Raytheon Technologies Corp. [RTX] on Tuesday reported strong second quarter financial results, buoyed by the company’s defense businesses and a rebound in the commercial aerospace market as the effects of the COVID-19 pandemic wane somewhat.
Net income swung to a $1 billion, 68 cents earnings per share (EPS) profit versus a $3.8 billion ($2.55 EPS) loss a year ago when the pandemic was raging. Excluding discontinued operations, acquisition accounting adjustments and non-recurring charges, adjusted net income of $1.6 billion ($1.03 EPS) was up 168 percent and topped consensus estimates by 10 cents per share.
Sales in the quarter of $15.9 billion were 13 percent higher than $14.1 billion a year ago with 10 percent of the growth organic.
Based on first half results and ongoing trends, RTC increased its outlook for earnings, sales and free cash flow for 2021. The guidance for sales was increased by $500 million on the low end of the range to between $64.4 billion and $65.4 billion, with gains driven primarily by the Collins Aerospace segment followed by the other three operating groups.
The outlook for adjusted earnings is now between $3.85 and $4 EPS versus prior guidance of between $3.50 and $3.70 EPS. About half of the increase comes from the operating segments, mainly Collins, and another half from tax benefits, Neil Mitchill, RTC’s chief financial officer, said on the company’s earnings call with analysts.
Free cash flow is expected to be between $4.5 billion and $5 billion versus the prior target of about $4.5 billion. Free cash flow in the quarter was $966 million.
Commercial aerospace sales have recovered faster than expected due to strength in certain domestic markets, particularly the U.S. and China, and to a lesser degree Europe, but international travel remains depressed, Greg Hayes, RTC’s chairman and CEO, said on the earnings call. He doesn’t expect a “complete return of air traffic to pre-COVID levels until 2024,” which would include international traffic.
At the operating level, RTC’s two primary defense businesses, Raytheon Intelligence & Space, and Raytheon Missiles & Defense, both enjoyed strong double-digit increases in sales and operating profit, driven by airborne intelligence, surveillance and reconnaissance programs, classified cyber programs, international Patriot air and missile defense, the Stormbreaker precision-guided glide bomb, productivity improvements and a sales mix that favored higher margin programs.
Defense-related sales at the Pratt & Whitney aircraft engine segment and at Collins were down.
Hayes still expects the company to be able to grow its defense business in the 3 to 5 percent range annually through 2025 and said the Biden administration’s fiscal year 2022 budget request for the Defense Department funds key RTC production and development programs. International defense sales will continue bolster defense growth, he also said.
Backlog at the end of the second quarter stood at $151.8 billion, $85.7 billion of which is for commercial aerospace and $66.1 billion for defense. Backlog is up a percent from $150.1 billion at the end of 2020.
RTC added another $200 million in expected cost savings synergies stemming from the April 2020 merger of United Technologies Corp. and Raytheon Co. The new savings target is $1.5 billion.