RTX · Q2 2025 Earnings
BullishRTX Corporation
Reported July 22, 2025
30-second summary
Revenue grew 9% to $21.6B with all three segments expanding high single to low double digits and commercial aftermarket up 16%. Management raised FY adjusted sales guide to $84.75–$85.5B (organic growth now 6–7%, up from 4–6%) and confirmed FCF at $7.0–$7.5B, while lowering adjusted EPS to $5.80–$5.95 from $6.00–$6.15 — the sales raise reflects demand acceleration; the EPS cut absorbs ~$500M of net tariff costs plus tax legislation effects. Backlog at $236B with a 1.86 book-to-bill ratio is the cleanest signal that the multi-year defense/aftermarket setup is intact.
Headline numbers
EPS
Q2 FY2025
$1.56
Revenue
Q2 FY2025
$21.58B
+9.0% YoY
Gross margin
Q2 FY2025
20.2%
Free cash flow
Q2 FY2025
$-0.07B
Operating margin
Q2 FY2025
9.9%
Key financials
Q2 FY2025| Metric | Q2 FY2025 | YoY |
|---|---|---|
| Revenue | $21.58B | +9.0% |
| EPS | $1.56 | — |
| Gross margin | 20.2% | — |
| Operating margin | 9.9% | — |
| Free cash flow | $-0.07B | — |
Guidance
Prior quarter data unavailable — comparison not possible.
Segment KPIs
Q2 FY2025| Segment | Q2 FY2025 | YoY |
|---|---|---|
| Collins Aerospace | $7.622B | +9.0% |
| Pratt & Whitney | $7.631B | +12.0% |
| Raytheon | $7.001B | +8.0% |
| Commercial Aftermarket Growth | 16% | — |
Other KPIs
Q2 FY2025| Segment | Q2 FY2025 |
|---|---|
| Backlog | $236 billion |
| Book-to-Bill Ratio | 1.86 |
| Collins Aerospace Adjusted Operating Margin | 16.4% |
| Pratt & Whitney Adjusted Operating Margin | 8.0% |
| Raytheon Adjusted Operating Margin | 11.6% |
| Operating Cash Flow | $0.5 billion |
| Capital Returned to Shareowners | $0.9 billion |
Management tone
Tariffs went from a defensive headwind to a quantified, shrinking problem. The opening framing earlier in the year emphasized monitoring fluid trade policy; this quarter management directly stated "our outlook on the impact of tariffs has improved for the year as there have been some positive announcements to date, such as the UK agreement, which provides exemptions for aerospace components." The net tariff figure moved from ~$850M to ~$500M — half from lower rates, half from mitigation (USMCA routing, pricing actions, material flow optimization). This is the difference between absorbing a shock and managing it.
Defense demand language has hardened from cyclical optimism into structural conviction. The line "The growing need for air dominance is creating unprecedented demand for our core defense products across RTX" paired with concrete artifacts — 1.86 book-to-bill, $236B backlog, $25B Golden Dome and $25B effectors opportunities, NATO 3.5% commitments — signals management views the geopolitical demand cycle as a multi-year capacity problem, not a near-term order surge. Hence the $250M Raytheon capex.
Capital return confidence is the loudest tell. Management quantified "$37 billion of capital to shareholders from the date of the merger through the end of this year" and raised the dividend 8% in the same quarter they cut adjusted EPS guidance. That sequencing is not what cautious managements do — it says the underlying earnings power is materially stronger than the headline EPS guide suggests once tariff and tax-legislation noise clears.
The commercial aftermarket bull case got louder, not just quantitatively. Pratt aftermarket guide moved from "around 10%" to "low teens" with 800 V2500 shop visits forecasted; GTF 1100 MRO output up 22% despite the strike. The shift from defensive (managing AOGs and powder metal) to offensive (raising aftermarket guide twice in two quarters) is a meaningful narrative inflection.
Recurring themes management leaned on this quarter:
Risks management surfaced:
Q&A highlights
Jason Gursky · Citi
Multi-year outlook for Raytheon with focus on backlog conversion, award timing on Golden Dome and other programs, and capacity to handle pipeline growth
Management highlighted 1.35 book-to-build, 25% backlog growth since end of 2023, strong international demand (Europe 3.5% over next decade), $25B Golden Dome and $25B effectors opportunities. Emphasis on ramping capacity with $250M investment, double production on GMT and Coyote, and nine consecutive quarters of material growth. Management declined to speculate on award timing but expressed confidence in positioning.
Robert Stollard · Vertical Research
Tariff impact update with focus on moving parts between Q1 and Q2 guidance, demand-side effects from airlines, and mitigation strategies
Tariff headwind reduced from $850M to $500M outlook. Half reduction from lower rates/pausing, half from mitigation (USMCA, pricing actions, material flow optimization). $100M impact in Q2 (60M Collins, 40M Pratt). $425M remaining for year. No demand bleed-through observed; commercial aftermarket up 18% organically with strong shop visits. Consumer sentiment and airline commentary positive.
Miles Watson · Wolf Research
Tariff rate assumptions for rest of year and August 1 implications; R&D capitalization reversal benefits from reconciliation bill and multi-year cash flow impact
Tariff assumption of $500M contemplates current rates; if rates increase post-August 1, couple months hits income statement while rest sits in inventory. Company positioned to absorb increases via earnings and free cash flow range. R&D permanent restoration provides income statement headwind offset by operational tax items (maintaining 19.5% effective rate). Cash benefit increase 25-30% of tariff offset this year, with continued benefits in 2026-2028 from complex provisions including capitalization/expensing interplay and corporate alternative minimum taxes.
Sheila Kahiaglu · Jefferies
Pratt core business strength with 24% H1 aftermarket growth but double-digit full-year guidance implying steep deceleration; details on GTF MRO output, work scopes, and V2500 retirement trends
GTF 1100 MRO output up 22% in Q2 despite 4-week strike and heavier work scopes. V2500 platform showing longer-term strength with potential content increases as shop visits moderate. Pratt sales now up low double digits for full year (~$800M of $1.6B RTX uplift), with aftermarket now expected mid-teens growth (up from prior guidance). $400M increase attributed to aftermarket, $300M to OE, balance to defense.
Christine Liwag · Morgan Stanley
Long-term free cash flow potential given multi-year tailwinds in defense bookings, commercial aerospace OE/aftermarket, supply chain investment, and GTF powder metal resolution; whether $10B minimum FCF achievable in 2027+
Management confident in $7-7.5B FCF for 2025. Expects recovery from Pratt strike (~$1B) in Q3, delivery milestones, international advances, and F-135 lot 18/19 contract awards in Q3. On 2025 basis, $1.2B powdered metal compensation implies ~$8.5B operational FCF (>100% of adjusted net income). Long-term expects continued FCF tailwinds from OE growth, aftermarket strength (RPK growth 3-5%), strong defense backlog, and tax legislation benefits. Did not commit to specific $10B target.
What to watch into next quarter
Tariff trajectory post-August 1 rate decisions — whether the $500M FY net tariff figure holds, or whether a step-up forces another EPS guide revision. Watch for any change to the 19.5% effective tax rate assumption.
Pratt H2 cash recovery — management committed to recovering the ~$1B Pratt strike impact in H2 with most landing in Q3. FCF needs to swing from -$0.07B in Q2 to a heavily back-loaded H2 to hit the $7.0–$7.5B FY guide. Q3 FCF below $2.5B would put the low end at risk.
Pratt aftermarket H2 deceleration math — H1 organic at +18%, full-year guide implies mid-teens; the implied H2 deceleration is steep and worth interrogating against V2500 shop visit cadence (800 forecasted) and GTF MRO output run-rate.
Raytheon book-to-bill sustainability — 1.86 this quarter is unusually high; watch whether 2H bookings normalize toward 1.2–1.3 or stay elevated as Golden Dome and international effectors awards convert.
Operational FCF disclosure — management volunteered an ~$8.5B "operational FCF" framing (excluding $1.2B powder metal compensation). If this metric persists in future disclosure, it sets up a 2026/2027 reported FCF step-up as compensation payments roll off.
Sources
- RTX Corporation Q2 2025 Earnings Press Release (Form 8-K Exhibit 99), SEC EDGAR, July 22, 2025.
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