RTX beats estimates on aviation strength, defense demand

By Pratyush Thakur and Mike Stone

(Reuters) -A recovery in commercial air traffic and increased global defense spending helped RTX report better-than-expected fourth-quarter earnings on Tuesday, boosting margins in its aftermarket service and defense business lines.

RTX shares were up 6.5% in early trading in New York.

The defense and aerospace major also forecast 2024 profit in the range of $5.25 to $5.40 per adjusted share, while analysts estimate $5.28 per share, according to LSEG data.

RTX capitalized on a strong aftermarket business as airlines extend the use of their planes to meet strengthened travel demand and amid a shortage of new jets.

Pratt and Whitney, an RTX subsidiary, booked a 25% jump in operating profit in the reported quarter, amid an ongoing inspection drive to check for potentially flawed components in its geared turbofan jet engines.

The issue relates to a powder metal used in engine parts, such as high pressure turbine disks and high-pressure compressor disks, that could result in micro-cracks and fatigue.

Chief Financial Officer Neil Mitchill told Reuters in an interview the company’s negotiations with customers were progressing and “we’re closing those agreements in line with the financial and operational assumptions that we have made.”

Financial assumptions about the GTF issue were unchanged from guidance issued in October. RTX still expects about 350 aircraft to be grounded at any time due to engine removals, but peak groundings in early 2024 are projected to be lower than the original estimate of 650 aircraft, executives said.

The company is also working with GTF maintenance providers on “light and medium work scopes” that can decrease repair time.

RTX’s defense arm Raytheon, led by retiring Wes Kremer, reported a 14% rise in operating profit, helped by AMRAAM rockets and Patriot systems, key weapons used by Ukraine to repel Russia’s invasion.

U.S. defense companies are getting more contracts as the Russia-Ukraine war, the need to support allies in the Middle East and the specter of Chinese aggression drive up demand, even as growth is hindered by pandemic-related labor and supply-chain disruptions.

Experts expect a boost in the order backlog of RTX along with other major companies that receive government contracts, such as Lockheed, General Dynamics and Northrop Grumman, following the passage of the $886 billion U.S. defense policy bill.

RTX reported adjusted net income of $1.29 per share in the fourth quarter, ahead of analysts’ estimate of $1.24 per share. Sales came in at $19.93 billion, beating Street expectation of $19.7 billion, as per LSEG data.

However, the company forecast 2024 revenue below expectations, owing to lingering supply challenges in the global aerospace industry.

It expects revenue between $78 billion and $79 billion, against analysts’ average expectation of $79.67 billion.

(Reporting by Pratyush Thakur in Bengaluru, Mike Stone and Valerie Insinna in Washginton;Editing by Pooja Desai, Mark Potter and Marguerita Choy)