $387 million |
- Products sales were $11.862 billion and services sales were $3.854 billion. Cost of sales was 79.9% of sales, down from 82.2%.
- Operating cash flow less capital expenditures was approximately $37 million, versus $336 million in Q1 2021.
- Cash and cash equivalents were $6.040 billion at March 31, down from $7.832 billion at year-end 2021. Total debt was $31.472 billion; debt-to-total-capitalization was 30%.
- Liquidity included $7.0 billion of revolving credit facilities with no borrowings outstanding and no commercial paper outstanding. The $2.0 billion facility was due to expire in May 2022; management expected renewal.
Material changes and segment results
- Sales grew 3.1% reported and $664 million organically. Collins sales rose 10% and Pratt & Whitney sales rose 12%, led by commercial aerospace recovery. RIS sales fell 5% and RMD sales fell 7%.
- Segment operating profit improved at Collins ($440 million versus $314 million) and Pratt & Whitney ($151 million versus $20 million). RIS profit was $378 million versus $388 million; RMD profit declined to $387 million from $496 million.
- Commercial aerospace and other commercial sales increased to $6.243 billion from $5.028 billion; U.S. government sales declined to $7.338 billion from $7.748 billion.
- Net income benefited from a 9.3% effective tax rate, compared with 29.8% a year earlier. The 2022 rate included tax benefits associated with FDII and tax treatment of research expenditures; the 2021 comparison included $148 million of tax expense related to the Forcepoint sale.
- Russia sanctions and export controls resulted in $290 million of pretax charges ($210 million net of tax and noncontrolling interest) and approximately $1.3 billion of Russian-related remaining performance obligations being reversed.
Outlook, risks, and unusual items
- RTX reported $154 billion of remaining performance obligations at quarter-end, with approximately 30% expected to be recognized as sales over the next 12 months. Approximately 40% relates to long-term Pratt & Whitney commercial maintenance contracts.
- Management described commercial air travel as recovering in some markets but said the timing of a full return to or above pre-pandemic capacity remained uncertain. The filing provides no clear quantified full-year revenue or earnings guidance.
- Management warned that if the research and experimental expenditure tax provision is not deferred, 2022 tax payments could increase by an estimated $2 billion, with higher payments beginning later in the year.
- Supply-chain and labor disruptions, inflation and commodity costs, geopolitical developments, government funding and approvals, and commercial aerospace recovery were identified as risks.
- Approximately $420 million of advances from a Middle East customer relate to contracts RTX said it no longer believes it can execute or obtain required approvals for; some amounts may become refundable if contracts are terminated. Russian customer advances may also be refundable, depending on contract terms and sanctions.
- RTX accrued approximately $290 million for a DOJ investigation and potential civil claims involving RMD contract accounting and cost reporting. Other matters include disputed government cost-accounting claims and a DOJ antitrust investigation; outcomes and potential additional losses may be uncertain.
- Environmental remediation reserves were $830 million. Gross commercial aerospace financing and other contractual commitments were approximately $15.5 billion; the filing notes utilization is uncertain and many financing commitments are collateralized.
Key facts for investors to verify
- Whether commercial aerospace recovery and supply-chain conditions support continued sales and margin improvement, particularly at Collins and Pratt & Whitney.
- Cash conversion and working-capital trends: operating cash flow fell year over year, while inventory increased to $9.749 billion.
- The actual cash-tax impact of research-expenditure capitalization and whether the estimated $2 billion increase in 2022 tax payments is deferred or otherwise changed.
- Further financial effects from Russia-related sanctions, including the reversed obligations, impaired assets, and potentially refundable advances.
- Developments in the DOJ investigation and other legal matters, including whether losses beyond recorded accruals become probable or estimable.
- Renewal status of the $2.0 billion revolving facility that was scheduled to expire in May 2022.