RTX Corporation Projects Growth Despite Operational Headwinds

Rtx Corporation ((RTX)) has held its Q4 earnings call. Read on for the main highlights of the call.

RTX Corporation’s latest earnings call sounded a decidedly upbeat note, with management emphasizing double‑digit organic revenue growth, rising earnings, and a sharp jump in free cash flow for FY2025. A record backlog and strong bookings across both commercial and defense businesses underpinned a confident tone, while executives highlighted visible operational improvements and a clear path to further gains in 2026. Though they repeatedly flagged headwinds from tariffs, GTF-related customer compensation, pension dynamics, and supply‑chain bottlenecks, RTX framed these as manageable risks already embedded in guidance, leaving investors with a net-positive outlook on both fundamentals and cash generation.

Full-Year Revenue: Double-Digit Organic Growth to $88.6 Billion

RTX delivered adjusted sales of $88.6 billion in FY2025, an increase of $9.0 billion year over year and 11% organic growth. The performance reflects broad strength across the portfolio, with both commercial aerospace and defense contributing. Management framed this growth as evidence that demand remains durable despite macro uncertainty, and that RTX is successfully converting its record order book into revenue.

Rising Earnings and Stronger Free Cash Flow

Profitability moved higher alongside revenue, with adjusted EPS climbing 10% year over year to $6.29. Free cash flow surged to $7.9 billion, an improvement of $3.4 billion over the prior year, giving RTX more flexibility to fund investments, service debt, and return cash to shareholders. Management underscored that this step-up in cash generation is structural, driven by higher volumes, better productivity, and improved working capital, even after absorbing substantial outflows tied to GTF customer compensation.

Backlog and Book-to-Bill Signal Long Runway

The company closed FY2025 with a full-year book-to-bill of 1.56 and a record backlog of $268 billion, up 23% from a year earlier. The backlog is roughly split between commercial ($161 billion) and defense ($107 billion), highlighting diversified demand. RTX management pointed to this deep order book as a key indicator of multi‑year revenue visibility, especially as geopolitical tensions and commercial fleet growth sustain robust order activity.

Quarterly Momentum Across Commercial and Defense Channels

Fourth quarter adjusted sales reached $24.2 billion, up 12% on an adjusted basis and 14% organically. Commercial original equipment climbed 18%, commercial aftermarket rose 17%, and defense grew 10%, showcasing balanced momentum. The strong aftermarket performance is particularly important for margins and cash flow, while the solid defense growth demonstrates that RTX is successfully ramping programs despite continued supply‑chain friction.

Segment Wins and Robust Order Flow

RTX highlighted a series of notable contract wins that further support growth. Pratt & Whitney booked orders for 1,500 GTF engines and more than 2,400 Pratt Canada engines, reinforcing the long-term franchise value of its propulsion portfolio. Raytheon secured major awards, including a $1.2 billion Patriot contract for Spain and a $1.2 billion Tamir missile award, and logged $40 billion of bookings over the year. Raytheon’s international backlog mix reached 47%, up three percentage points, underscoring expanding global demand for its defense systems.

Pratt & Whitney: Exceptional Growth and Profitability

Pratt & Whitney delivered standout results, with FY sales rising to $32.9 billion, up 17% organically. In Q4 alone, sales hit $9.5 billion, up 25% year over year, while operating profit increased to $776 million, up $59 million. Management attributed the strength to robust OEM deliveries, healthy aftermarket activity, and strong military engine volumes. Despite the ongoing GTF fleet issues, Pratt’s core business is growing rapidly and remains a major earnings driver for RTX.

Raytheon: Operational Gains and Margin Expansion

At Raytheon, Q4 sales advanced 7% to $7.7 billion and operating profit grew to $885 million, up $157 million. For the full year, Raytheon posted $28 billion in sales with 6% organic growth and a 130‑basis‑point margin expansion. Management cited productivity improvements and favorable mix as key contributors, indicating that ongoing process improvements and digital initiatives are beginning to translate into sustained profitability gains in the defense portfolio.

Digital Productivity and Manufacturing Efficiency

RTX emphasized significant progress on operational productivity, driven by digital deployment across its factories. More than half of manufacturing hours are now digitally connected, enabling real-time visibility and process optimization. Examples include a 45% reduction in aged inventory at Pratt’s Lansing facility and a 35% reduction in circuit card cycle times at Raytheon’s Andover site. Munitions output on critical programs is up about 20%, underscoring how digital tools are directly supporting elevated defense demand.

GTF Fleet Management: Improving Reliability and Capacity

Management reported clear progress on the GTF engine fleet issues. Maintenance, repair, and overhaul (MRO) output increased 26% for the year and 39% in Q4, while aircraft-on-ground levels are more than 20% below 2025 peaks. Heavier shop visits rose 40% in 2025 as RTX worked through the backlog of inspections and repairs. New MRO partnerships, including UAE Sinad and ITP Aero, are expanding capacity. While GTF-related costs remain material, RTX is gradually normalizing fleet operations and limiting customer disruption.

Heavy Investment in Capacity and R&D

RTX continued to invest aggressively to support future growth and strengthen its industrial base. The company deployed $2.6 billion in capital expenditures in 2025 and more than $10 billion when combining CapEx with company- and customer-funded R&D. For 2026, RTX plans about $10.5 billion of total R&D and investment, including roughly $3.1 billion of CapEx, around $500 million higher than 2025. These funds will go toward expanding capacity, addressing supply‑chain bottlenecks, and advancing next‑generation technologies across commercial and defense platforms.

Tariff and Other One-Time Pressures

Tariffs weighed on results in 2025, with Q4 and full-year figures reflecting roughly $600 million of tariff-related impacts. At Collins, tariffs imposed around a 90‑basis‑point margin drag for the year, and management expects an additional quarter of tariff expense in early 2026 before the impact normalizes. While these items are transitory, they have muted segment margin expansion in the near term and are explicitly incorporated into RTX’s 2026 planning.

GTF Customer Compensation: Material but Manageable Cash Outflows

RTX absorbed approximately $1.0 billion of GTF powder-metal-related customer compensation during the quarter, underscoring the financial weight of the fleet issue. For 2026, the company expects about $700 million of cash outflows tied to these obligations and anticipates cumulative flight management program-related cash outflows of roughly $2.8 billion through the end of 2026, targeting about $3 billion in total. Management stressed that these costs are now largely quantified and are embedded in free cash flow guidance, reducing uncertainty around the ultimate financial impact.

Q4 EPS Drag from Corporate, Tax, and Pension Items

Despite robust revenue growth, Q4 adjusted EPS increased only 1% to $1.55, largely because of higher corporate expenses and a higher effective tax rate. GAAP EPS from continuing operations was $1.19, including $0.31 of acquisition accounting adjustments and $0.05 of restructuring and other items. RTX also recorded a pension settlement charge of $0.15 per share in the quarter. These below-the-line items obscure the underlying operating strength but remain important considerations for near-term earnings trajectories.

2026 Pension, Share Count, and Minority Interest Headwinds

Looking ahead, RTX flagged several below-the-line EPS headwinds baked into its 2026 outlook. Lower pension income is expected to trim about $0.13 from EPS, a higher share count will reduce EPS by roughly $0.05, and higher minority interest will weigh by about $0.06. Divestitures add an additional $0.03 of earnings drag. Management expects a partial offset from about $0.06 of interest tailwind, but the message was clear: underlying segment profit growth will have to do the heavy lifting to grow EPS in 2026.

Debt Maturities and Capital Allocation Priorities

RTX faces approximately $3.4 billion of debt payments coming due in 2026, after paying down $1.1 billion in Q4 2025. Management reiterated that reducing leverage remains a priority, but must be balanced against elevated CapEx, R&D commitments, and shareholder returns. The stronger free cash flow profile gives RTX more room to navigate these obligations, but debt reduction will remain a key theme for capital allocation in the near term.

Supply-Chain and Capacity Constraints Persist

Despite progress, RTX continues to wrestle with supply‑chain and capacity constraints, particularly for long-lead items and critical components such as solid rocket motors and castings. Management noted that further investment and targeted support for suppliers are necessary to meet planned defense production ramps. These bottlenecks are a limiting factor on how quickly RTX can translate its sizable defense backlog into revenue, but the company views them as solvable with continued capital and operational support.

Divestitures and Short-Term Profit Headwinds

RTX completed the divestiture of Collins’ Simmons business, which created an approximate $0.03 EPS headwind and reduced Collins’ comparable operating profit. The company acknowledged that such portfolio pruning can temporarily pressure reported margins during transition periods, but positioned these moves as part of a broader strategy to sharpen focus on core, higher‑return assets.

Legacy Engine Retirements and Mixed OE Dynamics

In propulsion, some older engines such as the PW4000 and PW2000 are approaching retirement, creating an expected $100 million aftermarket headwind in 2026. At the same time, Pratt’s original equipment mix may temper OE growth despite strong delivery increases. Management implied that while the near-term mix dynamics are somewhat dilutive, the long-term fleet modernization and growth of newer engine platforms should ultimately support a more profitable aftermarket base.

Forward-Looking Guidance: Solid 2026 Growth and Cash Trajectory

For 2026, RTX guided adjusted sales of $92–93 billion, implying 5%–6% organic growth, with adjusted EPS in the $6.60–$6.80 range and free cash flow of $8.25–$8.75 billion. The company expects consolidated segment margin expansion, supported by mid‑single‑digit growth in commercial OE and defense and high‑single‑digit growth in commercial aftermarket. Segment operating profit growth is projected to add about $0.59 to EPS at the midpoint, offset by headwinds from lower pension income, higher share count, minority interest, and divestitures, plus a modest interest tailwind. Free cash flow is expected to benefit from roughly $1.1 billion of operational improvements and a $300 million year-on-year tailwind from lower powder‑metal compensation cash, partially offset by a $500 million increase in CapEx and other headwinds. At the segment level, Collins is projected to deliver mid‑single‑digit adjusted sales growth (high‑single‑digit organic) with operating profit up $425–$525 million; Pratt mid‑single‑digit sales growth with $225–$325 million more operating profit; and Raytheon mid‑ to high‑single‑digit sales growth with $200–$300 million of incremental operating profit.

RTX’s earnings call painted the picture of a company in strong operational health, riding robust commercial and defense demand while actively tackling known headwinds. Record backlog, solid organic growth, and rising free cash flow provide a favorable setup, even as tariffs, GTF-related costs, pension shifts, and supply‑chain constraints drag on near-term results. With heavy ongoing investment in capacity and technology and a clear path to higher sales, earnings, and cash in 2026, RTX positioned itself as a company with both cyclical momentum and structural tailwinds that should continue to attract investor attention.