Raytheon Technologies(RTX) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company recorded a reported sales charge of $5.4 billion, resulting in a$2.9 billion operating profit impact, which aligns with previous expectations [45] - Adjusted sales for the quarter were $19 billion, reflecting a 12$1.25, up 3% year-over-year, with strong free cash flow of $2.8 billion in the quarter [31][49] Business Line Data and Key Metrics Changes - Collins adjusted sales were$6.7 billion, up 17% on both an adjusted and organic basis, primarily due to strength in commercial OE and aftermarket growth [50] - Pratt & Whitney's adjusted sales were $6.3 billion, up 18$6.5 billion, up 3% on an adjusted and organic basis, driven by higher volume in Naval Power programs [76] Market Data and Key Metrics Changes - The company captured $22 billion in new bookings during the quarter, resulting in a book-to-bill ratio of 1.19, bringing the backlog to a record$190 billion [39] - Commercial air traffic demand remains strong, with commercial OE growth of 26% and commercial aftermarket growth of 25% [39] - Defense sales increased by 2% year-over-year, supported by ongoing global defense spending [46] Company Strategy and Development Direction - The company announced a $10 billion accelerated share repurchase program, indicating confidence in the intrinsic value of RTX compared to its current stock price [18][21] - The company is focused on maintaining trust with customers and partners while improving operational performance, particularly in response to the powdered metal manufacturing quality issue [15][16] - The company is actively managing its portfolio, including the sale of Raytheon's cyber services business for approximately$1.3 billion [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the future of RTX, citing robust demand for products and resilient end markets across commercial aerospace and defense [16] - The company anticipates continued growth in organic sales, segment operating profit, and free cash flow for 2024, despite potential normalization in commercial air travel demand [64][65] - Management acknowledged inflationary pressures but indicated ongoing efforts to mitigate these challenges [66] Other Important Information - The company expects free cash flow for the year to improve by approximately $500 million, raising the outlook to about$4.8 billion [43] - The company is tightening its EPS range to between $4.98 and$5.02 for the year [42] - The company has a record backlog of 190 billion, indicating strong future revenue potential [67] Q&A Session Summary Question: What are the biggest risks the company is looking at? - Management identified MRO output as a key lever, emphasizing the need to accelerate MRO output and improve capacity and material flow [90] Question: Can you elaborate on the inspections for the A220, E2, and V2500 engines? - Management confirmed that inspections are ongoing and that the impact is manageable, with a focus on maintaining operational efficiency [95][120] Question: Why announce the 10 billion ASR now? - The decision was based on confidence in resolving the powdered metal issue and the belief that the current stock price represents a significant discount to intrinsic value [99][124] Question: What lessons have been learned from the powdered metal issue? - Management highlighted the establishment of a product safety review committee to improve engineering processes and prevent future issues [127] Question: How does the company view the margin profile of new contracts related to Ukraine? - Management indicated that while there are significant orders, the revenue impact will be gradual, with expectations for delivery over the next 24 to 36 months [135]