RTX Corporation

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. The company also reminds listeners that the earnings and cash flow expectations and any other forward-looking statements provided 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 11 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. Gallio.

Thank you and good morning, everyone. We delivered very solid results in the second quarter as we continued to execute in a dynamic operating environment. On the top line, sales were up 9% organically year-over-year, including 16% commercial aftermarket growth, continuing the momentum from Q1. Segment operating profit was up 12% year-over-year, supported by growth across all three of our segments. And free cash flow for the quarter was approximately break-even as we previously discussed. primarily related to the four-week work stoppage at Pratt in May, which we expect to recover in the second half of this year. We also continue to see exceptionally strong demand for our products, with a Q2 book-to-bill of 1.86, and our backlog now stands at $236 billion, up 15% year-over-year and 9% sequentially driven by several notable wins in the quarter. Pratt booked over 1,000 GTF engine orders, including up to 177 aircraft for Wizz Air, and 91 aircraft for Frontier Airlines as they further expand their GTF-powered fleets. And Raytheon booked over $5 billion of integrated air and missile defense awards, including $1.1 billion for AIM-9X effectors. This is the largest order in the history of the program. It will benefit the U.S. and international customers. I'll now turn to the current operating environment. In commercial aerospace, OE production was strong and in line with our expectations for the first half of the year. and we remain positive on the ramp continuing in the back half, supporting growing demand for our products. Global RPKs are also expected to continue to grow over 5% for the year, which supports low retirement levels and strong commercial aftermarket demand. For example, our V2500 powered aircraft fleet has seen a 1% retirement rate so far this year. On the defense side, the growing need for air dominance is creating unprecedented demand for our core defense products across RTX. The US budget reconciliation legislation that passed earlier this month contains over 150 billion for additional defense spending, with about 50 billion of funding for Golden Dome and munitions. Again, both core areas for RTX. In longer term, NATO allies have agreed to increase core defense spending to 3.5% of GDP over the next decade, with an increased focus on integrated air and missile defense. To support the growing demand across Europe, we continue to expand our regional partnerships, For example, in the quarter Raytheon entered into an industrial cooperation agreement with the Spanish ministry of defense that will support the production ramp for Patriot in the local region. So overall demand remains strong across our end markets and supports continued top line growth across the business. On the trade front, it continues to be fluid, but our outlook on the impact of tariffs has improved for the year as there have been some positive announcements to date, such as the UK agreement, which provides exemptions for aerospace components. We also continue to improve our ability to mitigate tariff headwinds, including optimizing material flow where possible and through pricing actions. As a result of these developments and our strong first half performance, we're increasing our adjusted sales outlook for the full year. We're also revising our adjusted EPS outlook to incorporate drop through on the higher sales, continued cost discipline across the business, and our current assessment of tariff impacts. And for free cash flow, we are maintaining our full year outlook. Neil will take you through these details in a few minutes, but before he does, let me provide an update on the progress we're making on our strategic priorities on slide four. First is executing on our commitments. On the GTF fleet management plan, our financial and technical outlook remains consistent with our prior comments. Isothermal forging output was up 12% versus the prior year and 10% sequentially. which supported a 22% year-over-year improvement in PW1100 MRO output this quarter, despite the PRAT work stoppage. And we remain on track for over a 30% MRO output improvement for the full year, which is the key enabler to reducing AOGs in the second half. And at Raytheon, the team is leveraging our core operating system to significantly increase production this year for multiple sectors, including GEMT, Coyote, and AMRAAM. In the quarter, both GEMT and Coyote saw output more than double year over year. Next is innovating for future growth. Autonomy and AI are significant parts of our RTX cross-company technology roadmap. Earlier this month, we announced a new partnership with Shield AI to integrate AI-based sensor and target recognition capabilities into select Raytheon products. This includes loitering munitions and our multispectral targeting system, which is a battle-tested sensor package that provides long-range surveillance and target tracking for a variety of munitions. Also in the quarter, Raytheon announced a collaboration with Kongsberg to co-develop sub-assemblies of the GhostEye radar. The GhostEye system adapts the fundamental technology of LTANS into a smaller, 360-degree solution for advanced, medium-range tracking that will detect drones, cruise missiles, and other airborne threats. This system builds on the battle-tested NASAM solution, which has 13 partner countries and over a thousand intercepts over just the last few years. And it's another example of how we're expanding our regional partnerships in Europe. And lastly, we continue to leverage the breadth and scale of RTX. Across the company, we're implementing our proprietary data analytics and AI platform to accelerate our backlog and increase productivity across our operations. This platform is our digital backbone that connects our enterprise systems, thousands of shop floor machines, and millions of hours of product data to enable more efficient operations and smarter and faster decision-making. For example, in Collins Avionics business, our engineers are using this platform to reduce software development times by around 30%, allowing us to deliver faster and more frequent software upgrades to our customers. Shifting to the portfolio, In the quarter, we entered into an agreement to sell Collins Simmons Precision Products business for $765 million. And yesterday, we completed the $1.8 billion sale of our actuation business. Both transactions highlight our efforts to focus and invest in our core capabilities, with proceeds to be used to further strengthen our balance sheet. Lastly, we raised our dividend by 8% in the quarter, reflecting our confidence in executing our backlog and the long-term cash generation capability of our company. With this dividend increase, we now expect to deliver $37 billion of capital to shareholders from the date of the merger through the end of this year. And we remain committed to a long-term capital return policy that includes growing our dividend and returning excess capital to shareholders. Overall, we continue to make steady progress on our key priorities, and I'm pleased with the performance and momentum through the first half of the year. With that, let me turn it over to Neil to take you through the results and our updated outlook for the full year.

Neil? All right, Chris. Thanks. I'm on slide five. In the second quarter, adjusted sales of $21.6 billion were up 9% on both an adjusted and organic basis. Growth was led by strength across all three channels with commercial aftermarket up 16%, commercial OE up 7%, and defense up 6%. Segment operating profit of $2.7 billion was up 12%, driven by drop-through on higher volume and improved defense mix, and we saw 30 basis points of consolidated segment margin expansion. Adjusted earnings per share of $1.56 was up 11% from the prior year, driven by segment operating profit growth and a lower effective tax rate. Earnings per share included approximately six cents of higher tariff costs. On a GAAP basis, EPS from continuing operations was $1.22, and included $0.28 of acquisition accounting adjustments and $0.06 of restructuring and other items. As expected, free cash flow was an outflow of $72 million. This included approximately $250 million for powder metal related compensation and $175 million related to tariff impacts. So overall, our first half results were strong, driven by end market demand and execution across all three segments. Now let's turn to slide six, and I'll take you through our outlook. Starting with the top line, given our strong first half performance, we are increasing our full year adjusted sales outlook to a range of $84.75 billion to $85.5 billion, up from our prior range of $83 billion to $84 billion. This translates to between 6% and 7% organic sales growth for the year, up from our prior range of 4% to 6%. Looking at it by channel at the RTX level and adjusting for divestitures, we now expect commercial aftermarket sales to grow low teens, up from our prior outlook of around 10% growth. On the commercial OE side, sales are expected to grow high single digits year over year, up from our prior outlook of mid single digits. And we continue to expect defense sales to grow mid single digits across the company. On the bottom line, we continue to improve our ability to mitigate tariff headwinds including expanding USMCA coverage, qualifying additional parts for military duty-free exemptions, and maximizing the use of free trade zones, in addition to the items that Chris mentioned. As a result, our current assessment of 2025 tariff costs net of mitigations is around $500 million, with approximately $125 million already incurred in the first half of the year. In addition, we see the associated cash impact to be around $600 million for the full year, again, a notable improvement. We have incorporated these impacts into our updated full year outlook. With respect to taxes, we are pleased with several elements of the recently enacted legislation that restores the full expensing of research and development costs and maintains stability in the corporate tax rate. And we continue to expect an effective tax rate of 19.5% for the full year. In addition, improved operating performance, including additional profit growth at Raytheon and volume drop through at Pratt & Collins is providing $0.10 of EPS improvement, which partially offsets the $0.30 tariff headwind. All in, we now see adjusted EPS at a new range of $5.80 to $5.95 for the full year versus our prior range of $6 to $6.15. On free cash flow, We continue to expect between $7 and $7.5 billion for the full year, as the headwind from tariffs will be offset by the benefit from improved cash taxes. The primary drivers of our second half cash flow growth will come from segment profit and working capital improvements, including the recovery from the work stoppage at Pratt. With that, let me hand it over to Nathan to take you through the segment results for the second quarter.