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F500 2023 057 Raytheon Technologies_PW-WPB-A10-Test-Stand-PW1100G-JM_Engine

The aerospace and defense industry manufacturer had another year of improved sales in 2022, and in April 2023 reported $21 billion in new orders and a record backlog of $180 billion across its portfolio. 
<ul> 
 	<li>Raytheon has set out to realign its business units into three segments—Collins Aerospace, Pratt &amp; Whitney, and Raytheon—to more fully leverage its scale and realize cost savings.</li> 
 	<li>The post-COVID travel recovery strengthened sales in the quarter ended in April 2023, as Raytheon’s Collins Aerospace unit drew in $5.58 billion and its Pratt &amp; Whitney engine unit sales trailed just behind.</li> 
 	<li>In April 2023 a former Pratt &amp; Whitney manager was among a handful of aerospace industry executives who were acquitted of criminal charges in a case brought by the Justice Department that accused the group of agreeing to not hire the others’ workers. Still, workers who say they were harmed by the alleged conspiracy brought a separate civil suit against Raytheon in Connecticut federal court.</li> 
</ul>

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F500 2022-Raytheon Technologies

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G500-2021-183-RAYTHEON TECHNOLOGIES

<span data-sheets-value="{&quot;1&quot;:2,&quot;2&quot;:&quot;The newly created aerospace giant emerged in April 2020 from the merger of United Technologies and Raytheon Co. Former UT CEO Greg Hayes took over as chief executive, while Raytheon boss Thomas Kennedy became the board’s executive chairman. The pair focused the new company on winning more government orders, including a $320 million NASA contract to support operations at the International Space Station. It was a strategy created partly out of necessity, because Raytheon’s other major customer base—the commercial airline industry—was decimated by the pandemic. The company laid off 16,500 workers and cut costs by $2 billion; even so, operating profits at Raytheon’s two aerospace units dropped 67% and 131% in 2020 compared with the prior year. &quot;}" data-sheets-userformat="{&quot;2&quot;:12673,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:2,&quot;11&quot;:4,&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:11}">The newly created aerospace giant emerged in April 2020 from the merger of United Technologies and Raytheon Co. Former UT CEO Greg Hayes took over as chief executive, while Raytheon boss Thomas Kennedy became the board’s executive chairman. The pair focused the new company on winning more government orders, including a $320 million NASA contract to support operations at the International Space Station. It was a strategy created partly out of necessity, because Raytheon’s other major customer base—the commercial airline industry—was decimated by the pandemic. The company laid off 16,500 workers and cut costs by $2 billion; even so, operating profits at Raytheon’s two aerospace units dropped 67% and 131% in 2020 compared with the prior year.

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F500-2021-57-Raytheon Technologies

<span data-sheets-value="{&quot;1&quot;:2,&quot;2&quot;:&quot;The newly created aerospace giant emerged in April 2020 from the merger of United Technologies and Raytheon Co. Former UT CEO Greg Hayes took over as chief executive, while Raytheon boss Thomas Kennedy became the board’s executive chairman. The pair focused the new company on winning more government orders, including a $320 million NASA contract to support operations at the International Space Station. It was a strategy created partly out of necessity, because Raytheon’s other major customer base—the commercial airline industry—was decimated by the pandemic. The company laid off 16,500 workers and cut costs by $2 billion; even so, operating profits at Raytheon’s two aerospace units dropped 67% and 131% in 2020 compared with the prior year. &quot;}" data-sheets-userformat="{&quot;2&quot;:12673,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:2,&quot;11&quot;:4,&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:11}">The newly created aerospace giant emerged in April 2020 from the merger of United Technologies and Raytheon Co. Former UT CEO Greg Hayes took over as chief executive, while Raytheon boss Thomas Kennedy became the board’s executive chairman. The pair focused the new company on winning more government orders, including a $320 million NASA contract to support operations at the International Space Station. It was a strategy created partly out of necessity, because Raytheon’s other major customer base—the commercial airline industry—was decimated by the pandemic. The company laid off 16,500 workers and cut costs by $2 billion; even so, operating profits at Raytheon’s two aerospace units dropped 67% and 131% in 2020 compared with the prior year.

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G500-2020-119-Raytheon-Technologies

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F500-2020-108-Raytheon

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RTX, an aerospace and defense company, provides systems and services for commercial, military, and government customers in the United States and internationally. It operates through three firms: Collins Aerospace, Pratt &amp; Whitney, and Raytheon. The Collins Aerospace Systems segment designs, produces, and supports cabin interiors, including oxygen systems, food and beverage preparation, storage and galley systems, and lavatory and wastewater management systems; battlespace, test and training range systems, crew escape systems, and simulation and training solutions. Pratt &amp; Whitney supplies aircraft engines for commercial, military, business jet, and general aviation customers; and produces, sells, and services military and commercial auxiliary power units. Raytheon provides defensive and offensive threat detection, tracking, and mitigation capabilities for U.S., foreign government, and commercial customers. The company, incorporated in 1934, was formerly known as Raytheon Technologies Corp. and changed its name to RTX Corp. in July 2023.

Q2 2026

Q1 2026

Q4 2025

Q3 2025

Q2 2025

Q1 2025

Q4 2024

RTX (RTX): Company Profile, Stock Price, News, Rankings

legacy

Good day and welcome to the RTX third quarter 2025 earnings conference call. My name is Desiree 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 Calio, Chairman and Chief Executive Officer, Neil Mitchill, 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 the 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 risks and uncertainties.

RTX SEC filings, including its Forms 8-K, 10-Q, and 10-K, 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 one 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. Calio.

Thank you and good morning everyone. We delivered a very strong quarter of results in Q3, which reflects our intense focus on execution, the broad utilization of our core operating system, and the durable demand for our products on the top line. Sales were up 13% organically year over year with double-digit growth in each of commercial original equipment (OE), commercial aftermarket, and defense. Adjusted segment operating profit was up 19% year over year with growth and margin expansion across all three segments, and free cash flow was robust at $4 billion in the quarter, keeping us on track for the full year. Underpinning these results is the continued strength in the global demand for our products and services in commercial aerospace. Passenger air travel has remained resilient with global RPKs on track for approximately 5% growth this year.

We continue to see positive OE production trends, which drove a significant increase in production at Collins  in the quarter, as well as at Pratt, which saw a 6% growth in large commercial engine deliveries. Commercial aftermarket also remained strong, supported by our large and growing installed base, including over $100 billion of out-of-warranty content at Collins and heavier shop visit content across our MRO activities. Aircraft retirements have remained low, with only 1.5% of the V2500 fleet retired so far this year, and Pratt Canada, with nearly 70,000 engines in service, has seen over 15% growth year to date in commercial aftermarket. On the defense side, we continue to be exceptionally well positioned to meet the growing needs of our U.S. and international customers, in particular with respect to munitions and integrated air and missile defense, both core capabilities of our company.

On the orders front, our book to bill in the quarter was 1.63, resulting in a backlog of $251 billion, up 13% year-over-year. The activity in the quarter included $37 billion of new awards, with $23 billion of defense and $14 billion of commercial orders. On the commercial side through Q3, our book to bill this year is 1.71, and our backlog has grown 18% since the end of 2024, showing the exceptional demand for our products and technologies at both Collins and Pratt. At Raytheon, we booked over $8 billion of orders for munitions, including approximately $2.5 billion for GEM-T to support multiple international customers and $2.1 billion for AMRAAM, the largest order in the 30-year history of that program. Raytheon was also awarded a significant counter drone contract for Coyote production from the U.S. Army.

Coyote has proven to be extremely effective in the field, and we've recently developed a lower cost non-kinetic Coyote payload to combat drone swarms. Pratt was awarded over $3 billion to support the F135 engine, including the Lot 18 production contract. Overall, our end markets and operational performance remain strong as we enter the fourth quarter. Based on this, we're raising our full year outlook for adjusted sales and EPS and maintaining our free cash flow outlook of $7 billion - $7.5 billion. Neil will take you through the details in a few minutes, but before that let me provide an update on our strategic priorities on slide 4. Starting with executing on our commitments, our focus on driving performance improvements through our core operating system has continued to generate productivity across RTX. Through Q3, we have delivered 10% organic sales growth this year while keeping headcount flat across the organization.

This has been a key enabler in driving six consecutive quarters of year-over-year adjusted segment margin expansion. With respect to the GTF fleet management plan, our financial and technical outlook remains on track. PW1100 MRO output was up 9% in the quarter and is up 21% year to date. We continue to work with our supply chain partners to increase the flow of critical value stream material to ramp MRO output. In Q3, we saw another quarter of solid progress with growth in isothermal forgings up 16% and structural castings up 29%.

Exiting the third quarter, this material flow has supported a record high number of PW1100 gate three starts, which is where we reassemble engines during a shop visit, putting Pratt in a position to deliver about 30% MRO output growth for the year. Across the company, we continue to focus on increasing critical manufacturing capacity to support growth, including investing over $600 million this year in expansion projects. For example, Raytheon is on track to invest $300 million in capacity expansion to deliver the growing backlog. This includes the Redstone Missile Integration facility in Huntsville, Alabama, which will increase site capacity by 50% and support the growing demand for our naval programs, including the Standard Missile franchise. Shifting to innovating for future growth, Pratt Canada was selected by the EU Clean Aviation Program to design and integrate a hybrid-electric propulsion demonstrator for regional aircraft.

This system integrates a 250 kW electric motor and advanced propeller technology from Collins and is expected to improve fuel efficiency by approximately 20%. Additionally, Collins is nearing final certification of its next-generation braking system for the A321XLR aircraft. The design incorporates proprietary carbon technology and is expected to extend brake life and drive improved profitability in our maintenance support portfolio. Raytheon recently demonstrated two significant effector technology achievements. The AMRAAM team successfully completed the longest ever air-to-air shot from a fifth-generation fighter, and the StormBreaker team, in just 50 days, designed, developed, and tested a new ground launch demonstrator version of this air-launched effector, which will expand the capabilities and future applications for this product. We remain focused on leveraging the breadth and scale of RTX.

As we've highlighted before, we continue to develop and deploy our data analytics and AI tools to improve productivity and the speed and quality of decision making in our business. We're strategically using these tools to support the highest impact opportunities across the company, including increasing munitions and OE production rates, growing GTF MRO output, and improving sales and inventory planning and management. For example, the Raytheon AMRAAM team has deployed multiple proprietary digital AI tools to proactively identify production bottlenecks and reduce rework, which has contributed to output more than doubling year to date through Q3 on the program. These examples highlight the progress that we continue to make across our strategic priorities, and I'm pleased with the results they are yielding throughout the company.

With that, let me turn it over to Neil to take you through the third quarter results and our updated outlook for the full year. Neil,

I'm on Slide five. In the third quarter, adjusted sales of $22.5 billion were up 12% on an adjusted basis and 13% organically. As Chris mentioned, this was a very strong result in the quarter with commercial aftermarket up 18% and commercial original equipment (OE) and defense both up 10%. Adjusted segment operating profit of $2.8 billion was up 19%, and we saw 70 basis points of consolidated segment margin expansion with contributions from all three segments. Adjusted earnings per share of $1.70 was up 17% from the prior year, driven primarily by segment operating profit growth. In addition, the quarter also benefited from several tax items, including legal entity reorganizations, which impacted EPS by approximately $0.12. These items more than offset a $0.04 headwind from the recently enacted tax legislation. On a GAAP basis, EPS from continuing operations was $1.41 and included $0.29 of acquisition accounting adjustments.

Free cash flow was very strong at $4 billion, driven by working capital improvement, including strong collections and some advanced payments tied to contract awards in the quarter that were accelerated from Q4. Cash flow for the quarter also included approximately $275 million for powder metal related compensation and $220 million of tariff related impacts. With respect to capital allocation, we returned over $900 million to shareowners through dividends in the quarter, and with our focus on further strengthening our balance sheet, we paid down $2.9 billion of debt in the quarter. Finally, during the quarter we completed the sale of the actuation business, and earlier this month we also completed the sale of Collins Simmons Precision Products business for $765 million. Okay, turning to Slide six, let me provide a few details on our updated outlook for the full year.

As you've seen with our third quarter results, execution and momentum across all three segments continues to be strong. Given this operating performance along with the strength of our end markets, we are updating our outlook for the full year. On the top line, we are raising our full year adjusted sales outlook to a range of $86.5 billion - $87 billion, up from our prior range of $84.75 billion - $85.5 billion. This now translates to between 8% and 9% organic sales growth for the year, up from our prior range of 6% - 7%. By channel at the RTX level and adjusting for divestitures, we now expect commercial aftermarket sales to grow mid-teens year-over-year, up from our prior outlook of low teens, primarily driven by heavier shop visit content that we saw in Q3 at Pratt.

On the commercial original equipment (OE) side, we expect sales to grow around 10% for the year, up from our prior outlook of high single digits year over year. On defense, we continue to expect sales to grow mid-single digits. On the bottom line, given the performance across all three segments, we are increasing adjusted earnings per share $0.30 on the low end of our range and $0.25 on the high end. At the midpoint, the increase is primarily driven by approximately $0.20 of improved segment operating profit, with the rest coming from a few below the line items. Within this updated outlook, there is no change to the net tariff headwind we discussed on our last earnings call. All in, we now see adjusted EPS at a new range of between $6.10 and $6.20 for the full year, up from our prior range of $5.80 - $5.95.

Specific to Q4, we expect another quarter of strong operational performance at the segment level, with segment profit up around 10% year-over-year, excluding the impact of tariffs and recent divestitures at Collins. Below the line, the Q3 $0.12 tax benefit I mentioned will not repeat. We expect a higher effective tax rate in the fourth quarter. On free cash flow, we are on track to achieve our outlook of between $7 billion and $7.5 billion for the year. The primary drivers of our fourth quarter free cash flow will be the same as we saw in the third quarter: segment operating profit growth and working capital improvement.

As we look beyond this year, we feel good about the momentum we're seeing across our business, including our growing backlog and end market strength that continues to position us well for continued top line growth, margin expansion, and solid free cash flow conversion. Like we do every year, we'll be back on our fourth quarter earnings call in January with our detailed outlook for 2026. With that, let me hand it over to Nathan to take you through the segment results for the third quarter.

All right, thanks Neil. Starting with Collins on slide seven, sales were $7.6 billion in the quarter, up 8% on an adjusted basis and 11% organically, driven by strength across all three channels. Adjusting for divestitures by channel, commercial OE sales were up 16% versus prior year, driven primarily by higher volume on narrowbody platforms. Recall last year included the impact of the Boeing work stoppage in the quarter. Commercial aftermarket sales were up 13%, driven by a 17% increase in mods and upgrades, a 13% increase in parts and repair, and a 10% increase in provisioning. Defense sales were up 6% versus the prior year, driven by higher volume across multiple programs and platforms including the Survivable Airborne Operations Center program.

Adjusted operating profit of $1.2 billion was up $98 million versus the prior year as drop through in higher commercial aftermarket, defense, and commercial OE volume along with lower R&D expense was partially offset by unfavorable commercial OE mix and the impact of higher tariffs across the business. Turning to Collins full year outlook, we continue to expect sales to grow mid single digits year over year on an adjusted basis and high single digits organically. We now expect operating profit growth between $325 million and $375 million versus 2024, up from our prior expectation of between $275 million and $350 million, driven by drop through in higher commercial aftermarket volume. Keep in mind this updated profit range includes an approximately $60 million year-over-year headwind associated with the business divestitures completed this year.

Shifting to Pratt on slide eight, sales of $8.4 billion were up 16% on both an adjusted and organic basis, driven by strength across all channels. Commercial OE sales were up 5%, driven by increased volume in large commercial engines and favorable mix. In Pratt Canada, commercial aftermarket sales were up 23%, driven by higher volume in both large commercial engines and Pratt Canada. In military engines, sales were up 15% in the quarter, driven primarily by the F135 program including higher volume associated with the Lot 18 contract award. Adjusted operating profit of $751 million was up $154 million versus the prior year, driven by drop through in higher commercial aftermarket and military volume. This growth more than offset increased large commercial OE deliveries, higher SG&A expense, and the impact of higher tariffs across the business. Turning to Pratt's full year outlook, we.

Mid teens on an adjusted and organic basis, an increase from our prior range of up low double digits driven by strength in commercial aftermarket and favorable commercial OE mix. We now expect operating profit growth between $350 million and $400 million versus 2024, up from our prior expectation of between $200 million and $275 million, driven by drop through and higher commercial aftermarket volume and favorable commercial OE mix. Now turning to Raytheon on slide nine, sales of $7 billion in the quarter were up 10% on both an adjusted and organic basis, driven by higher volume on land and air defense systems including International Patriot and higher volume on naval programs including multiple classified programs, SM6, and the Evolved Sea Sparrow Missile.

Adjusted operating profit of $859 million was up $198 million versus the prior year, driven by favorable program mix including International Patriot, improved net productivity, and higher volume. Net productivity improved $57 million year-over-year. Recall Q3 of last year included an unfavorable impact of $53 million related to a classified program. Bookings in the quarter were $15.9 billion, resulting in a book to bill of 2.27 and a record backlog of $72 billion. International backlog represented 44% of Raytheon's total at the end of the quarter and was up 18% on a dollar basis year-over-year. Other key awards in the quarter included $1.5 billion for LTAN's production and over $500 million for Stinger production. These awards will support both domestic and international customers. On a rolling 12 month basis, Raytheon's book to bill is 1.43.

Turning to Raytheon's full year outlook, we continue to expect sales to grow low single digits year- over- year on an adjusted basis and mid single digits organically. We now expect operating profit growth between $400 million and $450 million versus 2024, up from our prior expectation of between $225 million and $300 million, driven by the favorable international program mix we saw during the third quarter. With that, I'll hand it back over to Chris.

Okay, thanks Nathan. We have great momentum across RTX. We delivered strong top and bottom line growth this quarter, and our end markets remain robust as seen by our recent customer wins and 1.63 book to.

Our backlog now stands at $251 billion, and we remain focused on our strategic priorities across the company, giving us confidence in our ability to deliver strong growth in sales, earnings, and free cash flow well beyond this year. With that, let's open it up for questions.

In the interest of time and to allow for broader participation, you are asked to limit yourself to one question. To ask a question, you will need to press Star one on your telephone. The first question will come from the line of Rob Stallard with Vertical Research. Your line is open.

This is brief, Neil. You've raised the aerospace OEM guidance for the year, so I was wondering if you could dive into the details below that and probably in conjunction with for Chris, I suppose. How confident are you in delivering those new LEAP engines to Airbus with regard to their target for the full year? Thank you.

Thanks, Rob. Let me start on the guidance and then I'll hand it over to Chris. Again, really strong quarter here in the third quarter. What we've done with our outlook is we've dropped through that goodness for the full year. Also taken up the top line. If I kind of focus that around the midpoint at the top line at the RTX level, we'll see about a $1.6 billion increase. Commercial aftermarket is a large portion of that. Commercial original equipment (OE) is about $200 million there. I'd say that $50 million of that is coming from Collins. The rest of it is at Pratt & Whitney.

What we're seeing there is continued delivery strength on the Collins side, particularly as we get into the last quarter of the year here on increased rates on 737 and 787. On the Pratt side, I'd attribute that to the engine mix. On the aftermarket side, a lot of that sits at Pratt & Whitney. About $1.1 billion of the $1.6 billion that we're talking about on the increase sits inside of Pratt & Whitney, with the majority of that in the aftermarket. We had a really strong third quarter. As you heard Chris talk about, the increase in MRO output is driving GTF aftermarket. We're also seeing strong V2500 mix and heavy shop visits there. Again, letting that drop through for the full year. You'll see that both on the top and the bottom line. Finally, there's a couple hundred million dollars at Raytheon.

On the defense side, we've got 10 consecutive quarters here of material receipt growth and we're continuing to get ready for the delivery of that large backlog and a backlog we expect to continue to grow. Those are the big moving pieces on the top line, of course, dropping through on the bottom line. You see the profit there. We've had some favorability on below the line items as well. We're letting that kind of come through as we stare at just 90 days to go.

On the second part of your question on deliveries, overall we feel pretty good about how we've executed this year and supported the production ramps.

You know, OEMs, we're going to continue to work very closely with Airbus to make sure that they have what they need down the stretch of the year, while also continuing to balance the allocation of material as we've talked about before, because we've got to continue to support the fleet. That's going to continue to be a focus. I'll remind folks that we're up over 50% versus our 2019 production levels. We've continued to ramp production pretty robustly and again going to work very closely with our airframe customers to make sure they have what they need so they can hit their deliveries for the end of the year.

Our next question comes from the line of Myles Walton from Wolfe Research. Your line is open.

Good morning, Neil. Maybe just a clarification first, and then.

Maybe Chris, a question on Raytheon segment on the clarification, the 30% output for the full year. Just want to make sure that's 30% output for GTF and so a.

Pretty steep 4Q MRO output improvement you're looking for there.

Chris, on the Raytheon outlook, could you just comment on the limitations to growth?

It's clearly not a demand situation here that you're poor on and would expect that the Raytheon segment revenue would start.

To accelerate pretty meaningfully. Obviously, we saw some of that here in the third quarter, but raised the full year, and so maybe what are the limitations there?

Yeah, thanks, Myles. Maybe your question on the GTF MRO output. I'll start there. You're right, through the year to date up about 20%. We need to get to that 30% level. MRO output, as I've said pretty consistently, is the key to continuing to push down our AOG levels. I think we're in a pretty good position to be able to hit that 30% for the full year. There are several factors that put us in that position. First, we exited September with the record number of gate restarts. As I said previously, that's the reassembly and then the testing process. I feel good about how we've come out of the gate here, no pun intended.

Material flow in the critical value streams was pretty strong. Isothermal forgings were up 16% year- over-year. As I mentioned, structural castings 29% year-over-year. Another piece here is our repair network demonstrated some strong increase here in Q3, 30% year-over-year. That helps lessen the demand for new parts, which should again help the flow in gate two. We've continued to see progress with productivity in our shops and exited Q3 in September with about 80% of our MRO completions on the GTF averaging 110 day turnaround time in the shop, and that's on heavier work scopes. Those are the things that I think put us in position to go drive here in the fourth quarter on MRO output ultimately to support the fleet.

On your questions on Raytheon, I'll invite Neil to come in as well if he wants to talk about some of the puts and takes in the quarter. Overall, the headline story here is just continued exceptionally strong demand. The book to bill in the quarter at 2.27, $16 billion of new orders. The demand is there, and we're continuing to invest in capacity to ensure that demand can be met. You heard us talk about the $300 million this year. If you just think about since 2020, just at Raytheon alone, it's been about $1 billion on capacity expansions and automation. For us, it's looking at the supply chain and making sure that it continues to be healthy. We're seeing our 10th consecutive quarter of material receipts growth, which is great.

We've got to continue to see that accelerate upwards across all of our critical value streams, whether that be microelectronics, rocket motors, and the like. While performance has stabilized and been good, we need to continue to see that accelerate 2026 and beyond because the demand is there.

Chris, I'll just add to that a little bit. You know, Myles, you alluded to it. The third quarter is seeing a very substantial 10% organic growth at Raytheon. If you look under the covers there, just a couple anecdotes. Our Naval Power business is in line with that level of growth, but our Land and Air Defense Systems business is significantly higher than that. That growth that you're talking about, we're seeing come through in that side of the business in particular as it relates to Patriot and GEM-T output. The business is very diverse, as you know. When you look at it at the Raytheon level, I still think we're going to see very strong aggregate organic growth going forward. Certainly within the areas of munitions and air defense systems, we're seeing growth that's well above what we're reporting at the Raytheon level.

Next question comes from the line of Peter Arment from Baird. Your line is open.

Good morning, Chris and Neil, nice results.

In Raytheon, it's not just been a top line story or the backlog. You've also had really good performance on the margin side of things. You continue to show really good margin expansion.

Maybe just walk us through your thinking around Raytheon's margins, but longer term.

Raytheon, which is substantial, huge orders in the quarter. If you think about the international portion of that backlog, it now sits at about 44%. Our top three programs in that backlog are international. That certainly provides a tailwind. I would also tell you the team continues to focus heavily on our core operating system and driving productivity and efficiency in our shops to take costs down and to drive productivity. I can give you a number of examples this year where Phil and the team have used our core operating principles to drive increased production and to drive down cost. If you just think about some of our top programs, we're going to have significant increases in production this year. Just think AMRAAM, you think GEM-T, Coyote. Significant production ramps again enabled by more efficiency in our shops, which again drives down cost and provides some margin tailwind.

Peter, I'll add that during the third quarter, really pleased to see positive productivity on top of significant year over year productivity. Obviously we had a one-time item last year, but year to date it's about $75 million or so of productivity improvement. That's on top of $160 million last year. The business is getting back to its formula of driving efficiencies and driving productivity. Clearly the growing backlog creates more opportunities for us to do that. Those are significant items here in the quarter. The mix was heavily international focused, particularly on the Patriot deliveries. We'll see that change a little bit in the fourth quarter. Long term, as Chris said, the mix of the backlog supports an expanding margin and we're happy to see the productivity continuing to develop in the business.

The only thing I would add to that, Peter, just to build on Neil's comment, is it's not only the mix of international and domestic, it's the mix in terms of the product that you're seeing in there. In terms of the $16 billion in orders this particular quarter, $8 billion in factors. Those are things directly in the core capabilities of Raytheon where we've got mature processes, where we've been able to historically yield productivity. Another piece of good news on that front.

Next question comes from the line of Scott Deuschle with Deutsche Bank. Your line is open.

Neil, looks like Pratt Commercial OE revenue.

Heavily discounted for the customers that are.

Yeah, I wouldn't say, you know, thanks, Scott, for the question. I would not say that our spare engines are being heavily discounted. As you all know and as Chris has talked about earlier today, we're balancing the output of installs, spares, and material to the MRO network, and we're doing the same thing here in the third quarter. I would not say there's any major difference in the level of mix between OE and spares that we saw in the quarter. As we've talked about in the past, we expect that to continue. There's a lot of demand for all of these engines, whether they're going to Airbus, whether they're going directly to an airline customer, or material heading into the MRO network. Nothing unique there in the quarter.

As we look at the fourth quarter, we do expect continued OE step up there on a year-over-year basis. There'll be a little bit more headwind from that higher negative engine margin in the fourth quarter, but again, still expect reasonable balance of spares and the typical fourth quarter aftermarket performance from Pratt.

Next question comes from the line of Kristine Liwag from Morgan Stanley. Your line is open.

Hey, good morning everyone. Maybe touching base on the Boeing 737 Max and 787, can you level set us regarding the run rate you're currently producing and how we should think about incremental margins on these programs as volumes continue to ramp up? Ultimately, how does that expectation relate to your overall Collins margins expectations?

Yeah, thanks, Christine. As it relates to Boeing ramp, first of all, really pleased to see the approval on ability to go to a higher rate on 737. I would say we are at this point aligned with Boeing on the rates that they're at now and where they want to go across Collins. As we've said before, Collins.

Has delivered at a higher rate in the past.

We have the capacity to support the volume ramp and feel good as this continues to go to higher rates that we're going to be prepared to support Boeing in their effort to do that. Like everything else, it's going to come down to the continued health of the supply chain. We've been very, very transparent with kind of where we are with the supply chain and what we need. That's continued to bear fruit and feel like we're in a good position to continue to support Boeing as they move forward.

If I just pick up there, obviously when we set the outlook at the beginning of the year, we had a set of assumptions and we were delivering to that. There was a little bit of inventory in the channel. Now that we're almost, we're more than three quarters of the way through the year, a lot of that is behind us. We're pretty synchronized with Boeing and their delivery schedule. Obviously, the mix of higher 787, as you all know, on the Collins side comes with some margin challenges. Longer term, as Chris alluded to here, these rates are increasing back to levels that we've capacitized for. We'll get better absorption. That will contribute to the continuation of margin expansion in the Collins business as it relates to the OE business.

RTX (RTX) Q3 2025 Earnings Call Transcript

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