Why does reported sales growth show 49% when adjusted growth is only 6%?

The prior-year third quarter included a $5.4 billion sales reduction from the Pratt & Whitney powder metal charge. Reported sales of $20.1 billion versus $13.5 billion therefore look inflated. Adjusted sales, which exclude that charge, were $20.1 billion versus $18.95 billion, up 6%, or 8% organically excluding the divested Cybersecurity, Intelligence and Services business.

Is the raised guidance a sign of improving fundamentals?

The raise is modest: adjusted sales guidance was lifted at the low and high ends by $0.5 billion and $0.25 billion, and adjusted EPS by $0.15 at the low end and $0.13 at the high end. Management attributes it to robust demand in commercial aftermarket and defense. The results reflect operational momentum, though the range still implies a meaningful portion of growth depends on sustained aftermarket activity.

Why did free cash flow decline despite higher earnings?

Operating cash flow fell 24% year over year to $2.5 billion, mainly due to working capital changes, including higher contract assets, inventory build, and a smaller increase in accounts payable and accrued liabilities versus the prior year. Capital expenditures were $552 million. Management still expects full-year free cash flow of about $4.7 billion, implying stronger cash generation in the fourth quarter.

What is the difference between GAAP and adjusted EPS for RTX?

Adjusted EPS excludes acquisition accounting adjustments (amortization of acquired intangibles, which were $0.31 per share in Q3), restructuring costs, and other significant or non-recurring items. GAAP diluted EPS of $1.09 is lower than the $1.45 adjusted figure mainly because of acquisition accounting amortization. Investors should weigh both measures, since the excluded items can recur in some form.

What are the main risks highlighted in this report?

The forward-looking statements flag risks including powder metal-related engine removals and inspections on the PW1100G-JM GTF fleet, U.S. government defense spending and budget uncertainty (including the November 2024 elections), fixed-price contract performance, supply chain and sanctions effects, and legal and regulatory matters. The nine-month results already reflect roughly $0.9 billion in legacy legal charges, underscoring that legal and contract exposures remain material.

RTX 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed October 22, 2024. Cited figures are marked; the original filing is the authoritative source.

RTX Corporation's third quarter 2024 results (press release furnished under Item 2.02 of this 8-K, dated October 22, 2024) showed a strong operating quarter.

Reported sales were $20.1 billion^a, up 49% from $13.5 billion a year earlier, but that comparison is distorted by the prior-year $5.4 billion Pratt & Whitney powder metal charge. On an adjusted basis, sales were flat year over year at $20.1 billion versus a restated $18.95 billion, up 6% (8% organic). Reported GAAP EPS was $1.09 versus a loss of $(0.68), and adjusted EPS of $1.45 rose 16% from $1.25.

Pratt & Whitney drove most of the growth, with adjusted sales up 14%^b and adjusted operating profit up 45%, led by commercial aftermarket and military volume. Collins Aerospace and Raytheon also posted solid margin expansion. Cash generation was softer.

Operating cash flow fell 24% to $2.5 billion^c and free cash flow fell 28% to $2.0 billion, reflecting working capital movements such as higher contract assets and inventory. Nine-month free cash flow was $4.0 billion, and management reaffirmed full-year free cash flow of about $4.7 billion. Backlog reached a record $221 billion, including $131 billion commercial and $90 billion defense.

RTX returned $1.1 billion^d to shareowners in the quarter, over $32 billion since the merger, and achieved its $2 billion post-merger gross cost synergy target. Management raised its 2024 outlook for adjusted sales to $79.25-$79.75 billion (from $78.75-$79.5 billion) and adjusted EPS to $5.50-$5.58 (from $5.35-$5.45).

The guidance signals confidence in commercial aftermarket and defense demand. Investors should note that reported GAAP results remain affected by acquisition accounting amortization (about $0.31 per share in Q3), the powder metal legacy, and nine-month non-recurring items including roughly $0.9 billion of legal matter charges and a $0.6 billion Raytheon contract termination charge.

02—Key points

Key Highlights

Adjusted EPS of $1.45 rose 16% year over year; GAAP diluted EPS was $1.09 versus a $(0.68) loss in the prior year, which included the powder metal charge.
Adjusted sales of $20.1 billion were up 6% reported and 8% organic; Pratt & Whitney adjusted sales grew 14% and adjusted operating profit grew 45%.
Record backlog of $221 billion ($131 billion commercial, $90 billion defense) supports multi-year revenue visibility.
Full-year 2024 outlook raised: adjusted sales to $79.25-$79.75 billion and adjusted EPS to $5.50-$5.58; free cash flow of about $4.7 billion was confirmed.
Operating cash flow fell 24% to $2.5 billion and free cash flow fell 28% to $2.0 billion in the quarter, driven by working capital, including higher contract assets and inventory.
Achieved $2 billion of post-merger gross cost synergies; returned $1.1 billion to shareowners in the quarter and over $32 billion since the merger.
Nine-month results include about $0.9 billion of legacy legal matter charges and a $0.6 billion Raytheon contract termination charge, which depress GAAP results.

03—Questions

Frequently Asked Questions

Why does reported sales growth show 49% when adjusted growth is only 6%?
The prior-year third quarter included a $5.4 billion sales reduction from the Pratt & Whitney powder metal charge. Reported sales of $20.1 billion versus $13.5 billion therefore look inflated. Adjusted sales, which exclude that charge, were $20.1 billion versus $18.95 billion, up 6%, or 8% organically excluding the divested Cybersecurity, Intelligence and Services business.
Is the raised guidance a sign of improving fundamentals?
The raise is modest: adjusted sales guidance was lifted at the low and high ends by $0.5 billion and $0.25 billion, and adjusted EPS by $0.15 at the low end and $0.13 at the high end. Management attributes it to robust demand in commercial aftermarket and defense. The results reflect operational momentum, though the range still implies a meaningful portion of growth depends on sustained aftermarket activity.
Why did free cash flow decline despite higher earnings?
Operating cash flow fell 24% year over year to $2.5 billion, mainly due to working capital changes, including higher contract assets, inventory build, and a smaller increase in accounts payable and accrued liabilities versus the prior year. Capital expenditures were $552 million. Management still expects full-year free cash flow of about $4.7 billion, implying stronger cash generation in the fourth quarter.
What is the difference between GAAP and adjusted EPS for RTX?
Adjusted EPS excludes acquisition accounting adjustments (amortization of acquired intangibles, which were $0.31 per share in Q3), restructuring costs, and other significant or non-recurring items. GAAP diluted EPS of $1.09 is lower than the $1.45 adjusted figure mainly because of acquisition accounting amortization. Investors should weigh both measures, since the excluded items can recur in some form.
What are the main risks highlighted in this report?
The forward-looking statements flag risks including powder metal-related engine removals and inspections on the PW1100G-JM GTF fleet, U.S. government defense spending and budget uncertainty (including the November 2024 elections), fixed-price contract performance, supply chain and sanctions effects, and legal and regulatory matters. The nine-month results already reflect roughly $0.9 billion in legacy legal charges, underscoring that legal and contract exposures remain material.

04—Continue

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