10-QPeriod: Q2 FY2017

RTX Corp Quarterly Report for Q2 Ended Jun 30, 2017

Filed July 28, 2017For Securities:RTX

Summary

United Technologies Corporation (RTX) reported solid financial performance for the second quarter and first half of 2017, with net sales increasing by 3% year-over-year for both periods. Net income attributable to common shareholders showed slight growth in the quarter ($1.439 billion vs. $1.379 billion) and a more significant increase for the first half ($2.825 billion vs. $2.562 billion). The company demonstrated effective cost management, with Cost of Sales growing slower than Net Sales, leading to an improved gross margin for the six-month period. Operating profit experienced a slight decrease in the quarter but a notable increase in the first half, reflecting the company's diversified business segments and their varying performance drivers. RTX continued its strategic focus on innovation, with increased R&D spending across segments. The company also actively managed its capital structure, issuing new debt and continuing share repurchases, while maintaining a strong liquidity position with substantial cash and cash equivalents.

Financial Highlights

49 data points
Beta

Revenue

$15.28B

26.9% Gross Margin

Net Income

$1.44B

9.4% Net Margin

EPS (Diluted)

$1.80

Total Assets

$94.79B

Cash & Equivalents

$9.35B

Free Cash Flow

$2.15B

Financial Statements
Beta
Revenue$15.28B
Cost of Revenue$7.91B
Gross Profit$4.12B
R&D Expenses$619.00M
SG&A Expenses$1.59B
Operating Expenses$13.37B
Operating Income$2.16B
Interest Expense$226.00M
Net Income$1.44B
EPS (Basic)$1.83
EPS (Diluted)$1.80
Shares Outstanding (Basic)788.70M
Shares Outstanding (Diluted)798.20M

Key Highlights

  • 1Net sales increased by 3% to $15.28 billion for the quarter ended June 30, 2017, and by 3% to $29.095 billion for the first six months.
  • 2Net income attributable to common shareholders was $1.439 billion for the quarter, a slight increase from $1.379 billion in the prior year. For the first six months, net income increased to $2.825 billion from $2.562 billion.
  • 3Diluted earnings per share from continuing operations were $1.80 for the quarter, up from $1.65 in the prior year, and $3.53 for the first six months, up from $3.08.
  • 4Gross margin as a percentage of sales was 27.4% for the quarter and 27.2% for the six months, showing slight pressure compared to the prior year's 27.8% for both periods.
  • 5Company-funded R&D increased by 4% for the quarter and 5% for the six months, reflecting continued investment in product development across segments.
  • 6The company maintained strong liquidity with cash and cash equivalents of $9.345 billion as of June 30, 2017.
  • 7RTX continued its share repurchase program, with approximately $1.37 billion spent on repurchasing common stock in the first six months of 2017.

Frequently Asked Questions

RTX demonstrated solid performance with increasing net sales for both the second quarter (up 3% to $15.28 billion) and the first half of 2017 (up 3% to $29.095 billion). Net income attributable to common shareholders also grew, particularly for the first half of the year ($2.825 billion) compared to the prior year ($2.562 billion). Diluted EPS from continuing operations saw a positive trend, reaching $1.80 for the quarter and $3.53 for the six months.

All four segments (Otis, UTC Climate, Controls & Security, Pratt & Whitney, and UTC Aerospace Systems) experienced organic sales growth in the first six months of 2017. Pratt & Whitney saw growth driven by military and commercial aftermarket sales. UTC Climate, Controls & Security benefited from its HVAC and refrigeration businesses. Otis saw growth in service sales, and UTC Aerospace Systems benefited from commercial aftermarket sales. However, some segments like UTC Aerospace Systems experienced a slight sales decline in the quarter due to lower commercial aerospace OEM volume.

RTX maintained a strong liquidity position, ending the second quarter of 2017 with $9.345 billion in cash and cash equivalents. The company generated significant cash flow from operations, which, along with access to commercial paper markets and credit facilities, supports its financial flexibility. RTX is actively managing its capital structure through debt issuance and a continued share repurchase program, spending approximately $1.37 billion on repurchases in the first six months of 2017.

The company disclosed ongoing legal proceedings, including a Cost Accounting Standards claim against Pratt & Whitney and German Tax Litigation related to Otis operations. It also mentioned potential liabilities from environmental regulations, government investigations, and asbestos claims, for which provisions have been made. While the company believes these matters will not have a material adverse effect, they represent areas of potential financial impact and ongoing scrutiny.