Raytheon Q123 Earnings Analysis
Note: A version of this article originally appeared on LibertyFinancialNews.com in April 2023.
Earnings Release
Raytheon Technologies (RTX), one of the world’s largest aerospace and defense firms, announced Q1 FY23 earnings on Tuesday.
The company reported net income of $1.4 billion, a 29% increase YoY. Earnings per share grew by 31% YoY, reflecting share repurchases. Cash outflows were high, however. The company reported free cash flow of about negative $1.4 billion, down from positive $37 million last year, mainly related to high cost of sales and capital expenditures.
Raytheon noted the firm’s record backlog of $180 billion, including $71 billion of defense orders and $109 billion of commercial orders.
The Collins Aerospace segment recorded an operating profit of $794 million, up 80% YoY. Commercial aftermarket sales mainly drove this growth. Similarly, the Pratt & Whitney segment, largely responsible for engines, saw operating profit climb 175% to $415 million. Last year’s operating profits in both segments, however, were significantly affected by impairment charges and reserve adjustments relating to Russian sanctions.
Raytheon Intelligence & Space registered an operating profit of $324 million, down 14% YoY, which was attributed to organizational inefficiencies. Raytheon Missile & Defense’s operating profit fell by 15% to $328 million.
Raytheon Chairman and CEO Greg Hayes offered positive guidance, stating that “Continued global airline travel and defense systems demand point to sustained top line growth, as evidenced by $21 billion in new orders and a record backlog of $180 billion across our industry-leading portfolio.”
Conference Call
Raytheon Chairman and CEO Gregory Hayes opened the call by highlighting the strong backdrop the company is seeing. He noted that domestic passenger miles are back to pre-pandemic levels, driven by a rebound in China, and the company expects global air traffic to return to pre-pandemic level by the end of the year.
Both domestically and internationally, defense spending has increased. Contract awards from the Biden administration for the F135 drove growth in the Pratt & Whitney segment.
Regarding production, Hayes said that "importantly, we're seeing some stabilization in the supply chain." Chief Operating Officer Chris Calrio added that Raytheon "continues to experience challenges in castings, forgings, raw materials, and machinings," but pressure on electronics has eased. The management team reaffirmed strong 2023 guidance and expects $4.8 billion in full-year free cash flow.
Hayes spent time describing Raytheon's reorganization efforts, which involve structuring the company into two main business segments. The first, Collins Aerospace, will focus on aircraft and engines. The second, Raytheon, will focus on defense, including intelligence and missile systems. Hayes believed this will organize the company around key demand channels, but said that Raytheon's investor day on June 19th will provide more information.
In response to an analyst question, Hayes indicated that the company has not seen the full revenue impact related to the war in Ukraine. There have been awards for just $2 billion in munition replenishment contracts, and Raytheon sees far more demand in the pipeline. Similarly, elevated tensions surrounding China should keep defense demand high, although Raytheon has been targeted by Chinese sanctions.
Share Price
RTX shares are up 7.5% over the past month and up 2.9% over the past year, while the S&P 500 is up 5.3% monthly and down 3.7% annually. At the time of writing, RTX shares are up 0.7%.