RTX Corp. (Raytheon Technologies) — Q1 2021 Form 10-Q
Reporting period: Quarter ended March 31, 2021. The interim financial statements are unaudited and were reviewed, not audited, by PwC. Comparisons require care: Raytheon Company results are included only after the April 3, 2020 merger, while Carrier and Otis are presented as discontinued operations. RIS and RMD use a fiscal quarter ending April 4, 2021.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $15.251 billion | $11.360 billion |
| Operating profit / margin | $1.013 billion / 6.6% | $1.295 billion / 11.4% |
| Continuing income attributable to common shareowners | $772 million | $438 million |
| Diluted EPS, continuing operations | $0.51 | $0.50 |
| Net income (loss) attributable to common shareowners, including discontinued operations | $753 million | $(83) million |
| Operating cash flow, continuing operations | $723 million | $1.132 billion |
- Reported sales increased $3.891 billion, primarily because the prior-year period did not include Raytheon. Organic sales declined $3.180 billion: Collins Aerospace fell about $2.0 billion and Pratt & Whitney about $1.4 billion, principally reflecting weaker commercial aerospace activity.
- Operating profit declined $282 million and margin fell 4.8 percentage points. Segment operating profit was $314 million at Collins Aerospace (7.2% margin) and $20 million at Pratt & Whitney (0.5%); RIS reported $388 million (10.3%) and RMD $496 million (13.1%). RIS and RMD were not included in the comparable 2020 quarter.
- Continuing income and EPS improved modestly despite lower operating profit. Results included a $491 million non-service pension benefit, $398 million after-tax acquisition-accounting charges, a $148 million Forcepoint-sale tax charge, and $33 million after-tax restructuring costs.
- Cash flow from continuing operations was down $409 million year over year. Capital expenditures were $387 million. Investing cash flow was positive $582 million, including $1.049 billion of net Forcepoint sale proceeds. Financing cash flow was a $1.544 billion outflow, including $705 million of dividends and $375 million of share repurchases.
Liquidity and debt
- Cash and cash equivalents were $8.579 billion, versus $8.802 billion at year-end 2020. Total debt was $31.538 billion; debt to total capitalization was 30%.
- The company reported $6.84 billion available under credit facilities, including $7.0 billion of revolving agreements with no borrowings outstanding. Management said liquidity was sufficient to withstand potential COVID-19 impacts.
- Quarter-end current assets were $42.552 billion and current liabilities $36.359 billion. The balance sheet included $29.935 billion of long-term debt, net of current portion.
Outlook, commentary and risks
- No specific full-year revenue or earnings guidance is provided in the supplied filing text. Management expected commercial aerospace results, particularly at Collins Aerospace and Pratt & Whitney, to remain below pre-pandemic levels; it estimated full recovery in commercial air traffic could occur in 2023 or 2024, subject to substantial uncertainty.
- Remaining performance obligations were $147.4 billion, about 30% expected to be recognized as sales over the next 12 months. Timing could be affected by COVID-19-related customer delays or cancellations. Total backlog was also $147.4 billion; defense bookings were $8.5 billion for the quarter.
- Restructuring charges were $43 million. Management expected approximately $40 million of annual recurring pre-tax savings from 2021 actions within one to two years, and approximately $1.2 billion annually from 2020 actions within two years; additional costs remained to complete both programs.
- Approximately $440 million of advance payments from a Middle East customer relate to contracts the company believes it may not be able to execute or obtain regulatory approvals for; the payments could become refundable if the contracts are terminated.
- Significant legal and government matters include disputed Pratt & Whitney cost-accounting claims and a DOJ investigation involving RMD accounting, controls and contract pricing. RTX said it believes the P&W claims lack merit; it acknowledged meaningful risk of civil liability in the RMD matter but could not predict outcomes. The filing also describes an SEC/DOJ inquiry into alleged improper payments involving Thales-Raytheon Systems.
- Other exposures include $834 million reserved for environmental remediation, approximately $13.9 billion of gross commercial aerospace financing and other commitments, and approximately $11.0 billion of outstanding notional offset obligations. The company stated that, except as specifically disclosed, it did not expect pending matters to materially affect its financial condition, results or liquidity.
Important facts for investors to verify
- Separate merger-driven reported growth from underlying performance; confirm the pace of recovery in commercial aerospace and the associated segment margins.
- Track operating cash flow, working-capital movements, and the company’s use of receivables factoring; Q1 cash flow was below the prior-year period.
- Monitor the outcome and potential financial consequences of the P&W cost-accounting claims and DOJ/SEC investigations, as well as the possible refund of the $440 million customer advance.
- Check progress against restructuring savings targets, remaining costs, and the conversion of the $147.4 billion backlog into revenue.
- Assess debt maturities, liquidity and capital returns; the company repurchased $375 million of shares and paid $705 million in dividends during the quarter.