Aerospace and defense company Raytheon (NYSE: RTX) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 5.2% year on year to $20.31 billion. On the other hand, the company’s full-year revenue guidance of $83.5 billion at the midpoint came in 0.8% below analysts’ estimates. Its non-GAAP profit of $1.47 per share was 7.5% above analysts’ consensus estimates. The stock traded down 5% to $119.78 following the earnings release and call.
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RTX (RTX) Q1 CY2025 Highlights:
- Revenue: $20.31 billion vs analyst estimates of $19.96 billion (5.2% year-on-year growth, 1.7% beat)
- Adjusted EPS: $1.47 vs analyst estimates of $1.37 (7.5% beat)
- Adjusted EBITDA: $3.72 billion vs analyst estimates of $3.11 billion (18.3% margin, 19.3% beat)
- The company reconfirmed its revenue guidance for the full year of $83.5 billion at the midpoint
- Management reiterated its full-year Adjusted EPS guidance of $6.08 at the midpoint
- Operating Margin: 10%, in line with the same quarter last year
- Free Cash Flow was $792 million, up from -$125 million in the same quarter last year
- Organic Revenue rose 8% year on year (12.2% in the same quarter last year)
- Market Capitalization: $152 billion
StockStory's Take
Raytheon’s first quarter results reflected what management described as a dynamic operating environment, with notable contributions from commercial aftermarket sales, improved operational execution, and ongoing supply chain stabilization. CEO Chris Calio credited the company’s performance to gains in its commercial aftermarket and defense segments, as well as successful cost reduction initiatives and capacity expansions across key facilities. Calio noted, “We generated strong free cash flow, an improvement of more than $900 million versus the prior year.”
Looking ahead, management’s guidance remains cautious due to uncertainty over tariffs and potential impacts on supply chains and customer demand. CFO Neil Mitchill emphasized that, “We have not included the potential tariff impacts in our outlook for the year at this time.” Both executives cited ongoing investments in U.S. manufacturing and a robust backlog as supportive factors, but also acknowledged the need to closely monitor evolving trade policy and global demand trends.
Key Insights from Management’s Remarks
Management attributed the quarter’s performance to a combination of aftermarket strength, operational improvements, and product milestones. The company also addressed evolving macroeconomic and regulatory challenges, particularly tariffs, and detailed progress on key innovation programs.
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Commercial Aftermarket Momentum: The commercial aftermarket segment saw 21% organic sales growth, driven by increased demand for parts, repairs, and upgrade services. Management indicated that this growth was supported by higher aircraft utilization and a strong travel environment.
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Operational Efficiency Gains: RTX highlighted a 120 basis point improvement in segment margins, achieved through cost reduction efforts and improved supply chain reliability. Overdue supplier line items at Collins Aerospace fell by 20% year-over-year, and material receipts continued to trend upward.
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Product Innovation Progress: Pratt & Whitney received FAA certification for the GTF Advantage engine, which is expected to offer up to double the time on wing compared to the current engine. Raytheon completed the development phase for its LTAMDS radar, transitioning to production and deployment.
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Tariff Exposure Addressed: Management provided a detailed assessment of the direct cost impact from current tariffs—estimated at $850 million net of mitigations if sustained through year-end. These impacts would be felt primarily in the second half of the year and are not currently included in RTX’s financial outlook.
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Defense Demand and Backlog: RTX’s backlog reached $217 billion, reflecting an 8% year-over-year increase with strong international and U.S. defense order activity. Management pointed to increased European defense spending as a driver for future Raytheon growth, citing established partnerships and contracts for integrated air and missile defense systems.
Drivers of Future Performance
Management’s outlook for the remainder of the year centers on the interplay between sustained demand in commercial and defense segments and uncertainty stemming from trade policy and potential supply chain disruptions.
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Tariff Uncertainty: The potential imposition and duration of global tariffs, particularly those affecting aerospace and defense, remain a significant risk. Management emphasized that these impacts are not yet fully incorporated in guidance and could materially affect future profitability.
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Sustained Aerospace and Defense Demand: RTX expects continued strong demand from both commercial airlines and defense customers, supported by a robust $217 billion backlog. Upgrades to key products and participation in international defense initiatives are expected to underpin revenue growth.
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Operational and Supply Chain Execution: Investments in U.S. manufacturing, ongoing cost control efforts, and further stabilization of the supply chain are positioned as critical to maintaining margins and delivering on backlog commitments, especially amid industry-wide capacity constraints.
Top Analyst Questions
- Peter Arment (Baird): Asked about the impact of increased European defense spending on Raytheon’s opportunity pipeline. CEO Chris Calio highlighted established partnerships and strong demand, stating, “We expect a book-to-bill of 1.0 or more.”
- Robert Stallard (Vertical Research): Requested clarification on the $850 million tariff estimate and RTX’s ability to pass costs to customers. Calio confirmed the estimate is net of mitigations, adding that pricing actions are a lever but require balance with customer relationships.
- Myles Walton (Wolfe Research): Inquired about potential changes in customer behavior and supply chain disruption due to tariffs. Calio referenced progress in supply chain stability and noted multiple mitigation strategies, especially regarding China.
- Seth Seifman (JPMorgan): Sought insight into order activity and aftermarket exposure if air traffic slows. CFO Neil Mitchill emphasized strong first-quarter order activity and indicated the company can absorb some demand softness within its current guidance range.
- Noah Poponak (Goldman Sachs): Questioned margin assumptions and whether RTX is leaving cushion in guidance for tariff impacts. Mitchill indicated that current margin guidance incorporates contingency for uncertainty and will be revisited as the year progresses.
Catalysts in Upcoming Quarters
Looking forward, the StockStory team will watch (1) evolving tariff developments and whether RTX is able to mitigate direct and indirect cost impacts, (2) continued progress on delivering against a growing backlog in both commercial and defense segments, and (3) further evidence of supply chain stabilization and margin improvement. Execution on new product rollouts and capturing international defense opportunities will also be important indicators of the company’s momentum.
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