RTX Corporation (RTX) — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Amounts are U.S. dollars. RTX changed its legal name from Raytheon Technologies Corporation effective July 17, 2023, and reorganized into Collins Aerospace, Pratt & Whitney, and Raytheon effective July 1; prior segment comparisons were recast.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $13.464B | $16.951B | $48.993B | $48.981B |
| Operating profit (loss) | $(1.396)B | $1.520B | $1.784B | $4.013B |
| Net income (loss) attributable to common shareowners | $(984)M | $1.387B | $1.769B | $3.775B |
| Diluted EPS | $(0.68) | $0.94 | $1.21 | $2.54 |
| Operating margin | (10.4)% | 9.0% | 3.6% | 8.2% |
| Operating cash flow | Not presented by quarter | $3.172B | $2.540B |
Q3 reported sales fell 21% year over year, chiefly due to the Pratt & Whitney Powder Metal Matter; excluding the filing’s “Other” items, sales increased organically by $2.0B. Nine-month sales were essentially flat, while organic sales increased $5.6B. Services sales rose to $4.849B in Q3 from $4.195B; product sales fell to $8.615B from $12.756B.
For the nine months, capital expenditures were $1.610B, cash dividends paid were $2.472B, and share repurchases settled in cash were $2.587B. Cash and equivalents were $5.456B at September 30, versus $6.220B at year-end 2022. Total debt was $35.260B versus $31.914B; debt to total capitalization increased to 33% from 30%. Current assets were $46.518B and current liabilities $45.002B.
Segments and changes versus prior period
- Collins Aerospace: Q3 sales increased 16% to $6.629B and operating profit rose 22% to $903M; margin improved to 13.6% from 13.0%. Growth reflected commercial aerospace aftermarket recovery and higher OEM activity.
- Pratt & Whitney: Q3 sales were $926M versus $5.380B and operating loss was $2.482B versus $316M operating profit, primarily due to the Powder Metal Matter charge. Organic sales and operating profit increased, supported by commercial aftermarket and OEM activity, before the charge.
- Raytheon: Q3 sales rose 3% to $6.472B, while operating profit declined 18% to $560M and margin fell to 8.7% from 10.9%. Lower margin mix and unfavorable contract estimate adjustments affected profit.
Nine-month operating profit fell to $1.784B from $4.013B, reflecting the Powder Metal charge and a lower FAS/CAS pension adjustment, partly offset by improved underlying segment sales and Collins performance. Consolidated cost of sales was 94.7% of sales in Q3 versus 79.4% a year earlier.
Major unusual item, outlook, and risks
- PW1100 GTF powder metal issue: RTX recorded a $2.9B pretax Q3 charge, representing Pratt & Whitney’s net 51% program share. It reduced sales by $5.4B and cost of sales by $2.5B, and increased other accrued liabilities by $2.8B, principally for expected customer compensation. The charge reduced nine-month net income by $2.2B after tax and partner share, or diluted EPS by $1.52. The revised inspection plan is expected to drive significant additional shop visits and elevated A320neo aircraft-on-ground levels through 2026. Actual cost depends on inspection results, shop-visit timing, parts availability, repair capacity, and customer negotiations; further changes could materially affect results.
- Demand and backlog: Total backlog was approximately $190B at September 30, 2023, including $75B of defense backlog; total RPO was also $190B. RTX expects approximately 30% of RPO to be recognized as revenue over the next 12 months. Management described the long-term aerospace outlook as positive, while noting continuing supply-chain and labor constraints. The filing provides no clear full-year financial guidance in the supplied text.
- Liquidity and financing: RTX had $1.0B of commercial paper outstanding at a 5.6% weighted-average rate and an undrawn $5.0B revolving facility expiring in August 2028. S&P downgraded RTX to BBB+/stable in August; Moody’s remained Baa1/stable. Management expects adequate funding access but notes further rating declines could raise borrowing costs.
- Subsequent capital actions: In October 2023, the board authorized up to $11B of repurchases, including a planned $10B accelerated share repurchase. RTX arranged a $10B bridge facility and intends to refinance it with long-term debt; management expects increased interest expense but said it does not expect a material liquidity impact.
- Other exposures: Approximately $390M in advance payments from a Middle East customer may be refundable if contracts are terminated because required approvals may not be obtained. Supply constraints, potential U.S. government shutdown or extended continuing resolutions, geopolitical developments (including Israel-Hamas, Russia, and China-related sanctions), and regulatory approvals may affect operations. A DOJ investigation involving Raytheon contract pricing and related matters has an approximately $300M accrual; the company cannot estimate any additional loss. Other government-contract disputes and investigations remain pending.
- Agreements to sell Collins’ actuation and flight control business for approximately $1.8B and Raytheon’s Cybersecurity, Intelligence and Services business for approximately $1.3B were subject to regulatory approvals and other closing conditions.
Important facts for investors to verify
- Whether the $2.9B powder metal estimate adequately captures total customer compensation, inspections, replacement parts, and shop-visit costs through 2026.
- Progress on PW1100 fleet inspections, aircraft-on-ground levels, repair capacity, and any impact on other engine models.
- Underlying segment margins and cash generation, separated from the charge and working-capital movements; Q3 operating cash flow was not provided.
- Debt and interest expense after the planned $10B accelerated repurchase, including refinancing terms and credit-rating effects.
- Resolution of the potentially refundable $390M customer advances, pending divestitures, tax examinations, and government-contract investigations.
- Impacts of supply and labor constraints, government funding uncertainty, and geopolitical developments on orders, approvals, deliveries, and collections.
The interim financial statements were reviewed by PwC, not audited.