Title

Presentation

RTX Corporation beats earnings expectations. Reported EPS is $1.47, expectations were $1.35.

Operator: Good day, ladies and gentlemen, and welcome to the RTX First Quarter 2025 Earnings Conference Call. My name is Latif, 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, President 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 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 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. [Operator Instructions] With that, I will turn the call over to Mr. Calio.

Chris Calio: Thank you, and good morning, everyone. We’re clearly in the middle of a highly dynamic operating environment right now, and we’ll, of course, talk about that today. But first, I want to highlight the strong financial and operational performance we delivered in the first quarter. Starting with the top-line, we generated 8% organic sales growth. We also drove 120 basis points of segment margin expansion, which included strong contributions from each business segment. And we generated strong free cash flow, an improvement of more than $900 million versus the prior year. On an organic basis, commercial aftermarket sales were up 21%, commercial OE sales were up 3% on a difficult prior-year compare, and defense sales were up 4%.

Underlying these results is our continued focus on execution and the deployment of our core operating system. Starting with the GTF program, PW1100 MRO output was up 35% year-over-year and 14% sequentially, and we remain on track for over a 30% improvement for the full year. This output is a key enabler for reducing AOGs, which we continue to expect to trend down in the back half of the year. Isothermal forging output also continued to be strong in the quarter after record output last year, up over 10% versus prior year. And our outlook for the fleet management plans remains consistent with our prior comments. Our focus on supply chain also continues to yield results. At Collins, overdue line items across all suppliers were down over 20% versus the prior year.

And at Raytheon, material receipts were up again, marking eight consecutive quarters of year-over-year growth. Also in the quarter, we made significant progress on two future franchises in our innovation pipeline. Pratt received FAA certification for the GTF Advantage, an important milestone for the program. The Advantage incorporates all of the learnings from the first 10 years of the GTF engine and service. We expect it to provide up to 2 times the time on wing compared to the current engine, and it will enter service with full life LLPs. We remain on track for initial deliveries to Airbus later this year. We’re also certifying an upgrade package to incorporate roughly 90% to 95% of the GTF Advantage durability improvements into the existing fleet during MRO visits.

We’re targeting next year to have this package available for customers. And at Raytheon, we have completed the prototyping and development phase of the lower-tier air and missile defense sensor, or LTAMDS program. LTAMDS brings advanced 360-degree performance to the market and more than twice the tracking range compared to the existing Patriot radar system, enhancing protection against complex threat scenarios, including large quantities of unmanned aircraft systems and hypersonic weapons. LTAMDS can be integrated with battle-tested industry-leading capabilities of Patriot, which is the backbone of air and missile defense for 19 partner countries around the world. LTAMDS will now transition into the production and deployment phase with continued deliveries to the US this year and next, followed by deliveries to European customers.

So, overall, we’ve made good progress in the quarter on multiple fronts, and we’re pleased with our performance. Okay. Let me turn to the operating environment and our current thinking on tariffs, which we have outlined in terms of potential direct impacts on Slide 4. Generally speaking, the aerospace and defense sector has operated in a duty-free environment and that has been instrumental to the industry maintaining one of the largest trade surpluses across American manufacturing industries for decades. Our industrial base is largely located in the US, including about 70% of our employees and a majority of our total labor manufacturing hours. And on the supply chain side, about 65% of our product spend is with US suppliers. We also continue to invest in our US industrial base.

Over the last five years, we’ve invested nearly $10 billion to enhance our domestic manufacturing footprint and capabilities. And this year, we’re planning another $2 billion of investment to further increase our US capacity. For example, in the first quarter, Raytheon completed a $60 million expansion project in Tucson, Arizona, which will significantly increase capacity to support growing effector demand. In this year, Pratt has kicked off a $285 million investment to expand our foundry in Asheville, North Carolina. This is part of our broader turbine [airfoil] (ph) production strategy to support growing demand and to maintain a competitive cost structure. Combined, this industrial base and significant investment supports our position as a net exporter of goods out of the US, with exports exceeding imports by over $12 billion last year.

But like many companies in the industry, our supply chain and customer base are global, and we import raw materials, parts and modules from around the world. In light of this, we would be impacted if the current environment were to stay in place, because not all regulatory and operational mitigations would address our tariff exposure. But the situation remains fluid, and it’s difficult to assess the impact of multiple variables from a change in the duration and size of the current tariffs to countermeasures taken by other countries to the potential secondary effects of customer reactions and supply chain and operational disruptions. As a result, we have not included the potential tariff impacts in our outlook for the year at this time. That said, we believe it is prudent and helpful to at least share some estimates of the direct impact of the current tariffs on our outlook, assuming they were to stay in effect throughout the year.

Now, these estimates don’t include secondary tariff-related impacts, such as changes to customer demand. So, let me turn it over to Neil to take you through our assessment of the impacts. Neil?

Neil Mitchill: Okay. Thanks, Chris. Let me take you through the various categories of incremental direct tariff exposure and the level of pre-tax operating profit impacts, net of available mitigations we have currently assessed for each category. Starting with Canada and Mexico, assuming the USMCA agreement continues, we estimate there would be a cost impact of around $250 million, assuming current tariff rates remain in place for the rest of the year. With respect to China, at current US and China tariff rates, we estimate there would also be a cost impact of around $250 million. Again, assuming the tariffs remain in place through year end. Keep in mind, our business in China primarily serves local customers and China accounts for only about 2% of our global imports.

As it relates to the rest of the world, we estimate there would be a cost impact of around $300 million at the 10% tariff rate currently in place. And finally, on steel and aluminum, we estimate the cost will be around $50 million for the year. For all of these scenarios, we would expect to see most of the impact in the back half of the year as inventory is liquidated. And from a cash perspective, we assume there would be a bit larger drag due to the timing of inventory consumption and duty drawback recovery, and this impact would be evenly spread over the rest of the year. Going forward, we expect the landscape to continue to evolve and we’ll update our assessment accordingly. Now, let me turn it back over to Chris.

Chris Calio: As Neil said, we’re closely tracking the changes in the global trade environment. While some of the exemptions we have had in the past will continue to apply, such as the military duty-free exemption for U government and foreign military sale contracts, we are also working to implement and capture additional mitigations. These include regulatory mechanisms such as temporary imports under bond, duty drawbacks, free trade zones, contractual and pricing actions, and implementing operational changes such as leveraging different suppliers and assembly sites. Despite these near-term uncertainties, I want to remind everyone that our company remains exceptionally well positioned in all of our key end markets given the strength of our product portfolio, which is reflected in our backlog.

We exited the quarter with a backlog of $217 billion, which was up 8% year-over-year and includes $125 billion of commercial orders and $92 billion of defense awards. On the commercial side, we remain cautiously optimistic that aircraft utilization will remain strong, supporting continued aftermarket demand. But of course, we will closely monitor consumer sentiment as we approach the busy summer travel season. On the OE front, we expect production of new aircraft to remain strong given the backlog levels at our OEM customers. On the defense side, we’re encouraged that the continuing resolution passed with funding for key priorities, including next-generation adaptive propulsion, standard missile effectors, LTAMDS radars and our Coyote counter UAS system.

There’s also growing commitment to increase defense budgets globally. Of note, the European Union has pushed for an additional $850 billion in defense spending over the next four years, focused on munitions and integrated air and missile defense products, which are fully aligned to our core capabilities, such as Patriot, NASAMS, Coyote and F-35. These are all battle-proven and tested systems that our partners and allies rely on each and every day for national security. Additionally, we have strong and long-standing international co-production and co-sustainment agreements with European companies, including MBDA and Kongsberg that position us well to help meet the increased demand across the region. Before I hand it back over to Neil, let me reiterate that we are very pleased with the performance in the first quarter and the progress we are making on our three strategic priorities: executing on our commitments, innovating for future growth, and leveraging our breadth and scale.

And while the industry’s operating environment is dynamic, our team is experienced and will remain focused on execution and the things in our control. Okay. With that, I’ll turn it back over to Neil to take you through the first quarter results. Neil?

Neil Mitchill: Thanks, Chris. I’m on Slide 5. As Chris said, operationally we’re off to a strong start to the year. In the first quarter, adjusted sales of $20.3 billion were up 5% and up 8% organically, led by strength in commercial aftermarket. Segment operating profit of $2.5 billion was up 18% as drop through on higher volume, the benefit of cost reduction activities and improved defense mix drove 120 basis points of segment margin expansion with strong performance at all three segments and highlighting the continued momentum on our cost transformation activities across the company. We’ve now seen four consecutive quarters of year-over-year consolidated segment margin expansion. Adjusted earnings per share of $1.47 was up 10% from the prior year, driven by segment operating profit growth, which was partially offset by an expected higher effective tax rate and a higher share count.

On a GAAP basis, EPS from continuing operations was $1.14 and included $0.27 of acquisition accounting adjustments and $0.06 of restructuring and other items. And free cash flow was $792 million in the quarter, which included approximately $200 million for powder metal related compensation. On the capital deployment front, we returned $890 million of capital to shareowners during the quarter, primarily through dividends. And on the sale of the actuation business at Collins, we continue to make good progress on key milestones and are working through the remaining items required to close. With that, let me hand it over to Nathan to take you through the segment results for the first quarter. Nathan?

Nathan Ware: Thanks, Neil. Starting with Collins on Slide 6. Sales were $7.2 billion in the quarter, up 8% on an adjusted basis and 9% organically, driven by strength in commercial aftermarket and defense. Adjusting for divestitures, by channel, commercial aftermarket sales were up 13%, driven by a 15% increase in parts and repair, an 18% increase in mods and upgrades, and a 1% increase in provisioning. Defense sales were up 10%, primarily due to higher volume across multiple programs and platforms, including multiple C4I programs, the Survivable Airborne Operations Center program and F-35. And commercial OE sales were up 2% versus the prior year as higher A220, regional and 787 volume was partially offset by lower 737 MAX volume.

Adjusted operating profit of $1.2 billion was up $179 million versus the prior year, driven by drop through on higher commercial aftermarket and defense volume. The resulting margins at Collins expanded 130 basis points in the quarter versus prior year. Turning to Collins’ full year outlook. Excluding the potential impact of the tariffs that Neil discussed, we continue to expect sales to grow low-single-digits on an adjusted basis and mid-single-digits organically, with operating profit growth between $500 million and $600 million versus 2024. Shifting to Pratt & Whitney on Slide 7. Sales of $7.4 billion were up 14% on both an adjusted and organic basis, with sales growth across all three channels. Commercial aftermarket sales were up 28% in the quarter, driven by higher volume and favorable mix across both large commercial engines and Pratt Canada.

In military engines, sales were up 4%, driven by increased engine deliveries on the tanker program and higher volume on the F135 Engine Core Upgrade program. Commercial OE sales were up 3% in the quarter, primarily driven by increased deliveries. As a reminder, commercial OE sales were up 64% in Q1 of 2024. Adjusted operating profit of $590 million was up $160 million versus the prior year as increased deliveries in large commercial engines was more than offset by drop-through on higher commercial aftermarket volume and favorable commercial aftermarket mix. Lower R&D expense more than offset higher SG&A expense. All of this resulted in margin expansion of 130 basis points in the quarter versus prior year. Turning to Pratt’s full year outlook.

Excluding the potential impact of tariffs, we continue to expect sales to grow high-single-digits on an adjusted and organic basis with operating profit growth between $325 million and $400 million versus 2024. Now turning to Raytheon on Slide 8. Sales of $6.3 billion in the quarter were down 5% on an adjusted basis as a result of the cybersecurity divestiture completed at the end of the first quarter of last year. As expected, on an organic basis, sales were up 2%, driven by higher volume on land and air defense systems, including International Patriot and LTAMDS, which was partially offset by lower development program volume within air and space defense systems. Adjusted operating profit of $678 million was up $48 million versus the prior year, driven primarily by favorable mix and $15 million of improved net productivity.

This was partially offset by the absence of the cybersecurity business. The resulting margins at Raytheon expanded 120 basis points in the quarter versus the prior year. Bookings in the quarter were $4.4 billion, resulting in a book-to-bill of 0.7 And on a rolling 12-month basis, Raytheon’s book-to-bill is 1.35. Key awards in the quarter included over $750 million for Netherlands air and missile defense capabilities, about $650 million of classified awards, and about $250 million of Evolved SeaSparrow Missile orders for Japan. Turning to Raytheon’s full year outlook. Excluding the potential impact of tariffs, we continue to expect sales to grow low-single-digits on an adjusted basis and mid-single-digits organically, with operating profit growth between $150 million and $225 million versus 2024.

With that, I’ll hand it back over to Chris for some closing remarks.

Chris Calio: Okay. Thanks, Nathan. I’m on Slide 9. Before we open up to questions, I want to emphasize that RTX is built to perform in any environment. The fundamentals of our business remain intact and our continued focus on execution has delivered a strong start to the year. With industry-leading products on the highest-growth platforms in commercial aerospace and defense and our commitment to innovation over the long-term continues to pay off. With next-generation products such as the GTF Advantage and LTAMDS demonstrating our leadership and future growth opportunities. The long-term structural demand for our products and technologies all remain in place today. Additionally, the need for our defense solutions that provide critical security to the US and our allies has never been stronger. And so, I’m confident that these trends will drive significant growth for us over the coming years. With that, let’s open it up for questions.

Operator: [Operator Instructions] The first question comes from Peter Arment of Baird. Please go ahead, Peter.

Peter Arment: Yeah. Thanks. Good morning, Chris and Neil. Nice results.

Chris Calio: Good morning, Peter.

Peter Arment: Hey, Chris, thanks for the details on tariffs. It’s very helpful. Obviously, things are very dynamic. So, I guess, I’ll ask a question on related to kind of the current defense environment. Are we seeing the ReArm Europe effort as a big opportunity for Raytheon or does it change any of the timing of awards that you were looking at? And then, I guess, just overall, do you expect still the Raytheon business to have a book-to-bill above 1 this year? Thanks.

Chris Calio: Yeah, thanks, Peter. I would say that the focus of the EU on ramping up prevent — presents an opportunity for Raytheon clearly. I mean, just think of the countries there, Poland is up close to 5%, the UK has talked about taking spending up, Germany obviously. There was obviously the EU announcement for support for the $850 billion of additional defense spending over the next four to five years. And I think, again, as I said upfront, clear opportunity for Raytheon given its core competency in integrated air and missile defense systems. These are proven battle-tested products, think Patriot GEM-T, NASAMS, Coyote. And we’ve got a very strong European installed base, got eight Patriot users and we’ve got strong co-production and co-sustainment relationships, as I said in my remarks.

I mean, we’ve got nine suppliers in Poland alone on Patriot, MBDA partnership on the GEM-T ramp up. So, again, strong demand in the region and strong partnerships overall. I will tell you, overall, on Raytheon’s demand signal, that hasn’t changed. I think there are some timing issues that will recover in the year, which we expected, but the global demand remains strong. We expect a book-to-bill of 1.0 or more.

Peter Arment: Appreciate the color. Thanks, Chris.

Operator: Our next question comes from Robert Stallard of Vertical Research. Please go ahead, Robert.

Robert Stallard: Thanks so much. Good morning.

Neil Mitchill: Good morning.

Chris Calio: Good morning, Rob.

Robert Stallard: Chris and Neil, obviously, a very fluid situation with the whole trade war thing, but in terms of the $850 million you’ve laid out here, is that a gross or a net number after you’ve applied these mitigations? And similar to that, your peers earlier this morning said that they were essentially going to pass on cost as a surcharge to customers. What sort of ability do you have there, particularly on the commercial aerospace side of things?

Chris Calio: Yeah. Thanks, Rob. Yeah, the $850 million is inclusive of mitigations, Rob. Those mitigations, regulatory like we talked about, things like duty drawback, contractual, again, that’s pricing and other mechanisms and I’ll talk about that in a second, and then, operational, where are there things where we can optimize the flow of material and work to again get the best mitigation we can from the tariff regime. On pricing, look, Rob, we’ve been operating in a highly inflationary environment over the last several years. And so, I think, we’ve gotten pretty proficient at knowing where and how to pass along higher costs through pricing. Again, situation is fluid. There are a number of variables that are out there. And so, we came into the year with a number of sort of levers we would potentially pull if we saw things change in the marketplace.

We’re going to let things sort of play out. And then, to the extent that we see some softening or other things, then we’re going to go and execute on that playbook. But again, we know how to push pricing. I think you just got to be balanced about it given where we are with our customers.

Robert Stallard: Great. Thanks, Chris.

Operator: Thank you. Our next question comes from the line of Myles Walton of Wolfe Research. Please go ahead, Myles.

Myles Walton: Thanks. Hey, Chris, you mentioned that the tariff side didn’t assume changes in customer buying behavior or operational disruption. Could you maybe talk about those as elements of watch items, in particular, the China strategy, as it relates to aircraft and aircraft parts, what your assumptions are there in terms of what they may or may not do? And then, also, relative to supply chain disruptions, where are you most focused to ensure that these tariff issues don’t create supply chain disruptions? Thanks.

Chris Calio: Yeah. Thanks, Myles. Look, I’ll take the supply chain piece first. Maybe just think of the first quarter, we saw, again, some steady improvements continuing in our supply base. You heard me talk about structural castings at Pratt up 16% year-over-year, hear me talk about Raytheon’s material growth eight straight quarters, Collins bringing down overdue line items. Rocket motors, again, one of our key suppliers saw output up substantially in Q1 year-over-year. So, again, saw some continuing stability and improvement in the supply chain as we exited Q1. And so, obviously, we’re going to stay super tight with our supply base, making sure that we’re all working together on tariff mitigations and the movement of work and making sure that we don’t see those disruptions.

I mean, keep in mind, the industry has been used to a duty-free environment. So, all of us have had to come up with different sort of processes and protocols to avail ourselves of these mitigations that we’ve talked about. And so, again, we want to stay locked tight with our supply base to make sure we know how to do this and we keep parts flowing. We’ve seen in the past what happens when you kind of are herky-jerky with your supply chain. We saw that in COVID. It takes a while to recover. We want to continue that moving forward. On China, I mean, look, it’s obviously an important market for commercial aerospace, both in terms of RPK growth, fleet growth. I would say that Western companies are pretty integral to the growth in China as well.

So, I don’t want to get out ahead of ourselves here to see how this plays out. I think we’ve just got to kind of sit back and see where it stands. I mean, I’ll just point back to what I said before. The US A&D industry has a large trade surplus. It is a great example of US competitiveness, advanced manufacturing and technology leadership. And then, ultimately, we hope that’s recognized. On the supply chain front out of China, again, we’ve been on a path to develop multiple sources globally for a while now. A lot of that was hastened frankly out of COVID, and so we’re going to continue to accelerate those efforts.

Myles Walton: Thanks, Chris.

Operator: Thank you. Our next question comes from the line of Ronald Epstein of Bank of America. Your question please, Ronald.

Ronald Epstein: Yeah. Hey, good morning, guys.

Chris Calio: Good morning, Ron.

Ronald Epstein: So, yeah, just recently, as you all know, we had the decision on the NGAD manned aircraft. Do you have any idea on NGAP, when that could be? Because I would imagine it’s going to be one of the XA engines from either you guys or your competitor. Do you have any color around that?

Chris Calio: Well, I guess, what I would say here, Ron, is we got an award in Q1 for about $550 million to continue to progress on NGAP. And we’re actually very pleased with what we’re seeing on the testing side. And we’re getting some great feedback from that and from the customer. And again, I think Pratt has a demonstrated record of providing leading fighter propulsion technologies at scale, and it’s making significant strides on technologies that are going to improve range and stealth. So, again, we’re excited that NGAD is moving forward, and that hopefully what we’re doing on NGAD will yield some benefit. And again, we’re pleased with how that program is moving and the funding that underpins it.

Ronald Epstein: Got it. Thank you.

Operator: Thank you. Our next question comes from the line of Scott Deuschle of Deutsche Bank. Your question please, Scott.

Scott Deuschle: Hey, good morning. Chris, have you seen any operational impacts of the SPS fire at either Collins or Pratt? And then, for RTX, is most of that lost fastener capacity being made up by SPS itself on existing contracts, or are we needing to get that demand filled by alternative suppliers? Thank you.

Chris Calio: Yeah. Hey, Scott. Our team separate and apart from tariffs and all the analysis there, was working really hard on understanding the impacts from that fire. We’re working closely with not only SPS, but others where we could potentially pick up the slack there. I’ll tell you that as we continue to sort of move forward here, work through with some alternate suppliers, work through with SPS, we’re feeling more optimistic in our ability to avoid any notable impacts given the fire.

Scott Deuschle: Thank you.

Chris Calio: Thank you.

Operator: Thank you. Our next question comes from the line of Sheila Kahyaoglu of Jefferies. Please go ahead, Sheila.

Sheila Kahyaoglu: Good morning, Chris and Neil.

Chris Calio: Good morning, Sheila.

Neil Mitchill: Good morning, Sheila.

Sheila Kahyaoglu: I wanted to go back to tariffs, and I appreciate you guys have a pretty tough job in the trade surplus that aerospace has. So, Neil, maybe in your comments you mentioned the $850 million. I just want to clarify that the net impact and how do we think about that across the rest of the Q2 to Q4 and across the segments? Is there any timing mismatch where it hits Collins first and Pratt in ’26? Any detail you could provide?

Neil Mitchill: Sure. Thanks, Sheila. Yeah, obviously, a lot of estimates involved in kind of assessing the impact here, but just to be clear, the $850 million on the page is an approximation. It is net of mitigations. As Chris talked about, there are a variety of mitigations available to us. And frankly, many of them are new in terms of our application of them because we lived in an environment where most of our goods were coming across the border without a duty. And so, we’ll continue to mature our mitigation strategies and, in part, the size of the number reflects the time that it takes to mature that. So, if you just step back though, let me break that down just a tad for you. And again, this assumes the rates that are out there today remain in effect for the rest of the year.

Think about that as about a nine-month period. I’d say the Raytheon impact is very minimal. Think about that as like a $0.01 per share kind of a number. The rest of it, the residual impact is split pretty evenly between Collins and Pratt. So, a little over $400 million each. As I think about the timing of that, if this were to play out in effect as it is today, think about that fairly back-half loaded on the earnings side, because some of this will end up in inventory and then turn through the P&L as the inventory is sold. And then, I guess, the other comment I would make, I made a comment that the cash flow impact would be a bit larger, and that’s because of the timing lag on getting the duty drawback cash back to us. So, think about that as about 15% to 20% above the rough estimate that we provided today.

So, I think though as I really step back, I think there’s a lot of variability yet to come here. And so, what we wanted to do today was just provide a framework and break it down by bucket of applicable tariffs and countries, so that as things evolve, it will be easier for you and for us to model that — those changes. And of course, when that firms up, we’ll take that into account and bake it into our outlook.

Sheila Kahyaoglu: Great. Thank you.

Neil Mitchill: You’re welcome.

Operator: Thank you. Our next question comes from the line of Seth Seifman of JPMorgan. Your line is open, Seth.

Seth Seifman: Thanks very much. Good morning.

Chris Calio: Good morning, Seth.

Seth Seifman: Just wanted to ask about it, apologies if you addressed this, but in the — you mentioned, not assuming changes in customer behavior, but, just kind of the latest indications you’re getting in order activity and kind of the shorter cycle areas of Collins aftermarket and what kind of — might be most exposed if we were to see a significant slowdown in air traffic for the rest of the year?

Neil Mitchill: Thanks, Seth. That’s a good question. Let me start and I’ll hand it off to Chris if he has anything to add. I would anchor ourselves first and foremost back to the first quarter. It was a good solid first quarter. I know that things have changed as we exited the quarter, but our order activity was strong. Our aftermarket was really strong. And as we looked at the first few weeks here in April, we’ve seen no major changes in the behaviors of our customers. Now, that’s a relatively short period of time, obviously, given the dynamics in the environment. But as we look ahead, I think — and go around the business, I’ll start with the OE side. The demand there remains very strong. Obviously, it’s a constrained environment.

There’s a lot of demand for new aircraft and we expect that to largely continue. If you stick with Pratt and Whitney for a minute and you think about the aftermarket there, clearly tremendous demand for GTF aftermarket. We saw strong output, as Chris alluded to in his opening remarks, in the first quarter and expect us to be on track to continue to deliver growth there throughout the rest of the year. And on, the V2500 side, I talked about 800 shop visit outlook for the full year and we were right in line with about a quarter of that in the first quarter. So — and I’d say the same on the PW2000s and 4000s, our legacy engines. So, the indicators there are pretty consistent. I think we’ve got a good bottoms-up view of the customer demand profile and we’ve factored in some of the things you’re hearing about from our customers.

On the Collins side, I would say the same applies on the OE outlook. And as you think about the aftermarket, really strong first quarter. The compares get a little bit more difficult, but again, as we looked at April so far, those orders remain intact. Now, there’s a reason we have a range on our outlooks. And I think as we sit here today, I think our ranges operationally can absorb some of the impact if there is softening in the later part of the year. We’re coming on a really important part of the travel season. And as those aircraft fly, they require parts, they require maintenance and the slots coming into the shops are obviously constrained, and I think our customers are going to want to maintain their position in line.

Chris Calio: Yeah. I think the only thing that I would add, Seth, is building on something Neil said, which is really kind of the process that we go through. We’ve got people embedded with our airline customers, service reps. Our customer-facing teams do bottoms-up analysis with our customers and have a really, really solid understanding of their assumptions on traffic, on capacity, and of their plans and the levers they’re thinking about sort of pulling. And so, as we see how this sort of plays out, we’ll take action as necessary as we’re watching those buying patterns. We watch them on a daily basis and we react quickly when we see shifts.

Seth Seifman: Great. Thank you very much.

Operator: Thank you. Our next question comes from the line of Jason Gursky of Citi. Please go ahead, Jason.

Jason Gursky: Hey. Good morning, everybody.

Chris Calio: Hey, Jason.

Jason Gursky: Neil, I was wondering if you — just a clarification one, if you’d be willing to talk about the gross impacts of tariffs. You’ve talked about the net impact here. And then, Chris, I’m wondering, just to get your initial thoughts and takes — take on some of the executive orders that have been coming out of the White House. It looks like they want to get engaged in procurement reform and maybe go off and rewrite federal acquisition regulation. Just kind of what should we be looking for from the outside? Is this necessarily a good thing to go see procurement reform and trying to cut down on red tape and speed up acquisition processes? Or are there some things that we should be kind of beyond the watch for that might have unattended negative consequences for the industrial base? Thanks.

Neil Mitchill: Thanks, Jason. Let me start by talking about the tariffs a little bit. I mean, I think it’s mostly important to look at the net impact. If you were to apply the tariff rates to gross imports or gross movement across borders in the case of tariffs coming from other countries, I think that would skew that number considerably, particularly given some of the mitigations that are available to us. You think about USMCA for goods moving Canada, Mexico and United States, doesn’t fully cover us. It’s not the same as the commercial aircraft agreement that was in place and is no longer available, but that mitigates things in a significant way. Similarly, on the defense side, the military duty-free option that were available to, that covers a significant amount of the gross impact.

It gets a little bit more difficult, because there’s a lot more paperwork involved when it requires temporary import under bond or drawbacks. So, I think again, that’s why we’ve laid out a net number here. I think that’s the most important thing. And as I said before, we’re continuing to operationalize the mitigation efforts. There’s a fair amount of work to do to ensure our products meet the qualifications of either USMCA or are able to qualify for temporary import under bond and, of course, drawbacks because we need to track the parts on a serial number basis. So, a lot to do. I expect us to be able to mature that and improve things if this were to last multiple years. Chris?

Chris Calio: Yeah. On your second question, Jason, I would just say, look, we applaud the administration’s effort to streamline procurement. The faster we can move to awarding contract, the better. It gets us to line up our labor more quickly, gets us to get our supply chain on contract more quickly, takes risk frankly out of some of the bids. Time is never your friend as you’re trying to execute those things. So, again, we see that as net positive all around. I mean, the focus for us, Jason, when we think about the executive orders and frankly just the administration writ large is executing on our backlog. I mean, the feedback that, of course, we’re getting is we need more of your product and we need it faster. And so, it’s partnering with both the administration and our supply chain, identifying where we see bottlenecks, trying to eliminate those bottlenecks and keep the ramp going.

We’ve seen progress on a number of key programs, think GEM-T, think Coyote here in the first quarter, and we still got a ramp ahead of us across a number of effectors because the demand is really strong.

Operator: Thank you. Our next question comes from the line of Gautam Khanna of TD Cowen. Your question please, Gautam.

Gautam Khanna: Yeah, thank you. Good morning, guys.

Chris Calio: Good morning.

Gautam Khanna: Wondering if we could switch to OE. A, I was curious, are you seeing any sort of production rate expectation declines on the A350 or other products? And if you could just update us on supply chain constraints and how those have progressed? I know you made some comments in the opening, but if you could just elaborate 787 and some of the other areas that were long poles in the tent before? Thanks.

Chris Calio: Sure. Look, I know we — I’ll sort of echo what Neil had said earlier, which is the airframers have strong firm backlogs and are focused on continuing to ramp, right? They need to keep material flow going through their shops from the supply chain. So, we don’t see any material changes there. And again, we see a ramp ahead and we want to stay out of their way, make sure they have what they need from us as they’re moving up that ramp. On supply chain, I named some of the key part families sort of upfront here in terms of where we’re seeing progress, rocket motors, structural castings. Again, we see steady improvement across. Again, we’ve got ramps ahead of us in our plans. We’ve got to continue to see that improvement.

On 787, we’ve done, I think, a very good job in working and partnering with Boeing on heat exchangers. I feel like that is now up to where it needs to be on 787, and we’re going to continue to keep a close eye on that as Boeing continues to ramp.

Gautam Khanna: Thank you.

Operator: Thank you. Our next question comes from the line of Kristine Liwag of Morgan Stanley. Your line is open, Kristine.

Kristine Liwag: Hey. Good morning, everyone. I mean, Chris and Neil…

Chris Calio: Good morning.

Neil Mitchill: Good morning.

Kristine Liwag: The focus has been on the negative impact on tariff, but I would imagine that in the discussion that the administration is having with other countries on how to close the US trade deficit, the aerospace defense industry’s role as a net exporter, I mean, can’t really be ignored. So, I guess first, are you having any discussions about that? And are you seeing incremental demands from international orders from this? And second, $1 trillion US defense budget kind of came under the radar a few weeks ago. And taking this into consideration, I mean, how much flexibility do you have in ramping up capacity?

Chris Calio: Yeah. Thanks, Christine. Look, we’ve been consistent in our advocacy through a number of channels, legislative with the administration on exactly what you just said. Again, we really believe that the US aerospace and defense industry is really well positioned to meet what the administrative’s sort of North Star and trade objectives are and that this industry has just been a shining example of US competitiveness and US manufacturing prowess. And if you just think about all the investments we make here in the US, both in terms of our people, our factories and our technologies, again, those are the things that we continue to emphasize. On the 2026 sort of budget, I guess, we’ll see how that ultimately shakes out. Again, focus areas will continue to be integrated air and missile defense, [indiscernible] missile defense, counter UAS, I think all things that are in our core competency.

To your point on capacity and rate increases, again, you’ve heard us talk about our backlog today. We are in an urgent mode in terms of increasing capacity across the board. I gave you the example of Tucson. Previously, we’ve done it in Huntsville. We’ve done it in Camden, Arkansas. We’re doing it across our footprint for the very reason that you mentioned, which is the demand is strong today and we see that continuing into the future, and we’ve got to be ready to continue to meet that demand.

Kristine Liwag: Great. Thank you.

Operator: Thank you. Our next question comes from the line of David Strauss of Barclays. Please go ahead, David.

David Strauss: Thanks. Good morning.

Chris Calio: Hey, David.

David Strauss: Just a follow-up, I think, on some questions that have been asked. First of all, V2500, the shop visit assumption there this year, if that’s held and how you think V2500 shop visits would hold up in a, let’s say, flattish kind of flight hour environment if we go into a recession? That’s the first question. And then, second of all, on GTF and powder metal, Chris, you’ve talked about the ramp that you saw last year and expecting this year on powder metal material and MRO capacity. I guess, how much do we ultimately or do you ultimately need to see powder metal capacity, MRO capacity increase, I guess, beyond what you’re thinking about for 2025 to be able to accomplish fixing all the, I think, 3000 engines that need to have parts replaced? Thanks.

Chris Calio: Sure. I’ll start with the last part, David, and then, Neil, maybe you want to talk V2500. When we think about the GTF fleet management plan, David, again, pleased with the MRO output. I’ll note here that this MRO output was also on heavier work scopes compared to Q4. So, really pleased about that. Continue to see continued improvement in in-shop turnaround time. A lot of that is taking time out of Gates 1 and Gate 3. In terms of capacity, again, I don’t think it’s an MRO shop issue. We’ve got the number of shops that we need in network. It’s really just optimizing the flow within each one of those. And again, as I said before, that comes down to the Gate 2 material flow. When we see material flowing, we see turn times come down substantially.

As I said, we’re taking as much as we can out of Gates 1 and 3 as we continue to drive better flow with our supply chain into Gate 2. As we continue to see that improve, we feel really good about the shops we have in our network and their ability to take that material and shrink turn times substantially.

Neil Mitchill: Thanks, Chris. David, on V2500, rather, 800 shop visits was our estimate coming into the year as you pointed out. We were up 7% in the first quarter of this year, year-over-year, in terms of our inductions, right on track for about a quarter of the full year output. We’re also seeing the mix of those shop visits trend towards heavier overhauls given the age of that fleet. If you were to project that out, if I were to project that out in a flatter environment, I think it holds pretty solidly. We saw 11 retirements of V2500-powered aircraft in the first quarter. As you know, over the last several years, those retirements have been relatively low. It’s still a relatively young fleet. And frankly, there’s a tremendous amount of demand still as you all know in the narrow-body area.

And so, I think for a short period of time, even in a lower demand environment, those shop visits would likely stay relatively consistent. Our customers need that lift, and as we continue to get the GTF fleet back up in the air, then I think we would see that start to tail off a little bit, but that’s a little bit of a ways out.

Operator: Thank you. Our next question comes from the line of Doug Harned of Bernstein. Please go ahead, Doug.

Doug Harned: Good morning. Thank you.

Chris Calio: Good morning, Doug.

Doug Harned: Chris, over the last couple of years, you’ve had a really big increase in backlog at Raytheon and a lot of that’s been helped by international, particularly Europe. When you look forward, looking at mid-single-digit growth this year at Raytheon, it seems to be that you have an outlook that’s well below what one might expect from that backlog growth. Can you comment on the timing in which we should see that backlog flow into revenues? And perhaps, also, how you’re thinking about some of the Buy European movement inside Europe and how you’re participating kind of on the ground in Europe as well?

Chris Calio: Yeah. Maybe I’ll start with the second part first, Doug. As I was saying upfront, we view the increased defense spending in Europe as an opportunity. And we all saw the $850 billion support over the next four to five years to continue to build up European munitions and defense overall. As I said, one of the biggest needs are integrated air and missile defense systems and effectors, which is again right in our core competency: Patriot, GEM-T, NASAMS, LTAMDS, which we just mentioned getting through Milestone C and going into production, another opportunity there. So, again, feel like that’s a real opportunity for us, especially on the back of the very strong partnerships that we have in terms of co-production and co-sustainment.

We don’t go it alone in Europe on some of our key programs. We think that’s a competitive advantage. In terms of the timing of the sort of backlog, if you will, Doug, again, some of that is driven by contractual terms and length of those contracts, how those play out, but again, you’ve got some very long lead material items that sit in many of these programs that take time. Again, I’ll go back to the point I made before. The more streamlining we can do, especially on FMS, you saw that with one of the EOs that the government had sort of put out there. Streamlining that process, the faster that we can get supply — our supply chain on contract, get long lead material flowing and shorten those delivery cycles.

Neil Mitchill: And the only thing I would add to — yeah, sorry, I’ll just add another point or two here. I mean, if you looked within the businesses, land and air defense systems, that’s up a strong double-digits, right? Where you’d expect to see the growth, we’re seeing it. It’s offset by some expected headwinds in lower development programs, and that frankly is lumpy, it’s timing. So, I think as you step back and look at the broader Raytheon portfolio, we still feel good about the mid-single-digit sales growth this year. We expected the headwind we saw in the first quarter. We have a couple of points of that headwind in the second quarter frankly, but underlying the bread and butter of the Raytheon portfolio, it remains on track and our execution is on track there and we’re seeing capacity increases and that’s translating to output. So, I think those are a couple of the dynamics going on within the business.

Doug Harned: Right. Okay. Very good. Thanks.

Operator: Thank you. Our next question comes from the line of Scott Mikus of Melius Research. Please go ahead, Scott.

Scott Mikus: Good morning.

Chris Calio: Good morning, Scott.

Scott Mikus: Chris, Neil, quick question on Pratt. There is a labor negotiation with the vote on a contract in early May. I’m just wondering how you’re approaching that and if there’s any contingency plans put in place, if there is a strike to still work down the GTF AOGs.

Chris Calio: Yeah. Well, look, I won’t get into the specifics of that one, Scott. I’ll just say that I think we’ve had a pretty good track record over the last few years in a highly inflationary market with getting large significant union negotiations to agreement without any interruption. And we’re cautiously optimistic that we can do that here as well. We have a longstanding relationship with this labor union. There’s a lot of demand in the system. So, obviously, feel like we can get to the right place there and continue to meet the demands of our customer.

Scott Mikus: All right. Thanks for taking the question.

Chris Calio: You bet.

Operator: Thank you. Our next question comes from the line of Matt Akers of Wells Fargo. Please go ahead, Matt.

Matt Akers: Hey, guys. Good morning. Thanks for the question. Sorry to go back to tariffs, but I guess one question we’re getting this morning is kind of why are you not able to pass-through more of this $850 million, I guess, just either whether it’s contract kind of escalation or just aftermarket pricing or kind of drawbacks because a lot of your product ultimately kind of gets exported. So, is that not the right way to think about it, or is there maybe like a timing mismatch that maybe you get this back in the future, or maybe could you possibly do better than this if you are able to recover some of that?

Chris Calio: Well, let me break this in two parts here, Matt. So, in terms of can we do better, so you sort of said upfront, these are relatively new sort of processes and systems that we’ve put in place to avail ourselves of the mitigations — the regulatory mitigations and some of the operational mitigations. And so, as we continue to get reps on those, I suspect that we will get those more learned out and there could be opportunities. On pricing, again, I would say that we’ve had experience over the last few years in how to pass along higher costs through pricing to our customers where reasonable. Again, I think you have to be balanced. You have to balance that against a number of factors, your contract, of course, but what the market will bear, what the market landscape is. We have not been shy about pushing through higher costs through pricing and we’ll continue to look for opportunities to do that, but I don’t think it’s not a panacea for all things tariff.

Matt Akers: Okay. Thank you.

Operator: Thank you. Our next question comes from the line of Noah Poponak of Goldman Sachs. Your question please Noah.

Noah Poponak: Hi, good morning, everyone.

Chris Calio: Hey, Noah.

Noah Poponak: Neil, your full year guidance for segment EBIT at Pratt and Collins, I think implies the margins are pretty flat sequentially through the year, maybe even down a little at Collins. Can you talk about that? How much of that is actual pre-tariff fundamental drivers in the business? And how much of that is leaving cushion where you could therefore absorb tariffs if they stick?

Neil Mitchill: Thanks, Noah. Appreciate the question. And I think if we were sitting in an environment with maybe a little less uncertainty, I’d feel like we were well positioned within our outlook, and that’s how we started the year as we talked about 90 days ago. Strong first quarter, really pleased with the margins we saw both at Collins and at Pratt. And I would comment at Pratt that was on lower spare engines and more install engines. So, I think I’m really pleased to see the kinds of margins we’re seeing there with the mix of the install versus spare engine mix in the first quarter. And as we look out to the rest of the year, we’ll see higher installs at Pratt. That will bring with it a little bit of headwind as it does all the time, but I remain cautiously optimistic.

I think at this juncture in the year given the uncertainty we’re seeing around the customer base, we’re going to sit here and hold that for the rest of the year. We’ll look at it again in another 90 days, and if the strength continues, then that’ll be great. If not, I think we’ve got a little room to absorb some softening that might take place as we exit the summer months. So, I’ll just leave it at that for now. And of course, 90 days, we’ll be back to provide an update.

Noah Poponak: Okay. Thank you.

Operator: Thank you. Our final question comes from the line of Gavin Parsons of UBS. Please go ahead, Gavin.

Gavin Parsons: Thanks. Good morning.

Chris Calio: Hey, Gavin.

Gavin Parsons: Just following through on Raytheon margins there, I think the guide for the full year implies about 10.5%, and I think that’s with $100 million of productivity. So, given you did 10.7% in the first quarter with $15 million of productivity, I guess, first, is there anything abnormal in that margin? And then, second, longer-term on Raytheon margins, anything that keeps you from achieving that 100 basis points of volume plus 100 basis points of productivity that you had been talking about a couple of years ago at the ’23 Investor Day?

Neil Mitchill: Sure. Thanks for the question. Listen, I think we’re pleased with the Raytheon margins in the first quarter, too. Obviously, it’s not where we think the full potential of the business is. We think it can get back into the 12%-plus range and will. We saw about $15 million year-over-year productivity improvement. We had said we’d see about $100 million on a full-year basis and still hold that expectation. So, again, mix contributed in a significant way in the first quarter. That mix can vary throughout the course of the year, but we’re definitely seeing a trend towards more international mix in the Raytheon sales and backlog and we expect that trend to continue. So, again, at this point in the year, just want to make sure we reserve a certain amount of contingency here, but I feel good about how we started the year and I expect us to continue to see that play out.

We have big growth in absolute dollars and profit for Raytheon as we move through the rest of the year. That’s reliant upon the continued supply chain health. Again, we’ve seen good movement there, eight consecutive quarters of material growth. So, again, assuming all that holds, we expect that margin to hold as we go through the rest of the year as well. So, thanks for the question.

Gavin Parsons: Thanks.

Operator: With that, I would now like to turn the conference back to Nathan Ware.

Nathan Ware: All right. Thank you, Latif. That concludes today’s call. As always, the Investor Relations team and I will be available for follow-up questions. So, thank you all for joining us today and have a good day.

Operator: This now concludes today’s conference. You may now disconnect.