10-QPeriod: Q3 FY2016

RTX Corp Quarterly Report for Q3 Ended Sep 30, 2016

Filed October 27, 2016For Securities:RTX

Summary

United Technologies Corporation (RTX) reported solid financial results for the third quarter and the first nine months of 2016. Net sales increased by 4% and 2% respectively, driven by strong performance in the aerospace segments, particularly Pratt & Whitney and UTC Aerospace Systems. While gross margin saw a slight decrease year-over-year, this was primarily attributed to contract performance at Pratt & Whitney. The company also continued its strategic focus on cost management, evident in its ongoing restructuring actions which are expected to yield significant annual savings. Financially, RTX maintained a strong liquidity position with substantial cash and cash equivalents. The company actively engaged in capital allocation through share repurchases and dividend payments, funded in part by proceeds from asset sales. Management expressed confidence in the company's ability to meet future operating cash needs through strong operating cash flows and access to credit markets. The company is also strategically de-risking its pension plans, which is expected to result in a one-time charge in the fourth quarter but will reduce future pension expenses.

Financial Highlights

49 data points
Beta

Revenue

$14.35B

28.0% Gross Margin

Net Income

$1.48B

10.3% Net Margin

EPS (Diluted)

$1.78

Total Assets

$90.06B

Cash & Equivalents

$7.11B

Free Cash Flow

$1.96B

Financial Statements
Beta
Revenue$14.35B
Cost of Revenue$7.52B
Gross Profit$4.01B
R&D Expenses$582.00M
SG&A Expenses$1.39B
Operating Expenses$12.31B
Operating Income$2.25B
Interest Expense$225.00M
Net Income$1.48B
EPS (Basic)$1.80
EPS (Diluted)$1.78
Shares Outstanding (Basic)822.40M
Shares Outstanding (Diluted)831.20M

Key Highlights

  • 1RTX reported a 4% increase in net sales for Q3 2016 ($14.35B vs $13.79B in Q3 2015) and a 2% increase for the first nine months of 2016 ($42.59B vs $41.80B in the prior year period).
  • 2Net income attributable to common shareowners increased to $1.48B in Q3 2016 from $1.36B in Q3 2015. For the nine months, it decreased slightly to $4.04B from $4.33B.
  • 3Earnings per diluted share from continuing operations were $1.74 for Q3 2016, up from $1.61 in Q3 2015. For the nine months, it increased to $4.86 from $4.76.
  • 4The company reported a total of $201 million in pre-tax restructuring costs for the first nine months of 2016, primarily related to workforce reductions and facility consolidations.
  • 5RTX ended the period with $7.11 billion in cash and cash equivalents, demonstrating strong liquidity.
  • 6Total long-term debt increased to $21.79 billion from $19.50 billion, reflecting new debt issuances and a higher debt-to-capitalization ratio.
  • 7The company completed the sale of Sikorsky in November 2015, and the financial results for periods presented exclude this segment, which is classified under discontinued operations.

Frequently Asked Questions

For the third quarter of 2016, RTX's net sales increased by 4% to $14.35 billion compared to $13.79 billion in the same period of 2015. For the first nine months of 2016, net sales grew by 2% to $42.59 billion from $41.80 billion in the prior year period. Organic sales growth was a key driver, particularly from the aerospace segments.

Net income attributable to common shareowners saw an increase in the third quarter of 2016 to $1.48 billion from $1.36 billion in the prior year. Diluted earnings per share from continuing operations also improved to $1.74 from $1.61. However, for the nine-month period, net income attributable to common shareowners decreased slightly to $4.04 billion from $4.33 billion. The decrease in gross margin percentage was primarily attributed to unfavorable contract performance and settlements at Pratt & Whitney.

RTX maintains a strong liquidity position, ending the period with $7.11 billion in cash and cash equivalents. The company's debt-to-total capitalization ratio stood at 42% as of September 30, 2016, up from 41% in the prior year, largely due to increased borrowings to fund share repurchases. Management expressed confidence in its ability to meet future cash needs through operating cash flows and access to credit.

The company is actively engaged in restructuring efforts, recording $201 million in pre-tax restructuring costs for the first nine months of 2016, aimed at improving operating margins and yielding significant annual savings. Additionally, RTX is strategically de-risking its pension plans through annuity purchases and lump sum distributions, which is expected to result in a one-time pre-tax pension settlement charge of $400 million to $530 million in the fourth quarter of 2016, but will reduce future pension expenses.