RTX Corporation

Good day, ladies and gentlemen, and welcome to the RTX third quarter 2024 earnings conference call. My name is Lateef, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Chris Callio, President and Chief Executive Officer, Neal Mitchell, Chief Financial Officer, and Nathan Ware, Vice President of Investor Relations. This call is being webcast live on the Internet, and there is a presentation available for download from RTX website at www.rtx.com. Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding acquisition accounting adjustments and net non-recurring and or significant items often referred to by management as other significant items. that the earnings and cash flow expectations in this call are subject to risk and uncertainties. RTX SEC filings, including its forms 8K, 10Q, and 10K, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. Once the call becomes open for questions, We ask that you limit your first round to one question per caller to give everyone the opportunity to participate. To ask a question, you will need to press star 1-1 on your telephone. You may ask further questions by reinserting yourself into the queue as time permits. With that, I will turn the call over to Mr. Callio.

Thank you and good morning, everyone. As you saw from our press release this morning, RTX delivered another strong quarter of performance, building on our momentum from the first half of the year. Demand across the business, including double-digit growth in commercial aftermarket and defense, remains robust and drove 8% organic sales growth. Our focus on execution drove 100 basis points of segment margin expansion in the quarter, and free cash flow was strong at $2 billion. Based on these results and our expectations for the remainder of the year, we are again raising our full-year outlook for adjusted sales and EPS. And Neil will take you through the details here in a few minutes. Also of note in the quarter, we completed the accelerated share repurchase program we initiated last October, returning $10.3 billion of capital to shareholders. We've now returned over $32 billion of capital to shareholders since the merger, putting us well on track to deliver on our commitment of $36 to $37 billion by the end of next year. Looking ahead, we continue to experience robust demand for our products and services. We saw incredible growth in our backlog, which entered the quarter at a record $221 billion with a book to bill of 1.8 and included 25 billion of defense and 11 billion of commercial orders, clearly demonstrating the differentiated performance that our products and services provide to our customers and supporting our confidence in the long-term growth of RTX. There were several notable highlights. At Raytheon, we booked a record 16.6 billion of awards in the quarter, driven by the continued global demand for integrated air and missile defense capabilities, with 45% of these bookings for international customers. Key awards included $3 billion associated with our Patriot and GemT products, $1.3 billion for SM-3, and $1.2 billion for AMRAAM. Importantly, we booked $1.9 billion for LTAMs, the first domestic and international production order for our next-generation 360-degree air and missile defense system. At Pratt, we were awarded a $1.3 billion contract for the continued development of the F-135 engine core upgrade program, will deliver enhanced engine range and performance for all variants of the F-35 well into the future. And at Collins, the FAA awarded our connected aviation team a $470 million sustainment contract for the continued technical refresh and enhancement of our air traffic control automation system, which has deployed at over 500 air traffic control towers across the U.S. The system provides a real-time view of the airspace and tools to assist with air traffic management and airspace safety. Okay let's move to slide four and I'll provide an update on how we are progressing on our strategic priorities, all of which are enablers to drive best in class performance across RTX including continued top line growth, margin expansion, and strong cash flow generation. I'll start with executing on our commitments and first and foremost is our GTF fleet management plan. We remain on track and our financial and operational outlook remains consistent with our prior comments. At the end of Q3, our inspections of powder metal parts continue to progress according to plan. The associated fallout rate remains below the 1% expectation, and the findings are consistent with the underlying assumptions of our fleet management plan. At our MRO facilities, throughput of engines is improving. PW1100 output increased 10% sequentially and 27% on a year-over-year basis. The team is utilizing core practices to optimize the inspection sequence and implement concurrent assembly operations in our MRO facilities. And we've now reached support agreements with 28 of our customers, covering roughly 75% of the impacted PW1100 fleet. The terms continue to remain in line with our assumptions. We're also leveraging our core operating system and Industry 4.0 initiatives across the company to drive continuous performance improvements while expanding capacity. For example, at our Raytheon facility in McKinney, Texas, our focus on core implementation, along with investments in capacity and automation, has significantly increased production of our 360-degree sensor suite for the F-35, known as EODAS, which stands for Electro-Optical Distributed Aperture System. Specifically, the team drove yield improvement, streamlined test and inspection operations, and moved from an assembly line production process to a single-piece build flow, which has resulted in a 5x increase in production capacity for EODAS over the past 12 months. And at Collins, Our avionics business is already benefiting from our connected equipment by deploying an automated smart torque system resulting in zero torque-related defects and saving over 20,000 labor hours so far this year. Across RTX, we've now connected 34 factories with our proprietary digital analytics technology, and we are on track to connect 40 factories by the end of the year. On the capacity front, we continue to invest in increasing output on our key franchise programs to deliver on strong customer demand. This month, Pratt opened a new 845,000 square foot facility in Oklahoma City that will support global sustainment efforts for military engines, including the F-135, F-117, and F-100. This state-of-the-art facility also features automation and advanced manufacturing technologies that will streamline processes, resulting in improved productivity and throughput. Shifting to innovating for future growth, we continue to execute on 14 cross technology roadmaps across RTX, to develop next-generation technologies in domains that support our customers' long-term needs. An example is our hybrid electric propulsion technology to improve fuel efficiency. In the quarter, Airbus helicopters selected Collins and Pratt Canada to support the development of a hybrid electric propulsion system for its Pioneer Lab technology demonstrator, which is targeting a 30% improvement in fuel efficiency on a twin-engine helicopter. Pratt Canada will provide a derivative of its PW210 engine combined with two electric motors from Collins. And as part of our advanced materials roadmap, Collins and Raytheon are working together to adapt commercial brake carbon-carbon composite technology to hypersonic missile applications. Thermal management is a critical requirement given the high level speed and high temperature environments at play. In the quarter, the team achieved technology readiness level six, demonstrating the ability of the parts to survive and perform in extreme environmental conditions. These initiatives highlight our commitment to developing critical next-gen products and solutions for our customers. Finally, we're focused on leveraging the breadth and scale of RTX. This includes driving simplification within our digital footprint and harmonizing common processes to take cost and complexity out of the business, which will ultimately help drive productivity. So far this year, we've eliminated over 265 systems to streamline our engineering, supply chain, and manufacturing processes. For example, Collins is on track to reduce their engineering systems by 20% this year, This will help optimize the end-to-end process flow through standard work. We're also leveraging our scale within our supply chain to drive increased efficiencies, speed, and savings. Through a coordinated RTX approach, we've identified more than 100 million pounds of common metals across 60 unique alloys that are procured by our suppliers. We've negotiated long-term agreements with these alloys that our suppliers can leverage to reduce lead times and cost, and currently have 45 suppliers utilizing these agreements to plan to add 15 more by year end. We expect to realize a 10% to 15% cost savings on these alloys utilizing this approach. OK, so overall, I'm pleased with the progress we've made in our strategic priorities and the momentum we've created across our businesses. With that, I'll turn it over to Neil to take you through the third quarter results in more detail.

Neil? Thanks, Chris. I'm on slide five. As Chris said, we delivered another strong quarter of organic sales growth segment margin expansion and free cash flow rtx's adjusted sales of 20.1 billion were up six percent and up eight percent organically by sales channel growth was led by commercial aftermarket which was up 11 and that's on top of 25 growth last year as global air travel continues to grow defense sales were up 10 organically as we continue to execute on our backlog and commercial OE was flat as favorable mix at Pratt was offset by lower narrow body volume at Collins. Segment operating profit of $2.4 billion was up 16%, with segment operating margin expansion of 100 basis points versus the prior year. Adjusted earnings per share of $1.45 was also up 16% from the prior year, driven by segment operating profit growth, a lower share count, and a lower effective tax rate, which were partially offset by expected headwinds from higher interest expense and lower pension income. The tax rate in the quarter benefited by about 7 cents per share from tax impacts principally related to a legal entity reorganization. On a GAAP basis, earnings per share from continuing operations was $1.09 and included 31 cents of acquisition accounting adjustments and 5 cents of restructuring and other significant non-recurring charges. The free cash flow was again strong at $2 billion, as continued strength in collections helped offset some higher inventory. In the quarter, we returned $1.1 billion of capital to shareholders, including dividends and $294 million principally related to the closeout of the accelerated share repurchase program initiated last year. On the portfolio front, we expect the sale of the Collins, Hoyst & Winch business to close here in the fourth quarter and the Actuation business mid-next year. Okay, turning to slide six, let me share a few details on our updated outlook for the year. As you've seen, through the third quarter, the performance across all three of our businesses has been strong and our end markets remain robust. As a result, we have updated our full year outlook to incorporate this performance along with our expectations for the rest of the year. Specific to commercial OE production, based on our latest assessment of production rates, We now expect OE sales at the RTX level to grow roughly 10% versus prior year towards the low end of our prior expectation. And at Collins specifically, commercial OE is now expected to be flat for the year, and that's down from our prior expectation of mid-single-digit growth. This outlook assumes that we're able to restart some level of shipments to Boeing in the fourth quarter, and we see no change to the long-term structural demand for our OE products. With that said, strength across our other sales channels, including commercial aftermarket, Pratt original equipment, and defense is expected more than offset these impacts. All in, we're increasing our full year adjusted sales outlook to between $79.25 and $79.75 billion, up from our prior range of $78.75 to $79.5 billion. And we continue to expect approximately 8% to 9% organic sales growth for the full year. We are also increasing our adjusted EPS outlook by 15 cents on the low end and 13 cents on the high end, putting the new range at 550 to 558, up from 535 to 545. Improved segment profit outlooks at Pratt and Raytheon more than offset a change at Collins. And we have also flowed through improvements in our tax rate and some below the line items. Nathan will take you through the segment outlook updates in more detail. We've included the corresponding updated outlook for other items in the appendix of our webcast deck. On free cash flow, we remain on track to achieve our outlook of approximately $4.7 billion. In the fourth quarter, we expect powder metal related disbursements to increase, as well as payments associated with the legal and contract matters that we discussed and recorded in the second quarter. For the year, we now expect powder metal outflows to be about $1 billion, down $250 million from our prior expectation. This, combined with slightly lower CapEx, is expected to offset the working capital impacts associated with the lower commercial OE volume at Collins. Before I hand it over to Nathan for the segment details, just a few comments on how we're thinking about next year. Right now, we are working through our annual planning process across the company. And overall, with our current backlog and the expectation of continued global demand across our end markets, we expect another year of solid organic sales growth and segment margin expansion, as well as significant free cash flow generation. We continue to analyze scenarios around aircraft production rates, the profile of commercial aftermarket growth, and the likelihood of an extended continuing resolution for U.S. defense spending. We also continue to actively work through supply chain and inflation challenges with our mitigation strategies including forward deploying our people to suppliers, second sourcing arrangements, increasing our long-term supplier agreement coverage, and customer pricing initiatives. With that said, we feel good about the strength of our businesses and our underlying fundamentals, and as we always do, we will be back in January on our fourth quarter earnings call with a complete outlook for the next year, incorporating our latest assessment of these items. Okay, let me turn it over to Nathan.