Adjusted EPS and Free Cash Flow Exceeded Expectations in Q2; Raises Adjusted EPS and Free Cash Flow and Low End of Sales Outlook for 2021; Increases Gross Merger Cost Synergy Target to $1.5 billion
Raytheon Technologies Corporation (NYSE: RTX) reported second quarter 2021 results.
Second quarter 2021
- Sales of $15.9 billion
- GAAP EPS from continuing operations of $0.69, which included $0.34 of acquisition accounting adjustments and net significant and/or non-recurring charges
- Adjusted EPS of $1.03
- Operating cash flow from continuing operations of $1.3 billion; Free cash flow of $966 million
- Company backlog of $151.8 billion; including defense backlog of $66.1 billion and book-to-bill of 1.12
- Achieved approximately $185 million of incremental RTX synergies
- Repurchased $632 million of RTX shares
Raytheon Technologies updates its 2021 outlook and now anticipates the following:
Outlook for full year 2021
- Sales of $64.4 – $65.4 billion, up from $63.9 – $65.4 billion
- Adjusted EPS of $3.85 – $4.00, up from $3.50 – $3.70
- Free cash flow of $4.5 – $5.0 billion, up from approximately $4.5 billion
“Raytheon Technologies delivered strong second quarter results driven by the growth in our defense businesses and our ability to capitalize on the commercial aerospace recovery,” said Raytheon Technologies Chairman and Chief Executive Officer Greg Hayes. “Our solid execution gives us the confidence to raise our adjusted EPS and free cash flow outlook, as well as the low end of our sales outlook range for 2021. In addition, our relentless focus on operational excellence, structural cost reduction and integration execution has enabled us to further raise our merger related gross cost synergy target by $200 million to $1.5 billion.”
Hayes continued, “As a result of our industry-leading franchises and differentiated technologies, we generated significant program wins during the quarter that will drive continued top and bottom-line growth well into the future.”
Raytheon Technologies reported second quarter sales of $15.9 billion. GAAP EPS from continuing operations was $0.69 and included $0.34 of acquisition accounting adjustments and net significant and/or non-recurring charges. This included $0.26 of acquisition accounting adjustments primarily related to intangible amortization, $0.05 related to the revaluation of deferred taxes resulting from the increase in the U.K. corporate tax rate and $0.03 of restructuring. Adjusted EPS was $1.03.
The company recorded net income from continuing operations in the second quarter of $1,040 million, which included $525 million of acquisition accounting adjustments and net significant and/or nonrecurring charges. Adjusted net income was $1,565 million. Operating cash flow from continuing operations in the second quarter was $1,326 million. Capital expenditures were $360 million, resulting in free cash flow of $966 million.
| Summary Financial Results – Continuing Operations | ||||||||
| 2nd Quarter | ||||||||
| ($ in millions, except EPS) | 2021 | 2020 | % Change | |||||
| Reported | ||||||||
| Sales | $ | 15,880 | $ | 14,061 | 13% | |||
| Net Income | $ | 1,040 | $ | (3,844) | NM | |||
| EPS | $ | 0.69 | $ | (2.56) | NM | |||
| Adjusted | ||||||||
| Sales | $ | 15,880 | $ | 14,223 | 12% | |||
| Net Income | $ | 1,565 | $ | 583 | 168% | |||
| EPS | $ | 1.03 | $ | 0.39 | 164% | |||
| Operating Cash Flow from Continuing Operations | $ | 1,326 | $ | 210 | 531% | |||
| Free Cash Flow | $ | 966 | $ | (248) | NM |
| See “Use and Definitions of Non-GAAP Financial Measures” below for information regarding non-GAAP financial measures. |
Backlog and Bookings
Backlog at the end of the second quarter was $151.8 billion, of which $85.7 billion was from commercial aerospace and $66.1 billion was from defense.
Notable defense bookings during the quarter included:
- ~$2 billion for the engineering and manufacturing development (EMD) phase of the Long-Range Standoff (LRSO) Weapon System at Raytheon Missiles & Defense (RMD)
- $1.3 billion for the Next Generation Interceptor (NGI) for the Missile Defense Agency at RMD
- $1.1 billion of classified bookings at Raytheon Intelligence & Space (RIS)
- $365 million for the Standard Terminal Automation Replacement System (STARS) program for the Federal Aviation Administration at RIS
- $327 million for AIM-9X Sidewinder for the U.S. Air Force, U.S. Navy and international customers at RMD
- $242 million on the Army Navy/Transportable Radar Surveillance-Model 2 (AN/TPY-2) radar program for the Missile Defense Agency at RMD
- $213 million for StormBreaker for the U.S. Air Force and U.S. Navy at RMD
- $211 million to provide additional upgrades to the Global Positioning System Next Generation Operational Control System (GPS OCX) program for the U.S. Air Force at RIS
Segment Results
The company’s reportable segments are Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD).
| Collins Aerospace | ||||||
| 2nd Quarter | ||||||
| ($ in millions) | 2021 | 2020 | Change | |||
| Reported | ||||||
| Sales | $ | 4,545 | $ | 4,202 | 8% | |
| Operating Profit (Loss) | $ | 506 | $ | (317) | NM | |
| ROS | 11.1% | (7.5)% | 1,860 bps | |||
| Adjusted | ||||||
| Sales | $ | 4,545 | $ | 4,298 | 6% | |
| Operating Profit | $ | 518 | $ | 24 | 2,058% | |
| ROS | 11.4% | 0.6% | 1,080 bps | |||
| NM = Not Meaningful |
Collins Aerospace had second quarter 2021 adjusted sales of $4,545 million, up 6 percent versus the prior year. The increase in sales was driven by a 24 percent increase in commercial aftermarket and an 8 percent increase in commercial OE, which more than offset a 7 percent decline in military. Excluding the impact of the prior year Military GPS and Space ISR divestitures and FX, military was down 1 percent in the quarter. The increase in commercial sales was driven primarily by the recovery of commercial air traffic which has resulted in higher flight hours, aircraft fleet utilization and commercial OEM deliveries.
Collins Aerospace recorded adjusted operating profit of $518 million in the quarter, up 2,058 percent versus the prior year. The increase in adjusted operating profit was driven by drop through on higher commercial aerospace aftermarket and OEM sales volume along with continued cost reduction actions and the benefit of contract settlements. This was partially offset by the impact of the Military GPS and Space ISR divestitures.