It has been about a month since the last earnings report for RTX (RTX). Shares have lost about 6.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is RTX due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
RTX Beats on Q3 Earnings & Sales, Raises '24 Sales View
RTX Corporation’s third-quarter 2024 adjusted earnings per share (EPS) of $1.45 beat the Zacks Consensus Estimate of $1.33 by 9%. The bottom line also improved 16% from the year-ago quarter’s level of $1.25, driven by growth in adjusted segment operating profit and a lower effective tax rate.
Including one-time items, the company reported GAAP earnings of $1.09 per share, marking an improvement from a loss of 68 cents in the prior-year quarter.
The improvement can be attributed to higher sales, along with higher operating profit than the prior-year quarter’s levels.
Operational Performance
RTX’s third-quarter sales totaled $20.09 billion, which surpassed the Zacks Consensus Estimate of $19.91 billion by 0.9%. The top line also surged a solid 49.2% from $13.46 billion recorded in the third quarter of 2023.
The top-line improvement was driven by higher sales growth from RTX’s Pratt & Whitney and Collins Aerospace business segments.
Total costs and expenses increased 22.4% year over year to $18.20 billion. The company generated an adjusted operating profit of $2.48 billion compared with $2.23 billion in the prior-year quarter.
RTX posted an interest expense of $496 million in the third quarter of 2024 compared with $369 million in the prior-year quarter.
Segmental Performance
Collins Aerospace: Sales in this segment totaled $7.08 billion, up 7% year over year. This improvement can be attributed to higher commercial aftermarket sales, backed by continued growth in commercial air traffic, including higher flight hours. Increased defense sales, driven by higher volumes across multiple programs, also contributed favorably to this unit’s sales growth.
The segment’s adjusted operating profit totaled $1.10 billion compared with $1.04 billion in the year-ago quarter.
Pratt & Whitney: This segment’s sales totaled $7.24 billion. This unit’s adjusted sales grew 14% from the year-ago quarter’s level. The improvement was due to sales growth in the commercial aftermarket and commercial OEM businesses, driven by a favorable OEM mix in large commercial engines, as well as higher aftermarket volumes. Increased military sales, driven by higher sustainment volume across the F35 and F117 platforms, as well as higher development volume driven by the F135 Engine Core Upgrade program contributed favorably to this unit’s sales growth.
The adjusted operating profit was $597 million, up from $413 million in the year-ago quarter.
Raytheon: This segment recorded sales of $6.39 billion, down 1% year over year, primarily due to the divestment of the Cybersecurity, Intelligence and Services business. The divestment was completed in the first quarter of 2024. Lower sales volume from air and space defense systems also hurt this unit’s sales performance.
The segment’s adjusted operating profit amounted to $661 million compared with $570 million recorded in the corresponding period of 2023.
Financial Update
RTX had cash and cash equivalents of $6.68 billion as of Sept. 30, 2024, compared with $6.59 billion as of Dec. 31, 2023.
The long-term debt totaled $38.82 billion as of Sept. 30, 2024, down from $42.36 billion as of Dec 31, 2023.
Net cash flow from operating activities was $5.60 billion as of Sept. 30, 2024, compared with $3.17 billion at the end of the third quarter of 2023.
Free cash outflow totaled $4.04 billion at the end of the third quarter of 2024 compared with $1.56 billion at the end of the third quarter of 2023.
Guidance
RTX partially increased its financial guidance for 2024.
The company now expects adjusted EPS to be in the band of $5.50-$5.58, up from the previous guidance of $5.35-$5.45. The Zacks Consensus Estimate for 2024 EPS is pegged at $5.45, which lies lower than the company’s guided range.
RTX also increased its sales expectations to the band of $79.25-$79.75 billion for 2024 compared with the previous guidance of $78.75-$79.50 billion. The Zacks Consensus Estimate for sales is pegged at $79.46 billion, which lies below the midpoint of the company’s guided range.
RTX still expects to generate free cash flow of $4.70 billion for 2024.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
Currently, RTX has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, RTX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
