Q3 2025 RTX Corp Earnings Call

With me he recorded for replay purposes.

On the call today are Chris <unk>, Chairman and Chief Executive Officer, Neil Mitchell Chief Financial Officer.

And Nathan Ware, Vice President of Investor Relations.

This call is being webcast live on the Internet and there is a presentation available for download for our T X website at Www Dot our T X dot com.

Please note, except where otherwise noted the company will speak to results from continuing operations, excluding acquisition accounting adjustments and net nonrecurring and or significant items, often referred to by management as other significant items.

The company also remind listeners that the earnings and cash flow expectations and any other forward looking statements provided in this call are subject to risks and uncertainties.

Our T X F E filings, including its forms 8-K, 10-Q, and turnkey provide details on important factors that could cause actual results to differ materially from those anticipated in the forward looking statements.

Once the call becomes open for questions. We ask that you limit your first round to one question per caller to give everyone the opportunity to participate.

To ask a question you will need to press star one on your telephone.

You may ask further questions by Reinsert yourself into the queue as time permits.

With that I will turn the call over to Mr. <unk>.

Thank you and good morning, everyone.

We delivered a very strong quarter of results in Q3, which reflects our intense focus on execution the broad utilization of our core operating system and the durable demand for our products.

Speaker #1: Good day and welcome to RTX Third Quarter 2025 earnings conference call. My name is Desiree, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes.

On the top line sales were up 13% organically year over year with double digit growth in each of commercial OE commercial aftermarket and defense.

Speaker #1: On the call today are Chris Calio, Chairman and Chief Executive Officer; Neil Mitchill, Chief Financial Officer; and Nathan Ware, Vice President of Investor Relations.

Adjusted segment operating profit was up 19% year over year with growth and margin expansion across all three segments.

And free cash flow was robust at $4 billion in the quarter keeping us on track for the full year.

Speaker #1: This call is being webcast live on the internet and there is a presentation available for download for RTX website at www.rtex.com. Please note except for otherwise noted, the company will speak to results from continuing operations excluding acquisition accounting adjustments and net non-recurring and/or significant items often referred to by management as other significant items.

Underpinning. These results is the continued strength in the global demand for our products and services.

In commercial aerospace passenger air travel has remained resilient with global art PK is on track for approximately 5% growth this year.

We continue to see positive OE production trends, which drove a significant increase in production at Collins in the quarter as well as our prep, which saw a 6% growth in large commercial engine deliveries.

Commercial aftermarket also remains strong supported by our large and growing installed base.

Speaker #1: The company also reminds listeners that the earnings and cash flow expectations, as well as any other forward-looking statements provided in this call, are subject to risks and uncertainties.

<unk> over $100 billion of out of warranty content at Collins and heavier shop visit content across our MRO activities.

Speaker #1: RTX SEC filings including its forms 8K, 10Q, and 10K provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements.

Aircraft retirements have remained low with only one 5% of the V 2500 fleet retired so far this year in.

And Pratt Canada, nearly 70000 engines in service is seen over 15% growth year to date in commercial aftermarket.

Speaker #1: Once the call becomes open for questions, we ask that you limit your first round to one question per caller to give everyone the opportunity to participate.

On the defense side, we continue to be exceptionally well positioned to meet the growing needs of our U S and international customers in particular with respect to munitions and integrated air and missile defense, both core capabilities of our company.

Speaker #1: To ask a question, you will need to press *1 on your telephone. You may ask further questions by re-inserting yourself into the queue as time permits.

On the orders front, our book to Bill in the quarter was 163, resulting in a backlog of 251 billion up 13% year over year.

Speaker #1: With that, I will turn the call over to Mr. Calio.

Speaker #2: Thank you and good morning, everyone. We delivered a very strong quarter of results in Q3, which reflects our intense focus on execution, the broad utilization of our core operating system, and the durable demand for our products.

The activity in the quarter included 37 billion of New awards with 23 billion of Defence and 14 billion of commercial orders.

On the commercial side through Q3, our book to Bill. This year is $1 71, and our backlog has grown 18% since the end of 2024, showing the exceptional demand for our products and technologies at both Collins and Pratt.

Speaker #2: On the top line, sales were up 13% organically year over year, with double-digit growth in each of commercial OE, commercial aftermarket, and defense. Adjusted segment operating profit was up 19% year over year, with growth in margin expansion across all three segments.

At Raytheon, we booked over $8 billion of orders for munitions, including approximately $2 5 billion for gem T to support multiple international customers and $2 1 billion for Amarin.

Speaker #2: And free cash flow was robust at $4 billion in the quarter, keeping us on track for the full year. Underpinning these results is the continued strength in global demand for our products and services.

Largest order in the 30 year history of that program.

Raytheon was also awarded a significant counter drone contract for Coyote production from the U S Army.

Speaker #2: In commercial aerospace, passenger air travel has remained resilient, with global RPKs on track for approximately 5% growth this year. We continue to see positive OE production trends, which drove a significant increase in production at Collins in the quarter, as well as at Pratt, which saw a 6% growth in large commercial engine deliveries.

Cody has proven to be extremely effective in the field and we've recently developed a lower cost non kinetic coyote payload to combat drone swarms.

And <unk> was awarded over $3 billion to support the F 35 engine, including the lot 18 production contract.

So overall, our end markets and operational performance remained strong as we enter the fourth quarter.

Speaker #2: Commercial aftermarket also remained strong, supported by our large and growing installed base, including over $100 billion of out-of-warranty content at Collins and heavier shop visit content across our MRO activities.

Based on this we're raising our full year outlook for adjusted sales and EPS and maintaining our free cash flow outlook of 7% to $7 5 billion.

Speaker #2: Aircraft retirements have remained low, with only one and a half percent of the V-2500 fleet retired so far this year. And Pratt Canada, with nearly 70,000 engines in service, has seen over 15% growth year to date in commercial aftermarket.

He will take you through the details in a few minutes, but before that let me provide an update on our strategic priorities on slide four.

Starting with executing on our commitments.

Our focus on driving performance improvements through our core operating system has continued to generate productivity across our TX.

Speaker #2: On the defense side, we continue to be exceptionally well positioned to meet the growing needs of our U.S. and international customers. In particular, with respect to munitions and integrated air and missile defense, both core capabilities of our company.

Through Q3, we have delivered 10% organic sales growth this year, while keeping headcount flat across the organization.

This has been a key enabler in driving six consecutive quarters of year over year adjusted segment margin expansion.

Speaker #2: On the orders front, our book-to-bill in the quarter was 1.63, resulting in a backlog of $251 billion, up 13% year-over-year.

With respect to the GTR fleet management plan, our financial and technical outlook remains on track.

Speaker #2: The activity in the quarter included 37 billion of new awards, with $23 billion of defense, and $14 billion of commercial orders. On the commercial side, through Q3, our book to bill this year is $1.71, and our backlog has grown 18% since the end of 2024.

PW 1100, MRO output was up 9% in the quarter and is up 21% year to date.

We continue to work with our supply chain partners to increase the flow of critical value stream material to ramp MRO output.

In Q3, we saw another quarter of solid progress with growth in isothermal, forgings up 16% and structural castings up 29% year over year.

Speaker #2: Showing the exceptional demand for our products and technologies, at both Collins and Pratt. At RAYTHEON, we booked over $8 billion of orders for munitions, including approximately $2.5 billion for GMT to support multiple international customers.

Exiting the third quarter. This material flow has supported a record high number of PW 1100 gate three starts which is where we reassemble engines during a shop visit.

Speaker #2: And $2.1 billion for AMRAAM. The largest order in the 30-year history of that program. RAYTHEON was also awarded a significant counter-drone contract for coyote production from the US Army.

Putting pratt and are positioned to deliver about 30% MRO output growth for the year.

And across the company, we continue to focus on increasing critical manufacturing capacity to support growth, including investing over $600 million this year and expansion projects.

Speaker #2: Coyote has proven to be extremely effective in the field, and we've recently developed a lower-cost, non-kinetic coyote payload to combat drone swarms. And Pratt was awarded over $3 billion to support the F-135 engine, including the Lot 18 production contract.

For example, Raytheon is on track to invest $300 million in capacity expansion to deliver the growing backlog.

This includes the Redstone missile integration facility in Huntsville, Alabama, which will increase site capacity by 50% and support the growing demand for our naval programs, including the standard missile franchise.

Speaker #2: So overall, our end markets and operational performance remain strong as we enter the fourth quarter. Based on this, we're raising our full-year outlook for adjusted sales and EPS, and maintaining our free cash flow outlook of $7 to $7.5 billion.

Shifting to innovating for future growth Pratt, Canada was selected by the EU as clean aviation program to design and integrate a hybrid electric propulsion demonstrator for regional aircraft.

Speaker #2: Neil will take you through the details in a few minutes. But before that, let me provide an update on our strategic priorities on slide 4.

This system integrates a 250 kilowatt electric motor and advanced propeller technology from Collins and is expected to improve fuel efficiency by approximately 20%.

Speaker #2: Starting with executing on our commitments, our focus on driving performance improvements through our core operating system has continued to generate productivity across RTX. Through Q3, we have delivered 10% organic sales growth this year while keeping headcount flat across the organization.

Additionally, Collins is nearing final certification of its next generation braking system for the <unk> hundred 21 XLR aircraft.

The design incorporates proprietary carbon technology is expected to extend break life and drive improved profitability and our maintenance support portfolio.

Speaker #2: This has been a key enabler in driving 6 consecutive quarters of year-over-year adjusted segment margin expansion. With respect to the GTF fleet management plan, our financial and technical outlook remains on track.

And Raytheon recently demonstrated two significant effector technology achievements.

Speaker #2: PW1100 MRO output was up 9% in the quarter, and is up 21% year to date. We continue to work with our supply chain partners to increase the flow of critical value stream material, to ramp MRO output.

The <unk> team successfully completed the longest ever air to air shot from a fifth generation fighter.

And the storm breaker team and just 50 days designed developed and tested a new ground launch demonstrator version of this air launched effector, which will expand the capabilities and future applications for this product.

Speaker #2: In Q3, we saw another quarter of solid progress, with growth in isothermal forgings up 16% and structural castings up 29% year over year. Exiting the third quarter, this material flow has supported a record high number of PW1100 Gate 3 starts.

And finally, we remain focused on leveraging the breadth and scale of RPX as.

As we've highlighted before we continue to develop and deploy our data analytics and AI tools to improve productivity and the speed and quality of decision, making in our business.

Speaker #2: Which is where we reassemble engines during a shop visit. Putting Pratt in a position to deliver about 30% MRO output growth for the year.

We're strategically using these tools to support the highest impact opportunities across the company.

Speaker #2: And across the company, we continue to focus on increasing critical manufacturing capacity to support growth. Including investing over $600 million this year in expansion projects.

Including increasing munitions and OE production rates growing GTS, MRO output and improving sales and inventory planning and management.

For example, the Raytheon Amiram team has deployed multiple proprietary digital AI tools to proactively identify production bottlenecks and reduce rework.

Speaker #2: For example, RAYTHEON is on track to invest $300 million in capacity expansion to deliver the growing backlog. This includes the Redstone Missile Integration Facility in Huntsville, Alabama.

Which has contributed to output more than doubling year to date through Q3 on the program.

Speaker #2: Which will increase site capacity by 50%, and support the growing demand for our naval programs, including the standard missile franchise. Shifting to innovating for future growth, Pratt Canada was selected by the EU's Clean Aviation Program to design and integrate a hybrid electric propulsion demonstrator for regional aircraft.

These examples highlight the progress that we continue to make across our strategic priorities and I'm pleased with the results they are yielding throughout the company.

With that let me turn it over to Neil to take you through the third quarter results and our updated outlook for the full year Neil.

Alright, Chris Thanks, I'm on slide five.

Speaker #2: This system integrates a 250 kilowatt electric motor, and advanced propeller technology from Collins. And is expected to improve fuel efficiency by approximately 20%. Additionally, Collins is nearing final certification of its next-generation braking system for the A321 XLR aircraft.

In the third quarter adjusted sales of $22 5 billion were up 12% on an adjusted basis and 13% organically.

As Chris mentioned this was a very strong result in the quarter with commercial aftermarket up 18% in commercial OE and defense both up 10%.

Speaker #2: The design incorporates proprietary carbon technology and is expected to extend brake life and drive improved profitability in our maintenance support portfolio. RAYTHEON recently demonstrated two significant effector technology achievements.

Adjusted segment operating profit of $2 8 billion was up 19% and we saw 70 basis points of consolidated segment margin expansion with contributions from all three segments.

Adjusted earnings per share of $1 70 was up 17% from the prior year driven primarily by segment operating profit growth.

Speaker #2: The AMRAAM team successfully completed the longest-ever air-to-air shot from a fifth-generation fighter. The Stormbreaker team, in just 50 days, designed, developed, and tested a new ground-launch demonstrator version of this air-launched effector.

In addition, the quarter also benefited from several tax items, including legal entity reorganization, which impacted EPS by approximately <unk> 12.

Speaker #2: Which will expand the capabilities and future applications for this product. And finally, we remain focused on leveraging the breadth and scale of RTX. As we've highlighted before, we continue to develop and deploy our data analytics and AI tools to improve productivity, and the speed and quality of decision-making in our business.

These items more than offset a <unk> <unk> headwind from the recently enacted tax legislation.

On a GAAP basis EPS from continuing operations was $1 41, and included 29 of acquisition accounting adjustments.

Free cash flow was very strong at 4 billion driven by working capital improvement, including strong collections and some advanced payments tied to contract awards in the quarter that were accelerated from Q4.

Speaker #2: For strategically using these tools to support the highest impact opportunities across the company. Including increasing munitions and OE production rates, growing GTF MRO output, and improving sales and inventory planning and management.

Cash flow for the quarter also included approximately $275 million for powder metal related compensation and $220 million of tariff related impacts.

Speaker #2: For example, the RAYTHEON AMRAAM team has deployed multiple proprietary digital AI tools to proactively identify production bottlenecks and reduce rework. Which has contributed to output more than doubling year to date through Q3 on the program.

With respect to capital allocation, we returned over $900 million to shareowners through dividends in the quarter and with our focus on further strengthening our balance sheet, we paid down $2 $9 billion of debt in the quarter.

Speaker #2: These examples highlight the progress that we continue to make across our strategic priorities. And I'm pleased with the results they are yielding throughout the company.

And finally during the quarter, we completed the sale of the actuation business and earlier. This month. We also completed the sale of Collins Simmons precision products business for $765 million.

Speaker #2: With that, let me turn it over to Neil to take you through the third quarter results, and our updated outlook for the full year.

Speaker #2: Neil?

Okay, turning to slide six.

Speaker #3: Alright, Chris, thanks. Among slide 5, in the third quarter, adjusted sales of $22.5 billion were up 12% on an adjusted basis and 13% organically.

Let me provide a few details on our updated outlook for the full year.

As you've seen with our third quarter results execution and momentum across all three segments continues to be strong.

Speaker #3: As Chris mentioned, this was a very strong result in the quarter, with commercial aftermarket up 18%, and commercial OE and defense both up 10%.

Given this operating performance along with the strength of our end markets. We are updating our outlook for the full year.

On the top line, we are raising our full year adjusted sales outlook to a range of $86 5 billion to 87 billion up from our prior range of $84 75 billion to $85 5 billion.

Speaker #3: Adjusted segment operating profit, up 2.8 billion, was up 19%, and we saw 70 basis points of consolidated segment margin expansion with contributions from all three segments.

Speaker #3: Adjusted earnings per share of $1.70 were up 17% from the prior year, driven primarily by segment operating profit growth. In addition, the quarter also benefited from several tax items, including legal entity reorganizations, which impacted EPS by approximately $0.12.

This now translates to between 8% to 9% organic sales growth for the year.

From our prior range of 6% to 7%.

By channel at the <unk> level and adjusting for divestitures, we now expect commercial aftermarket sales to grow mid teens year over year up from our prior outlook of low teens, primarily driven by heavier shop visit content that we saw in Q3 at Pratt.

Speaker #3: These items more than offset a 4 cent headwind from the recently enacted tax legislation. On a gap basis, EPS from continuing operations was $1.41, and included 29 cents of acquisition accounting adjustments.

On the commercial OE side, we expect sales to grow around 10% for the year up from our prior outlook of high single digits year over year.

Speaker #3: Free cash flow was very strong at $4 billion, driven by working capital improvement, including strong collections and some advanced payments tied to contractor awards in the quarter that were accelerated from Q4.

And on defense, we continue to expect sales to grow mid single digits.

On the bottom line given the performance across all three segments. We are increasing adjusted earnings per share <unk> 30 on the low end of our range and 25 on the high end.

Speaker #3: Cash flow for the quarter also included approximately $275 million for powder-battle-related compensation, and $220 million of tariff-related impacts. With respect to capital allocation, we returned over $900 million to shareholders through dividends in the quarter, and with our focus on further strengthening our balance sheet, we paid down $2.9 billion of debt in the quarter.

At the midpoint. The increase was primarily driven by approximately 20 of improved segment operating profit with the rest coming from a few below the line items.

And within this updated outlook there is no change to the net tariff headwind we discussed on our last earnings call.

All in we now see adjusted EPS at a new range of between $6 10.

Speaker #3: And finally, during the quarter, we completed the sale of the actuation business, and earlier this month we also completed the sale of Collins Simmons Precision Products business for $765 million.

$6 20 for the full year.

Up from our prior range of $5 80 to $5 95.

Speaker #3: Okay, turning to slide 6, let me provide a few details on our updated outlook for the full year. As you've seen with our third quarter results, execution and momentum across all three segments continues to be strong.

Specific to Q4, we expect another quarter of strong operational performance at the segment level.

With segment profit up around 10% year over year.

Excluding the impact of tariffs and recent divestitures at Collins.

Speaker #3: Given this operating performance, along with the strength of our end markets, we are updating our outlook for the full year. On the top line, we are raising our full-year adjusted sales outlook to a range of 86.5 billion to 87 billion, up from our prior range of 84.75 billion to 85.5 billion.

Below the line. The Q3 12 tax benefit I mentioned will not repeat we expect a higher effective tax rate in the fourth quarter.

On free cash flow, we are on track to achieve our outlook of between 7% and seven 5 billion for the year.

The primary drivers of our fourth quarter free cash flow will be the same as we saw in the third quarter.

Speaker #3: This now translates to between 8 and 9% organic sales growth for the year. Up from our prior range of 6 to 7%. By channel, at the RTX level, an adjusting for divestitures, we now expect commercial aftermarket sales to grow mid-teens year over year, up from our prior outlook of low teens.

Operating profit growth and working capital improvement.

And as we look beyond this year, we feel good about the momentum we're seeing across our business, including our growing backlog and end market strength that continues to position us well for continued topline growth margin expansion and solid free cash flow conversion.

Speaker #3: Primarily driven by heavier shop visit content, that we saw in Q3 at Pratt. On the commercial OE side, we expect sales to grow around 10% for the year, up from our prior outlook of high single digits year over year.

And like we do every year, we'll be back on our fourth quarter earnings call in January with our detailed outlook for 2026, so with that let me hand, it over to Nathan to take you through the segment results for the third quarter.

Alright, Thanks Neal.

Speaker #3: And on defense, we continue to expect sales to grow mid-single digits. On the bottom line, given the performance across all three segments, we are increasing adjusted earnings per share by $0.30 on the low end of our range, and $0.25 on the high end.

Starting with Collins on slide seven.

Sales were $7 6 billion in the quarter up 8% on an adjusted basis, and 11% organically driven by strength across all three channels.

Adjusting for divestitures by channel commercial OE sales were up 16% versus prior year, driven primarily by higher volume on narrow body platforms.

Speaker #3: At the midpoint, the increase is primarily driven by approximately 20 cents of improved segment operating profit, with the rest coming from a few below-the-line items.

Recall last year included the impact of the Boeing work stoppage in the quarter.

Speaker #3: And within this updated outlook, there is no change to the net tariff headwind we discussed on our last earnings call. All in, we now see adjusted EPS at a new range of between $6.10 and $6.20 for the full year.

Commercial aftermarket sales were up 13% driven by a 17% increase in mods and upgrades, a 13% increase in parts and repair and a 10% increase in provisioning.

Speaker #3: Up from our prior range of $5.80 to $5.95. Specific to Q4, we expect another quarter of strong operational performance at the segment level, with segment profit up around 10% year over year, excluding the impact of tariffs and recent divestitures at Collins.

Defense sales were up 6% versus the prior year, driven by higher volume across multiple programs and platforms, including the survivable Airborne operations Center program.

Adjusted operating profit of $1 2 billion was up $98 million versus the prior year as drop through on higher commercial aftermarket defense and commercial OE volume along with lower R&D expense was partially offset by unfavorable commercial OEM mix and the impact of higher tariffs across the.

Speaker #3: Below the line, the Q3 12 cent tax benefit I mentioned will not repeat, and we expect a higher effective tax rate in the fourth quarter.

Speaker #3: On free cash flow, we are on track to achieve our outlook of between 7 and 7.5 billion for the year, with the primary drivers of our fourth quarter free cash flow will be the same as we saw in the third quarter.

<unk>.

Turning to Collins full year outlook, we continue to expect sales to grow mid single digits year over year on an adjusted basis and high single digits organically.

Speaker #3: Segment operating profit growth and working capital improvement. And as we look beyond this year, we feel good about the momentum we're seeing across our business, including our growing backlog and end market strength, that continues to position us well for continued top-line growth, margin expansion, and solid free cash flow conversion.

And we now expect operating profit growth between 325 and $375 million versus 2024.

Up from our prior expectation of between 275 and $350 million driven by drop through on higher commercial aftermarket volume.

Keep in mind. This updated profit range includes an approximately $60 million year over year headwind associated with the business divestitures completed this year.

Speaker #3: And like we do every year, we'll be back on our fourth quarter earnings call in January with our detailed outlook for 2026. So with that, let me hand it over to Nathan to take you through the segment results for the third quarter.

Shifting to Pratt <unk> Whitney on slide eight sales of $8 $4 billion were up 16% on both an adjusted and organic basis, driven by strength across all channels.

Speaker #4: Alright, thanks Neil. Starting with Collins on slide 7. Sales were 7.6 billion dollars in the quarter, up 8% on an adjusted basis, and 11% organically.

Commercial OE sales were up 5% driven by increased volume in large commercial engines and favorable mix and Pratt Canada.

Speaker #4: Driven by strength across all three channels. Adjusting for divestitures, by channel, commercial OE sales were up 16% versus the prior year, driven primarily by higher volume on narrow-body platforms.

Commercial aftermarket sales were up 23% driven by higher volume in both large commercial engines and Pratt Canada.

Speaker #4: Recall, last year included the impact of the Boeing work stoppage in the quarter. Commercial aftermarket sales, we're up 13%, driven by a 17% increase in mods and and upgrades, a 13% increase in parts and repair, and a 10% increase in provisioning.

And military engine sales were up 15% in the quarter driven primarily by the F 35 program, including higher volume associated with July 18 contract Award.

Adjusted operating profit of $751 million was up $154 million versus the prior year driven by drop through on higher commercial aftermarket and military volume.

Speaker #4: Defense sales, we're up 6% versus the prior year, driven by higher volume across multiple programs and platforms, including the survivable airborne operations center program.

This growth more than offset increased large commercial OE deliveries higher SG&A expense and the impact of higher tariffs across the business.

Speaker #4: Adjusted operating profit, up 1.2 billion, was up $98 million versus the prior year, as dropped through on higher commercial aftermarket, defense, and commercial OE volume, along with lower R&D expense, was partially offset by unfavorable commercial OE mix, and the impact of higher tariffs across the business.

Turning to <unk> full year outlook, we now expect sales to grow low to mid teens on an adjusted and organic basis.

An increase from our prior range of up low double digits, driven by strength in commercial aftermarket and favorable commercial OE mix.

And we now expect operating profit growth between 350 and $400 million versus 2024.

Speaker #4: Turning to Collins' full-year outlook, we continue to expect sales to grow mid-single digits year over year on an adjusted basis, and high single digits organically.

Up from our prior expectation of between 200 and $275 million driven by drop through on higher commercial aftermarket volume and favorable commercial OE mix.

Speaker #4: And we now expect operating profit growth between 325 and 375 million dollars versus 2024, up from our prior expectation of between 275 and 350 million dollars, driven by drop through on higher commercial aftermarket volume.

Now turning to Raytheon on slide nine.

Sales of $7 billion in the quarter were up 10% on both an adjusted and organic basis, driven by higher volume on land and air Defense systems, including International Patriot and higher volume on naval programs, including multiple classified programs SM six and the evolved sea Sparrow missile.

Speaker #4: Keep in mind, this updated profit range includes an approximately 60 million dollar year over year headwind associated with the business divestitures completed this year.

Speaker #4: Shifting to Pratt & Whitney on slide 8, sales of 8.4 billion dollars were up 16% on both an adjusted and organic basis, driven by strength across all channels.

Adjusted operating profit of $859 million was up $198 million versus the prior year, driven by favorable program mix, including international Patriot improved net productivity and higher volume.

Speaker #4: Commercial OE sales, we're up 5%, driven by increased volume in large commercial engines and favorable mix in Pratt Canada. Commercial aftermarket sales, we're up 23%, driven by higher volume in both large commercial engines and Pratt Canada.

Net productivity improved $57 million year over year recall Q3 of last year included an unfavorable impact of $53 million related to a classified program.

Speaker #4: In military engines, sales were up 15% in the quarter, driven primarily by the F-135 program, including higher volume associated with the Lot 18 contract award.

Bookings in the quarter were $15 9 billion, resulting in a book to Bill of 227, and a record backlog of $72 billion.

International backlog represented 44% of Raytheon's total at the end of the quarter and was up 18% on a dollar basis year over year.

Speaker #4: Adjusted operating profit, up 751 million, was up 154 million dollars versus the prior year, driven by drop through on higher commercial aftermarket and military volume.

Other key awards in the quarter included $1 5 billion for <unk> production and over 500 million for Stinger production.

Speaker #4: This growth more than offset increased large commercial OE deliveries, higher SG&A expense, and the impact of higher tariffs across the business. Turning to Pratt's full-year outlook, we now expect sales to grow low to mid-teens on an adjusted and organic basis.

These awards will support both domestic and international customers.

And on a rolling 12 month basis Raytheon's book to Bill is 143.

Turning to raytheon's full year outlook, we continue to expect sales to grow low single digits year over year on an adjusted basis and mid single digits organically.

Speaker #4: An increase from our prior range of up below double digits, driven by strength in commercial aftermarket and favorable commercial OE mix. And we now expect operating profit growth between 350 and 400 million dollars versus 2024, up from our prior expectation of between 200 and 275 million dollars, driven by drop through on higher commercial aftermarket volume and favorable commercial OE mix.

And we now expect operating profit growth between 400 and $450 million versus 2024 up from our prior expectation of between 225 and $300 million.

Driven by the favorable International program mix, we saw during the third quarter.

With that I'll hand, it back over to Chris.

Speaker #4: Now turning to Raytheon on slide 9, sales of $7 billion in the quarter were up 10% on both an adjusted and organic basis, driven by higher volume on land and air defense systems, including international Patriot, and higher volume on naval programs, including multiple classified programs, SM-6, and the Evolved Sea Sparrow Missile.

Okay. Thanks Nathan.

We have great momentum across our TX, we delivered strong top and Bottomline growth this quarter and our end markets remain robust as seen by our recent customer wins and 163 book to bill in the quarter.

Our backlog now stands at 251 billion and we remain focused on our strategic priorities across the company.

Giving us confidence in our ability to deliver strong growth in sales earnings and free cash flow well beyond this year.

Speaker #4: Adjusted operating profit, up 859 million, was up 198 million dollars versus the prior year, driven by favorable program mix, including international Patriot, improved net productivity, and higher volume.

With that let's open it up for questions.

In the influence of time and to allow for broader participation. You are asked to limit yourself to one question.

Speaker #4: Net productivity improved 57 million year over year, recall, Q3 of last year included an unfavorable impact of 53 million related to a classified program.

So as a question you will need to press star one on your telephone.

Yeah.

The first question will come from the line of Rob Stallard with vertical research. Your line is open.

Speaker #4: Bookings in the quarter were 15.9 billion, resulting in a book to bill of 2.27, and a record backlog of 72 billion dollars. International backlog represented 44% of RAYTHEON's total at the end of the quarter.

Thanks, so much good morning.

Good morning, Rob.

This is probably for Neal.

Raise the aerospace OEM guidance for the year. So wondering if you could dive into the details below that and probably in conjunction with <unk>.

Speaker #4: It was up 18% on a dollar basis year over year. Other key awards in the quarter included $1.5 billion for LTMS production, and over 500 million for Stinger production.

Chris price rose.

How confident are you in delivering those new leap engines to Airbus with regard to that target for the full year. Thank you.

Speaker #4: These awards will support both domestic and international customers. And on a rolling 12-month basis, RAYTHEON's book to bill is 1.43. Turning to RAYTHEON's full-year outlook, we continue to expect sales to grow low single digits year over year on an adjusted basis, and mid-single digits organically.

Well, thanks, Rob let me start on the guidance and then I'll hand, it over to Chris.

Again really strong quarter here in the third quarter and what we've done with our outlook as we drop through that goodness for the full year.

Also taken up the top line, if I kind of focus that around the midpoint.

Speaker #4: And we now expect operating profit growth between 400 and 450 million dollars versus 2024, up from our prior expectation of between 225 and 300 million dollars, driven by the favorable international program mix we saw during the third quarter.

At the top line at the <unk> level, we'll see about $1 billion six increase.

<unk> aftermarket.

As a large portion of that commercial OE.

Is about $200 million, there I'd say that $50 million of that is coming from Collins. The rest of it is at Pratt and Whitney.

Speaker #4: With that, I'll hand it back over to Chris.

And what we're seeing there is continued delivery strength on the Collins side, particularly as we get into the last quarter of the year here on increased rates on 737 and 787 now.

Speaker #3: Okay, thanks, Nathan. We have great momentum across RTX. We delivered strong top and bottom line growth this quarter, and our end markets remain robust, as seen by our recent customer wins and a $1.63 book-to-bill in the quarter.

On the Pratt side I'd attribute that to the engine mix on the aftermarket side a lot of that sits at Pratt and Whitney about $1 1 billion of the one 6 billion that we're talking about on the increase now sits inside of Pratt Whitney with the majority of that in the aftermarket we had a really strong third quarter as you heard Chris talk about the increase in MRO output is dry.

Speaker #3: Our backlog now stands at $251 billion, and we remain focused on our strategic priorities across the company. Giving us confidence in our ability to deliver strong growth in sales, earnings, and free cash flow well beyond this year.

Speaker #3: With that, let's open it up for questions.

The GTS aftermarket we're also seeing <unk>.

Speaker #1: In the interest of time and to allow for broader participation, you are asked to limit yourself to one question. To ask a question, you will need to press *1 on your telephone.

<unk> <unk> 2500 mix in heavy shop visits there so again letting that drop through for the full year and Youll see that both on the top and the bottom line and then finally, there is a couple of hundred million dollars that Raytheon on the defense side, we've got 10 consecutive quarters here of material receipt growth and we're continuing to get.

Speaker #1: The first question will come from the line of Rob Stellard with Vertical Research. Your line is open.

Ready for the delivery of that large backlog and our backlog we expect to continue to grow. So those are the big moving pieces on the top line of course.

Speaker #5: Thanks so much, good morning.

Speaker #6: Good morning.

Speaker #2: Good morning, Rob.

Speaker #5: this is probably for Neil. you've raised the, aerospace OEM guidance for the year. So I was wondering if you could, dive into the details below that, and probably in conjunction for, for Chris, probably suppose.

Dropping through the bottom line you see the profit there.

<unk> had some favorability on below the line items as well and we're letting that kind of come through as we stare at just 90 days to go.

Speaker #5: How confident are you in delivering those new LEAP engines to Airbus with regard to their target for the full year? Thank you.

Hey, Rob I'll pick it up from there on the second part of your question on non deliveries I mean overall, we feel pretty good about how we've executed this year and supported the production ramps for both the aircrafts for all of the aircraft.

Speaker #2: Well, thanks, Rob. Let, let me start on the guidance, and then I'll, I'll hand it over to Chris. again, really strong quarter here in the third quarter, and what we've done with our outlook is we've dropped through that goodness for the full year.

MMS.

We're going to continue to work very closely with Airbus to to make sure that they have what they need down the stretch of the year also continuing to balance the allocation of material as we've talked about before because we've got to continue to support the fleet.

Speaker #2: also taking up the top line, if, if I kind of focus that around the midpoint, at the top line at the RTX level, we'll see about a billion six increase.

Speaker #2: Commercial aftermarket is a large portion of that. Commercial OE is about $200 million there. You know, I'd say that $50 million of that is coming from Collins.

So thats going to continue to be a focus I'll remind folks that were up over 50% versus our 2019 production levels. We've continued to ramp production pretty robustly and again going to work very closely with our airframe customers to make sure. They have what they need so they can hit their deliveries for the end of the year.

Speaker #2: The rest of it is at Pratt & Whitney. And what we're seeing there is, you know, continued delivery strength on the Collins side, particularly as we get into the last quarter of the year here on increased rates on 737 and, and, 787.

That's great. Thank you.

Okay.

Our next question comes from the line of Myles Walton from Wolfe Research. Your line is open.

Speaker #2: And on the Pratt side, I’d attribute that to the engine mix. On the aftermarket side, a lot of that sits at Pratt & Whitney.

Speaker #2: About a 1.1 billion of the 1.6 billion that we're talking about on the increase, sits inside of Pratt & Whitney. With the majority of that in the aftermarket, we had a really strong third quarter.

Thanks, Good morning.

Maybe just a clarification first and then.

Maybe Chris a question on Raytheon's segment on the clarification, the 30% output.

For the full year I, just want to make sure that's 30% output for for GTS, and so a pretty steep <unk> MRO output improvement you're looking for there and then Chris on the Raytheon outlook could you just comment on the limitations to growth, it's clearly not a demand.

Speaker #2: as you heard Chris talk about, the increase in MRO output is driving GTF aftermarket. We're also seeing a strong V-2500, mix and heavy shop visits there.

Speaker #2: So again, you know, letting that drop through for the full year, and you'll see that both on the top and the bottom line. And then finally, there's a couple hundred million dollars at RAYTHEON.

Situation here that your poor on and would expect that the.

Speaker #2: On the defense side, we've seen 10 consecutive quarters of material receipt growth. We are continuing to prepare for the delivery of that large backlog.

Raytheon segments.

Revenue would start to accelerate pretty meaningfully obviously, we saw some of that here in the third quarter, but didn't raise the full year and so maybe what are the limitations there.

Speaker #2: And a backlog we expect to continue to grow. So those are the big moving pieces on the top line. Of course, dropping through, on the bottom line, you see the profit there.

Okay.

Yes, Thanks miles maybe your question on the GTS MRO output I'll start there and.

Speaker #2: we've had some favorability on below the line items, as well, and we're letting that kind of come through as we, you know, stare at just 90 days to go.

And youre right through the year to date up about 20%, we need to get to that 30% level MRO output as Ive said pretty consistently is the key to continuing to push down our <unk> levels and I think we're in a pretty good position to be able to hit that 30% for the full year.

Speaker #2: Hey, Rob, I'll, I'll, I'll pick it up from there on the second part of your question on, on deliveries. I mean, overall, we feel pretty good about how we've executed this year and supported the production ramps.

Speaker #2: For, for both the aircraft, for all the aircraft, you know, OEMs. you know, we're going to continue to work very closely with Airbus to, to make sure that they have what they need down the stretch of the year, while also continuing to balance the allocation of material as we've talked about before, because we've got to continue to support the fleet.

Several factors.

Put us in that position.

First we exited September with the record number of <unk> starts as I said previously that the re assembly and the testing process. So feel good how we've come out of the gate here no pun intended no material flow and the critical value streams was pretty strong isothermal forgings were up 16% year over year as I mentioned structural castings, 29% year over year.

Speaker #2: so that's going to continue to be a focus. You know, I'll remind folks that, you know, we're up over 50% versus our 2019 production levels.

Speaker #2: We've continued to ramp production, you know, pretty robustly. And, and again, going to work very closely with our airframe customers to make sure they have what they need so they can hit their deliveries for the end of the year.

Another piece here is our repair network demonstrated some some strong increase here in Q3, 30% year over year that helps lessen the demand for new parts, which should again help to help the flow and gate to we've continued to see progress with productivity in our shops and exited Q.

Speaker #5: That's great, thank you.

Speaker #1: Our next question comes from the line of Miles Walton from Wolf Research. Your line is open.

Three in September with about 80% of our MRO completions on the GTS, averaging 110 day turnaround time in the shop and Thats on heavier work scopes.

Speaker #5: Thanks, good morning. Neil, maybe just a clarification first, and then, maybe Chris a question on RAYTHEON segment. On the clarification, the 30% output, for the full year, just want to make sure that's 30% output for, for GTF, and so a pretty steep 4Q MRO output improvement you're looking for there.

So those are the things that I think put us in position to go drive here in the fourth quarter on MRO point ultimately to support the fleet.

On your questions on on Raytheon in Illinois to.

Come in as well if he wants to talk about some of the puts and takes in the quarter, but overall the headline story here is just continued exceptionally strong demand, but the book to bill in the quarter to $2 $716 billion of new orders. The demand is there and we're continuing to invest in capacity.

To ensure that that demand can be met you heard us talk about the $300 million this year.

Just think about since 2020, just at Raytheon alone, it's been about $1 billion on capacity expansions.

And automation.

And then I will tell you for us it's looking at the supply chain and making sure that it continues to be healthy we're seeing our 10th consecutive quarter of material receipts growth, which is great. We've got to continue to see that accelerate upwards across all of our critical value streams, whether that be microelectronics rocket motors in the lake So while performance has <unk>.

Stabilizing been good we need to continue to see that accelerate 26 and beyond because the demand is there.

Chris I'll, just add to that a little bit miles you alluded to it.

Third quarter is seeing a very substantial 10% organic growth at Raytheon. If you look under the covers there just a couple kind of anecdotes or naval power business is in line with that level of growth, but our land air defense systems.

It's significantly higher than that so that that growth that you're talking about we're seeing come through in that side of the business in particular as it relates to Patriot and <unk>.

Output so.

The business is very diverse as you know and when you look at it at the Raytheon level I still think we're going to see very strong aggregate organic growth going forward, but certainly within the areas of munitions and air Defense systems, we're seeing growth that's well above what.

We're reporting at the Raytheon level.

Thanks.

Youre welcome.

Yeah.

Next question comes from the line of Peter Arment from Baird. Your line is open.

Yeah, Thanks, Hey, good morning, Chris Neal and nice results.

Thanks Peter.

Just maybe if we just stick with <unk>.

<unk>, it's not just been a topline story or the backlog you've also had really.

Good performance on the margin side of things continue to show really good margin expansion. How should we think about that is this kind of continues to see growth accelerate but you've got higher international mix, maybe just walk us through kind of your thinking around <unk>.

Breakdowns margins, but longer term thanks.

Yes.

Peter you are absolutely right when we talk about the backlog at Raytheon, which is substantial huge orders in the quarter. Maybe you think about the international portion of that backlog. It now sits at about 44% and.

And our top three programs in that backlog are international So that's certainly provides.

A tailwind I would also tell you. The team continues to focus heavily on our core operating system and driving productivity and efficiency in our shops to take costs down and to drive productivity I can give you a number of examples this year, where Phil and the team.

Have used our core operating principles to drive increased production and to drive down cost and if you just think about some of our top programs. We're going to have significant increases in production. This year. Just thank amiram, you think GMT Coyote significant production ramps again enabled by more.

<unk> in our shops, which again.

Drives down cost and provide some some margin tailwind.

Peter I'll add that during the third quarter really pleased to see positive productivity on top of significant year over year productivity. Obviously, we had a one time item last year, but year to date, it's about $75 million or so of productivity improvement that's on top of $160 million last year.

So the business is getting back to its formula of driving efficiencies and driving productivity and clearly the growing backlog creates more opportunities for us to do that so now those are significant items during the quarter. The mix was heavily international focused particularly on the Patriot deliveries, but we will see that changed a little bit in the fourth quarter.

But long term as Chris said the mix of the backlog supports an expanding margin and we're happy to see the productivity continuing to develop in the business. The only thing I would add.

Ed to that Peter just to build on Neal's comment is is not only the mix of international and domestic it's the mix in terms of the products that youre seeing in there in terms of the $16 billion in orders. This particular quarter $8 billion in factors those are things directly in the core capabilities of Raytheon, where we've got mature processes.

We've been able to historically yield productivity. So another piece of good news on that front.

I appreciate the color thanks, guys.

Youre welcome.

Next question comes from the line of Scott <unk> with Deutsche Bank. Your line is open.

Hey, good morning.

Morning, Scott Scott Neil It looks like Frac commercial OE revenue was up 5% on 6% higher shipments. So was the GTS spare engine ratio down.

Year over year this quarter or are these spare incidence just being heavily discounted for the customers that are impacted by the powder metal issue I'm, just trying to understand yes, I wouldn't say.

Yes, Thanks, Scott for the question I would not say that our spare engines are being heavily discounted as you all know and as Chris has talked about earlier today.

We're balancing the output of installs spares and material to the MRO network and we're doing the same thing here in the third quarter I would not say there's any.

Major difference in the level of mix between OE and spares that we saw in the quarter and as we've talked about in the past we expect that to continue there's a lot of demand for for all of these engines, whether theyre going to Airbus, whether it's going directly to an airline customer or.

Material heading into MRO network, so nothing unique there in the quarter and as we look at the fourth quarter. We do expect continued.

OE step up there on a year over year basis will be a little bit more headwind from that higher negative engine margin in the fourth quarter, but again still expect reasonable balance of spares and typical fourth quarter aftermarket performance from <unk>.

Great. Thank you.

Youre welcome.

Next question comes from the line of Christine.

From Morgan Stanley.

<unk> is open.

Hey, good morning, everyone, maybe touching base on the Boeing 737, Max and 707.

Can you level set us regarding the run rate you're currently producing and how we should think about incremental margins on these programs as volumes continue to ramp up and ultimately how does that does that expectation relate to your overall Collins margins expectations.

Yes, Thanks Christine.

As it relates to the Boeing ramp first of all really pleased to see the approval on the ability to go to a higher rate on 737 I would say we are at this point aligned with Boeing on the rates that they're at now and where they want to go across Collins.

And again as we've said before Collins has delivered at a higher rate in the past so we've got.

The capacity to support the volume ramp and so feel good as this continues to go to higher rates that were going to be prepared to support Boeing and their effort to do that again.

Like everything else, it's going to come down to the continued health of the supply chain we've been.

Very very transparent with kind of where we are with the supply chain and what we need that's continued to bear fruit and feel like we're in a good position to continue to support Boeing as they move forward.

And if I just pick up there.

Obviously, when we set the outlook at the beginning of the year.

We had a set of assumptions and we were delivering to that there was a little bit of inventory in the channel.

Now that we're almost we're more than three quarters of the way through the year lot of that is behind us and so we're.

We're pretty synchronized with Boeing on their delivery schedule, obviously, the mix of higher 787 as you all know on the Collins side.

It comes with some margin challenges, but longer term as Chris alluded to here. These these rates are increasing back to levels that we've capacities for we'll get better absorption and that will contribute to the continuation of margin expansion in the columns business as it relates to the OE business and of course as you get more and more of these new aircraft out there.

<unk> along with that comes provisioning in the aftermarket that.

It goes along with all of that so I think it's right on track and of course, we'll be back January with a little bit more precise outlook for next year, but we see we see growth ahead on the Collins front.

Great. Thank you.

Yeah.

Next question comes from the line of Gautam Khanna from TD Cowen Your line is open.

Yeah. Thanks, good morning, guys.

Awesome.

I was wondering if you could.

Just update us on your expectations through 2006 on.

The gtx compensation payments has there been any change to the timing of when.

If we get down.

To a much lower level of EOG and alike and has the provision still adequate.

Okay.

Thanks, Scott I'll take that one today, we sit here and the financial outlook remains consistent with the outlook that we've had for now a couple of years.

Team continues to be disciplined with.

Our compensation payments to our customers.

I'd say, we're right on track with where we expect it to be this year, we have some more to go a little bit heavier fourth quarter payments that was all planned and contemplated in our outlook. We said between one one and $1 3 billion for the year.

So the residual falls into next year I would say right now no change to that outlook. It seems on track.

Yeah.

Thank you.

Welcome.

Next question comes from the line of Ron Epstein with Bank of America. Your line is open.

Hey, good morning, guys.

Can you speak a little bit to the margins in Collins. It seems like the incremental margins might have been a little bit bigger than what we were thinking does that tariff related or how should we think about that.

Okay.

Hey, Ron Good morning, Yeah, definitely tariff related during the quarter, calling saw about $90 million of headwind from year over year tariffs actually same number that perhaps off for the quarter. So I think if you.

Put that aside the team's doing a great job, making that a smaller number as we move forward a number of mitigation been identified but that's.

That's really the key driver there and what's dragging down the margins I think as we go forward.

We continue to do.

Lot of work to continue to support our products in qualification for.

U S MCA treatment or bonds as we re export material outside of the United States. So.

Of course pricing. So there is an opportunity there to continue to mitigate.

The headwinds, but that's what you saw in the third quarter and Youll see that again in the fourth quarter, obviously for both Collins and Pratt too.

Got you. Thank you very much Youre welcome.

Next question comes from the line of Sheila <unk> with Jefferies. Your line is open.

Good morning, guys and thank you for the time.

Im not sure. If you go back to go back to patent and if we could just talk about the moving pieces for the top line and also the bottom.

Bottom line just on commercial UAS commercial OE revenue guidance I want Becky Pat pointing to next how do we think about that.

Yes.

GTS advantage coming in through higher revenues for Amgen and the spares mix and then how that factors into the bottom line with the negative engine margin headwind does it still $150 million to $200 million and 25, and how we think about the higher MRO output.

Into the fourth quarter and into 'twenty.

Yeah.

Sure, let me take that Sheila.

As I said earlier on the call here.

The Pratt uptick in the revenue outlook is about $1 1 billion at the midpoint of our guidance.

About $150 million of that is on the OE side and I would say it has nothing to do with the <unk> advantage at this point, it's really just.

Finalization of the year the mix of spare engines versus install engines and the volumes that we see there. So that's what's driving the topline there frankly.

We're also seeing.

About $100 million on the defense side of Pratt Whitney and were happy to get the lot 18 production contract executed in the third quarter that drove most of the growth that.

Perhaps on the military side in the third quarter.

So as we play that forward the material receipts coming in we expect a little bit of upside there the restaurants in the aftermarket.

You think about the third quarter and the fourth quarter MRO output that we've just talked about that comes with revenue. So there's a heavy mix of that towards the.

The GTS, obviously that comes with some profit, but not the same kind of profits that we see on the V. 2500 that said on the V 2500, I talked about 800 shop visits for the full year I would say we're right on track it's been pretty linear throughout the first three quarters of the year, we expect another quarter of about the same level of volume on the V 2500.

Those shop visits are getting a little bit heavier and so thats, what youre seeing in the topline and of course, that's dropping to the bottom line as it relates to full year negative engine margin no change to the outlook from the beginning of the year still within that 150 to 200 year over year headwind.

It's going to land somewhere in the middle of that at the end of the year.

Great. Thank you.

Youre welcome.

Next question comes from the line of Seth Sigman with J P. Morgan Your line is open.

Hey.

Good morning.

Just a quick.

A quick clarification and question just following up on.

On Sharon's question.

At Pratt in TTS give.

Given the negative engine margin outlook still the same or are we still thinking about 14% growth in GTS deliveries for the year and which implies.

Very very strong in Q4.

And then as a question I guess as we think about where the company is going to exit this year.

Balance sheet should begin into better shape.

How do you think about capital deployment.

As we go forward and maybe balancing the ability to start returning.

Some cash along with maybe some of the investment requirements might be ahead, especially on the on the defense side.

Yes. Thanks I appreciate the question there.

As it relates to I'm sorry, the first question was on GTS engines.

As it relates to that when we started the year I talked about growth that was similar to last year didn't put an exact number on it as I sit here today I think we're going to end up in the high double high single digit rather growth rates, so think about 8% to 10% kind of range.

So that.

You can do the math on the fourth quarter there.

Broader broader thinking about capital return, we were really pleased with the level of debt Paydown that we've made year to date as you all know we did.

Some buyback a number of years ago, we took some debt out we've been repaying that over the last couple of years.

Continue to do that as we move into next year and get back to the levels that we enjoyed of debt before executing that transaction.

As we step back we are prioritizing the dividend as we always have and we expect that to continue to grow with earnings over the next couple of years.

And then making sure that we're making the right investments in the business for the future research and development capital, we've got a healthy level of Capex invested.

Expected this year, two and a half to $2 7 billion similar amounts of company funded R&D throughout the business. This year and I expect that to continue as we look forward, Chris Yes, no just to emphasize something that Neil said, there, which is spot on and Thats.

As the as the need for investment in defence potentially continues to grow those are things that historically, we've been able to do in addition to our capital.

Appointment and allocation strategy. If you just look at our average investment is about 1 billion of half a year company funded investment in defense.

Capacity automation R&D. So we've been able to continue to invest where the business cases makes sense for us.

It's really a conversation with the government around long term demand signal, how do we build a business case around investing when we can have visibility into the long term demand when we when we've seen it and when we feel good about it we've invested but again I think in terms of the capital deployment strategy.

And not an or we can do both.

Great very helpful. Thanks.

Next question comes from the line of Scott <unk> from Melius Research. Your line is open.

Good morning, Chris and Neil.

Scott Good morning.

Chris You mentioned, the 2500 retirements have been low and that's a trend we've seen coming out of Covid, we're kind of at a point, where at least domestic afk's growing below the pre COVID-19 trends.

Next year, Boeing and Airbus will probably deliver 1300 narrow bodies.

Potentially hundreds of GTS powered aircraft returning to service.

Do you think about <unk> 2500 shop visit visibility into next year are you requiring customers to put down deposits to reserve shop visits just to make them a little bit more sticky.

Yeah. Thanks for the question Scott So look.

And Neil said this upfront the demand for the V 2500 continues to be strong and that's <unk>.

Separate and apart from what you just mentioned.

Because frankly, what's the dynamic of what's going on in the fleet. Obviously, so people need to continue to use their views, but it's also the characteristics of that fleet. It's still a relatively young fleet average age is 15 years, 15% haven't seen our first shop visit 40% haven't seen.

Second shop visit so there's just natural significant aftermarket runway ahead on that program customers love the application and so we feel good about the demand on this going forward frankly.

Where we thought it would be.

Year two years ago continues to have runway.

Okay.

Alright, thank you.

Next question comes from the line of Doug Harned with Bernstein. Your line is open.

Good morning, Thank you.

Sure.

Right.

On Raytheon.

Talk to him about margins before this quarter.

<unk> got over that 12% level that I know you've been looking at for some time and when you when you talk about the opportunities here higher volumes.

More international more mature fixed price work.

Are you are you kind of where you want to be already or can we see more upside from here on margins.

As you go forward over the next few years because.

It does set up well.

Yeah.

We're really pleased again with where Raytheon as I mentioned before demand is the big headline and if you think about the composition of that backlog the growing piece that's international at 44% that's up from a year ago. So feel really good about the mix and the tailwind.

That it can provide also remind folks that when.

When you think about the $50 billion in the reconciliation for munitions replenishment and Golden Dome for America. Those things are not in our backlog today. So those are potentially additive to the backlog.

Doug you were going to need to continue to see supply chain health to get to these levels. As you know, it's a very interconnected supply chain within defense. So if you want to raise.

Speaker #5: And then, Chris, on the Raytheon outlook, could you just comment on the limitations to growth? It's clearly not a demand situation here that you're poor on.

Production on a number of programs you've got to make sure that Youre D. Conflicting again some of the some of those suppliers, making sure we're bringing new suppliers to bear to be able to meet the ramp here that's going to be the critical piece here and our ability to convert this into upside it's not going to be the demand and it's not going to be.

Speaker #5: and would expect that the RAYTHEON segments, revenue would start to accelerate pretty meaningfully. Obviously, we saw some of that here in the, the third quarter, but, didn't raise the full year.

Speaker #5: And so maybe, what are the limitations there?

Speaker #2: Yeah, thanks Miles. Maybe your question on the, the GTF MRO output, I'll, I'll start there. And, and you're right, you know, through the, you know, year to date, up about 20%.

The composition of the backlog is are we going to get the supply chain and a healthy enough place to be able to deliver at these higher rates and I will tell you that that's been a focus area for us.

Speaker #2: We need to get to that 30% level. MRO output, as I've said, pretty consistently is the key to continuing to push down our AOG levels.

Yeah.

Next question comes from the line of Ken Herbert with RBC. Your line is open.

Speaker #2: And, and I think, you know, we're in a pretty good position to be able to hit that 30% for the full year, and there's several factors that kind of put us in that position.

Yeah, Hi, good morning, Thanks, Chris and Neil.

Wanted to see if you can talk about the up 13% in the Collins aftermarket and specifically the pieces within that and what Youre seeing on the retrofit side, but then also I wanted to see for both Collins and Pratt four sort of catalog pricing have you are you getting similar levels on spare parts of this year due to the last year or are you seeing any increment.

Speaker #2: I mean, first, we exited September with the record number of Gate 3 starts, as I said previously. That's the reassembly and then the testing process.

Speaker #2: So, I feel good about how we've come out of the gate here—no pun intended. You know, material flow in the critical value streams was pretty strong.

Speaker #2: Isothermal forgings were up 16% year over year, as I mentioned. Structural castings, 29% year over year. Another piece here is our repair network. You know, demonstrated some, some strong increase here in Q3, 30% year over year.

Pushback.

On the catalog pricing this year from customers.

Yeah.

Yeah. Thanks, Ken So maybe just briefly on Collins and then Neill can add some additional color.

Speaker #2: That helps lessen the demand for new parts, which should, again, help, help the flow in Gate 2. We've continued to see, you know, progress with productivity in our shops.

Again Collins double digit organic growth in all three of its aftermarket channels parts and repair provisioning mods and upgrades. So feel very good about the strength, we're seeing in the Collins aftermarket as you know, it's got over $100 billion of out of warranty installed base. So.

Speaker #2: Again, we exited Q3 in September with about 80% of our MRO completions on the GTF, averaging a 110-day turnaround time in the shop. And that's on heavier work scopes.

Incredibly strong position to work from from an aftermarket growth perspective on.

Speaker #2: So those are the things that I think put us in a position to drive here in the fourth quarter on MRO output, ultimately to support the fleet.

On the pricing for both Pratt and Collins again, given what's going on in terms of tariffs given the demand in the marketplace. I think both have been appropriately aggressive in pricing this year and as we look towards next year again got to see how things shake out on the tariff front, but again, we're going to be.

Speaker #2: On your questions on, on RAYTHEON, and I'll invite Neil to come in as well if he wants to talk about some of the puts and takes in the quarter.

Speaker #2: But overall, the headline story here is just continued exceptionally strong demand. Right? The, the book to bill in the quarter, a 2.27, 16 billion of, of new orders.

We will continue to be aggressive in terms of catalog pricing because of the value that we bring in because of the demand that's out there.

Speaker #2: You know, the, the demand is there, and we're continuing to invest in capacity to, to ensure that that, you know, demand can be met.

And to add some color on the quarter's aftermarket performance I think what was notable was the parts and repair were seeing.

Speaker #2: You heard us talk about the $300 million this year. Maybe just think about since 2020, just that Raytheon alone, it's been about $1 billion on capacity expansions, you know, and automation.

14% organic growth there and that's indicative of aircraft that are flying that need sort of the brake fix type of aftermarket to Collins has which comes with very good margins. So I think that was encouraging to see on the mods and upgrades up 17% organic if you look a little bit into that youre going to see that the <unk>.

Speaker #2: And then I'll tell you, for us, it's looking at the supply chain and making sure that it continues to be healthy. You know, we're, we're seeing our 10th consecutive quarter of material receipts growth, which is great.

Speaker #2: we've got to continue to see that accelerate upwards across all of our critical value streams, whether that be microelectronics, rocket motors, and the like.

<unk> business was up significantly during the quarter topline growth really really strong still working through some older contracts there, but I would tell you on the top line delivering that backlog.

Speaker #2: So while performance has, has stabilized and been good, we need to continue to see that accelerate 26 and beyond, because the demand is there.

<unk> positioned for continued growth as well as expanding margins on the interiors business, which is one of the items that will fuel.

Speaker #5: Chris, I'll just add to that a little bit. You know, Miles, you alluded to it: the third quarter is seeing a very substantial 10% organic growth at Raytheon.

Next year's margin expansion for Collins.

Okay.

Speaker #5: If you look under the covers there, just a couple, you know, kind of anecdotes, our naval power business is in line with that level of growth, but our land and air defense systems business is significantly higher than that.

And our last question comes from the line of Gavin Parsons with UBS. Your line is open.

Retrofit side. But then also, I wanted to see for both Collins and Pratt for sort of catalog pricing, have you, are you getting similar levels on spare parts this year due to last year? Or are you seeing any incremental, push back on, uh, on the catalog pricing this year from customers?

Yeah, hi good morning. Thanks, uh, Kristen Neil. Um, I wanted to see if you can talk about the 13% in the Collins aftermarket and specifically the pieces within that and what you're seeing on the retrofit side. But then also I wanted to see for both Collins and Pratt for sort of catalog pricing, have you, are you getting similar levels on spare parts this year due to the last year or are you seeing any incremental, push back on uh on the catalog pricing this year from customers?

Thank you good morning.

Speaker #5: So that, that growth that you're talking about, we're seeing come through, in that side of the business in particular, as it relates to Patriot and GMT, output.

Good morning.

I guess I wanted to ask about 2026 free cash flow conversion that you've made some recent comments and theres a little bit of market confusion or investor confusion around that and then if you could bridge some of the major moving pieces as we go into 2026, and then why reiterate 2025 free cash guide, while raising everything else. Thank you.

Speaker #5: So, you know, the business is very diverse, as you know, and when you look at it at the RAYTHEON level, you know, I still think we're going to see very strong, aggregate, organic growth going forward.

Speaker #5: But certainly within the areas of munitions and, air, air defense systems, we're seeing growth that's well above what, you know, we're reporting at the RAYTHEON level.

Yeah, thanks Ken. So maybe just briefly on Collins, and then and then Neil can I add some additional color? Um, you know, again Collins double digit organic growth, in all 3 of its aftermarket channels Parts and Repair provisioning mods and upgrades. So feel very good, uh, about the strength. We're seeing in the Collins aftermarket, as you know, it's got over 100 billion of out of warranty installed base. So,

Thanks, Let me start with 2025.

Yeah, thanks Ken. So maybe just briefly on Collins, and then and then Neil can I add some additional color? Um, you know, again Collins double digit organic growth, in all 3 of its aftermarket channels Parts and Repair provisioning mods and upgrades. So feel very good, uh, about the strength. We're seeing in the Collins aftermarket. As you know, it's got over 100 billion of out of warranty installed base. So you know, an incredibly strong position to work from from an aftermarket growth perspective.

You know, an incredibly strong position to work from from an aftermarket growth perspective.

We set out the year with a goal of 7% to seven $5 billion of free cash flow and as we sit here today, we're very comfortable with that for the full year theres been some moving pieces I'll remind you back in the second quarter.

Speaker #5: Thanks.

Speaker #2: You're welcome.

Speaker #1: Next question comes from the line of Peter Arman from BEER. Your line is open.

We had some tariff headwind that we onboard at about $600 million.

Speaker #6: Yeah, thanks. Hey, good morning, Chris and Neil. And nice results.

We offset that with lower cash taxes for the year, so that sort of neutralized and as you kind of roll forward to where we sit today, obviously, we're getting stronger operating profit and we're seeing a little bitter.

Speaker #2: Thanks, Peter.

Speaker #6: Hey, maybe just, maybe if we just stick with, you know, in Raytheon, you know, it's not just been a top-line story or the backlog.

Speaker #6: You've also had really, you know, good performance on the margin side of things, you continue to show really good margin expansion. How, how should we think about that as this, kind of continues to see growth accelerate, but you've got higher international mix, maybe just walk us through kind of your thinking around, you know, RAYTHEON's margins in the longer term.

On the pricing for both Pratt and Collins again. Given what's going on in terms of tariffs, and given the demand in the marketplace, I think both of them appropriately, you know, aggressive in in pricing this year. And as we look towards, you know, next year, again got to see how things shake out on the Tariff front. But again, we're going to be, you know, continue to be aggressive in terms of, you know, catalog pricing because of the value that, that we bring. And because of the demand that's out there,

On the pricing for both Pratt and Collins again. Given what's going on in terms of tariffs, and given the demand in the marketplace. I think both have been appropriately, you know, aggressive in in pricing this year. And as we look towards, you know, next year, again got to see how things shake out on the Tariff front. But again, we're going to be, you know, continue to be aggressive in terms of, you know, catalog pricing because of the value that, that we bring. And because of the demand that's out there,

Growth in the inventory I would say less reduction in the inventory we were pleased to see inventory come down a couple hundred million dollars sequentially Q2 to Q3 things are moving in the right direction.

And I think we will see another few hundred million dollars of inventory reduction.

Speaker #6: Thanks.

Speaker #2: Yeah, Peter, you're absolutely right. And we talk about the backlog at Raytheon, which is substantial, with huge orders in the quarter. When you think about the international portion of that backlog, it now sits at about 44%.

As we exit the year.

But theres been some stocking there to prepare for this continued growth and.

We're making sure that we balance our sales and inventory and ops planning using the core operating system to do that but that was one of the things that sort of offset a little bit here in the fourth quarter.

Speaker #2: And our top three programs in that backlog are international. So that's certainly provides, you know, a, a, a, a tailwind. I would also tell you the team continues to focus heavily on our core operating system and driving productivity and efficiency in our shops to, to take costs down and to drive productivity.

Said really strong collections in the third quarter, we had catch up from the Pratt and Whitney work stoppage in the second quarter that helped bolster the results. We also had some advances that the raytheon emphasis in particular as well as the execution of the lot 18 contracted Pratt brought some cash into the third quarter things that were planned in the fourth quarter.

Speaker #2: I can give you a number of examples this year where, where, where Phil and the team, have used our core operating principles to, to drive increased, you know, production and to drive down costs.

Um you need sort of the brake fix type of aftermarket that Collins has what's which comes with, um, very good margin. So I think that was urging to see on the mods and upgrades up 17% organic. You know, if you look a little bit into that you're going to see that the interior's business was up significantly during the quarter Topline growth really, really strong, still working through some, you know, older contracts there. But I would tell you on the top line, you know, delivering that backlog, um, you know, positioned for continued growth as well as expanding margins on the interior's business which is 1 of the items that will fuel. Uh next year's margin expansion for columns.

And to add some color on, on the quarters, aftermarket performance? You know, I think what was notable was the parts and repair, you know, we're seeing, um, 13% organic growth there and that's indicative of aircraft that are flying that, um, you need sort of the brake fix type of aftermarket that Collins has what's which comes with, um, very good margins. So I think that was encouraging to see on the mods and upgrades up 17% organic. You know, if you look a little bit into that, you're going to see that the interior's business was up significantly during the quarter Topline growth really, really strong, still working through some, you know, older contracts there. But I would tell you on the top line, you know, delivering that backlog, um, you know, positioned for continued growth as well as expanding margins on the interior's business which is 1 of the items that will fuel. Uh next year's margin expansion for Collins.

As we sit here and you look at the implied fourth quarter very achievable positioning us to think for a nice start to 26 as well I'm not going to get into the specifics of 'twenty six but if you look at 25 and you think about the.

Speaker #2: And if you just think about some of our top programs, we're going to have significant increases in production this year. Just think: AMRAAM, GMT, Coyote—significant production ramps.

The line of Gavin Parsons with UBS. Your line is open.

And our last question comes from the line of Gavin Parsons with UBS. Your line is open.

Thank you morning.

Thank you morning.

Morning again.

Morning morning again.

$7.25 billion at the midpoint.

Speaker #2: Again, enabled by more efficiency in our shops, which, again, drives down cost and provides some margin tailwind.

You also think about the level of powder metal.

Compensation embedded in that you can see that our baseline free cash flow is in the $88 $5 billion range and so next year as we look forward, obviously, we expect powder metal payments to come down.

Speaker #5: Peter, I'll, I'll add that, you know, during the third quarter, really pleased to see positive productivity. On top of significant year over year productivity, obviously we had a one-time item last year, but, you know, year to date, it's about 75 million or so of productivity improvement.

You guys, I wanted to ask about 2026 free cash, flow conversion. I think you made some recent comments and there's a little bit of, uh, Market confusion or investor, confusion around that. And then if you could Bridge some of the, the major moving pieces, as we go into 2026 and then, you know, why reiterate the 2025 free cash guide while raising everything else. Thank you.

Yes, I wanted to ask about 2026 free cash flow conversion. I think you made some recent comments and there was a little bit of market confusion or investor confusion around that. And then, if you could bridge some of the major moving pieces as we go into 2026, and then, you know, why reiterate the 2025 free cash guide while raising everything else. Thank you.

<unk> capital still remains an opportunity for us we have very heavy levels, but we have very heavy growth plans ahead of us. So we'll be balancing that as we move forward I'll be back in January to provide a more detailed walk on that front.

Speaker #5: That's on top of $160 million last year. So, the business is getting back to its formula of driving efficiencies and driving productivity, and clearly, the growing backlog creates more opportunities for us to do that.

Yes, maybe just to add.

Two it Kevin I think long term.

We think the 90% to 100% of free cash flow is where this business is positioned to said if you just step back you've got some momentum around that with some of the fundamental attributes in this business of $251 billion backlog in place to drive growth commercial OE production is ramping.

Thanks. Let me start with 2025. Um, you know, we set out the year with the goal of $7 to $7.5 billion of free cash flow. And as we sit here today, we're very comfortable with that for the full year. There have been some moving pieces. Um, I'll remind you back in the second quarter, um, we had some tariff headwinds that we onboarded about $1 million.

Thanks let me start with 2025. Um, you know, we set out the year with the goal of 7 to 7 and a half billion dollars of free cash flow. And as we sit here today, we're very comfortable with that for the full year, there's been some moving pieces. Um, I'll remind you back in the second quarter. Um, we had some tariff headwind that we onboarded about 600 million dollars.

Speaker #5: So, now those are, you know, significant items here in the quarter. The mix was heavily international focused, particularly on the Patriot deliveries, but we'll see that change a little bit in the fourth quarter.

Speaker #5: But long term, as Chris said, you know, the mix of the backlog supports, an expanding margin, and we're happy to see the productivity continuing, to develop in the business.

Air traffic has been resilient and of course, we've got large installed base, both Collins and Pratt, which have long aftermarket sales and of course, we've talked a lot today about the growth in defense spending so put all those things together and that's where we get to that longer term, 90% to 100%.

Speaker #2: The only thing I would add to that, Peter, just to build on Neil's comment, is it's not only the, the mix of international and domestic, it's the mix in terms of the product that you're seeing in there.

Speaker #2: In terms of the 16 billion in orders this particular quarter, 8 billion in factors. Those are things directly in the core capabilities of RAYTHEON, where we've got mature processes, where we've been able to historically yield productivity.

Conversion.

Thanks, a lot.

Operator: For today, as a reminder, this conference is being recorded for replay purposes. On the call today are Christopher Calio, Chairman and Chief Executive Officer; Neil Mitchill, Chief Financial Officer; and Nathan Ware, Vice President of Investor Relations. This call is being webcast live on the internet, and there is a presentation available for download from the RTX website at www.RTX.com. Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding acquisition accounting adjustments and net non-recurring and/or significant items often referred to by management as other significant items. The company also reminds listeners that the earnings and cash flow expectations and any other forward-looking statements provided in this call are subject to risks and uncertainties.

Speaker #1: But that was one of the things that sort of offset a little bit here in the fourth quarter. But that said, you know, really strong collections in the third quarter.

With that there are no more analysts in the queue. So I will now turn the call back over to Nathan Ware.

Speaker #2: So another piece of good news on that front.

Speaker #1: We had catch-up from the Pratt & Whitney. Work stoppage in the second quarter that helped, bolster the results. We also had some advances that, the RAYTHEON system in particular, as well as the execution of the lot 18 contract that Pratt, brought some cash into the third quarter.

Alright. Thank you guys array that concludes today's call as always the Investor relations team will be available for follow up questions. So thank you all for joining us and have a good day.

Speaker #6: Appreciate the color. Thanks, guys.

Speaker #5: You're welcome.

Speaker #1: Next question comes from the line of Scott Leuchel with Deutsche Bank. Your line is open.

Yes.

This now concludes today's conference you may now disconnect.

Speaker #7: Hey, good morning.

Speaker #1: Things that were planned in the fourth quarter. So, as we sit here and you look at the implied fourth quarter, it's very achievable, positioning us to think for a nice start to 2026 as well.

Speaker #5: Morning, Scott. Hey, Scott.

Speaker #7: Neil, looks like Pratt commercial OE revenue was up 5% on 6% higher shipments. So was the GTF sparing in ratio down? Year over year, this quarter, or are these spare engines just being heavily discounted for the customers that are impacted by the powder metal issue?

Speaker #1: I'm not going to get into the specifics of 26, but if you look at 25 and you think about, the 7-point, you know, 2-5 billion dollars at the midpoint.

Speaker #1: You also think about the level of powdered metal, compensation embedded in that. You can see that our, you know, baseline free cash flow is in the 8, 8 and a half billion dollar range.

Speaker #7: Just trying to understand.

Speaker #2: Yeah, I wouldn't say, you know, thanks Scott for the question. I would not say that our spare engines are being heavily discounted as, as you all know.

Speaker #2: and as Chris has talked about, you know, earlier today, you know, we're balancing the output of, you know, installs, spares, and material to the MRO network.

Speaker #1: And so, next year as we look forward, obviously we expect powdered metal payments to come down. You know, working capital, still remains an opportunity for us.

Operator: RTX SEC filings, including its Forms 8-K, 10-Q, and 10-K, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. Once the call becomes open for questions, we ask that you limit your first round to one question per caller to give everyone the opportunity to participate. To ask a question, you will need to press star one on your telephone. You may ask further questions by reinserting yourself into the queue as time permits. With that, I will turn the call over to Mr. Calio.

Speaker #2: And we're doing the same thing here in the third quarter. I would not say there's any major difference in the level of mix between OE and spares that we saw in the quarter.

Speaker #1: You know, we have very heavy levels, but we have very heavy growth plans ahead of us. So, we'll be balancing that as we move forward.

Speaker #1: I'll be back in January to provide a more detailed, walk on that front.

Speaker #2: And, you know, as we've talked about in the past, we expect that to continue. There's a lot of demand for, for all of these engines, whether they're going to Airbus, whether they're going directly to an airline customer, or, you know, material heading into MRO networks.

Speaker #2: Yeah, maybe just to add, you know, to it, Gavin, I think, you know, long-term, we, we think, you know, the, the 90 to 100 percent of free cash flow is where this business is positioned to sit.

Speaker #2: And if you just step back, you've got, you know, some momentum around that with some of the fundamental attributes in this business. A 251 billion dollar backlog in place to drive growth, commercial OE production, is ramping.

Speaker #2: So nothing unique there in the quarter. and as we look at the fourth quarter, we do expect, you know, continued OE step up there, you know, on a year over year basis.

Speaker #2: It'll be a little bit more headwind from that higher negative engine margin in the fourth quarter. But again, you know, still expect reasonable balance of spares, and the typical, you know, fourth quarter aftermarket, performance from Pratt.

Speaker #2: Air traffic has been resilient and of course we've got large installed base. Well, Collins and Pratt, which have long aftermarket tails, and of course we've talked a lot today about the growth in defense spending.

Christopher Calio: Thank you and good morning, everyone. We delivered a very strong quarter of results in Q3, which reflects our intense focus on execution, the broad utilization of our core operating system, and the durable demand for our products. On the top line, sales were up 13% organically year over year, with double-digit growth in each of commercial OE, commercial aftermarket, and defense. Adjusted segment operating profit was up 19% year over year, with growth in margin expansion across all three segments. Free cash flow was robust at $4 billion in the quarter, keeping us on track for the full year. Underpinning these results is the continued strength in the global demand for our products and services. In commercial aerospace, passenger air travel has remained resilient, with global RPKs on track for approximately 5% growth this year.

Speaker #7: Great, thank you.

Speaker #2: So, put all those things together, and that's where we get to that, you know, longer-term 90 to 100 percent, you know, conversion.

Speaker #5: You're welcome.

Speaker #1: Next question comes from the line of Christine Liwag from Morgan Stanley. Your line is open.

Speaker #1: Thanks a lot.

Speaker #8: Hey, good morning everyone. Maybe we can touch base on the Boeing 737 MAX and 787. Can you level set us regarding the run rate you're currently producing?

Speaker #3: With that, there are no more analysts in the queue. So, I will now turn the call back over to Nathan Ware.

Speaker #1: Alright, thank you, Desiree. That concludes today's call. As always, the investor relations team will be available for follow-up questions, so thank you all for joining us and have a good day.

Speaker #8: And how should we think about incremental margins on these programs as volumes continue to ramp up? And ultimately, how does that expectation relate to your overall Collins margins expectations?

Speaker #3: disconnect. Good day and welcome to the RTX third quarter 2025 earnings conference call. My name is Desiree and I will be your operator for today.

Speaker #2: Yeah, thanks Christine. as it relates to, to Boeing ramp, first of all, really pleased to see you know the approval, on the ability to go to a higher rate on, on 737.

Speaker #2: I, I would say we are at this point aligned with Boeing, on the rates that they're at now, and where they want to go.

Christopher Calio: We continue to see positive OE production trends, which drove a significant increase in production at Collins Aerospace in the quarter, as well as at Pratt & Whitney, which saw a 6% growth in large commercial engine deliveries. Commercial aftermarket also remains strong, supported by our large and growing installed base, including over $100 billion of out-of-warranty content at Collins Aerospace and heavier shop visit content across our MRO activities. Aircraft retirements have remained low, with only 1.5% of the V2500 fleet retired so far this year. Pratt & Whitney Canada, with nearly 70,000 engines in service, has seen over 15% growth year to date in commercial aftermarket. On the defense side, we continue to be exceptionally well positioned to meet the growing needs of our U.S. and international customers, in particular with respect to munitions and integrated air and missile defense, both core capabilities of our company.

Speaker #2: Across, you know, Collins. And again, as we've said before, Collins has delivered at a higher rate in the past. So we've got, you know, the capacity to support the volume ramp.

Speaker #2: And so feel good as this continues to go to higher rates that we're going to be prepared to support Boeing in their effort to do that.

Speaker #2: Again, it, like everything else, it's going to come down to the continued health of the supply chain. We've been you know, very, very transparent with kind of where we are with the supply chain and what we need.

Speaker #2: That's continued to bear fruit. And feel like we're in a good position to continue to support Boeing as they move forward.

Speaker #5: You know, and if I just pick up there, obviously when we set the outlook at the beginning of the year, we had a set of assumptions and we were delivering to that.

Speaker #5: There was a little bit of, you know, inventory in the channel. Say now that we're almost, you know, we're more than three quarters of the way through the year, a lot of that is behind us.

Christopher Calio: On the orders front, our book-to-bill in the quarter was 1.63, resulting in a backlog of $251 billion, up 13% year over year. The activity in the quarter included $37 billion of new awards, with $23 billion of defense and $14 billion of commercial orders. On the commercial side, through Q3, our book-to-bill this year is 1.71, and our backlog has grown 18% since the end of 2023, showing the exceptional demand for our products and technologies at both Collins Aerospace and Pratt & Whitney. At Raytheon, we booked over $8 billion of orders for munitions, including approximately $2.5 billion for GEM-T to support multiple international customers and $2.1 billion for AMRAAM, the largest order in the 30-year history of that program. Raytheon was also awarded a significant counter-drone contract for Coyote production from the U.S. Army.

Speaker #5: And so, you know, we're, we're pretty synchronized with, with Boeing and their delivery schedule. Obviously the mix of higher 787 as you all know on the Collins side, you know, comes with some, you know, margin challenges, but, you know, longer term, as Chris alluded to here, you know, these, these rates are increasing back to levels that, you know, we've capacitized for, we'll get better absorption, and that will contribute to the continuation of margin expansion in the Collins business as it relates to the OE business.

Speaker #5: And of course, as you get more and more of these new aircraft out there, along with that comes provisioning and the aftermarket that, you know, goes along with all of that.

Speaker #5: So, I think it's right on track and, you know, of course, we'll be back in January with a little bit more precise outlook for next year. But, you know, we see growth ahead on the Collins front.

Speaker #1: Great, thank you. Next question comes from the line of Gautam Khana from TD Cowan. Your line is open.

Speaker #7: Yeah, thanks, good morning guys.

Christopher Calio: Coyote has proven to be extremely effective in the field, and we've recently developed a lower-cost, non-kinetic Coyote payload to combat drone swarms. Pratt & Whitney was awarded over $3 billion to support the F135 engine, including the Lot 18 production contract. Overall, our end markets and operational performance remain strong as we enter the fourth quarter. Based on this, we're raising our full-year outlook for adjusted sales and EPS and maintaining our free cash flow outlook of $7 to $7.5 billion. Neil will take you through the details in a few minutes. Before that, let me provide an update on our strategic priorities on slide four. Starting with executing on our commitments, our focus on driving performance improvements through our core operating system has continued to generate productivity across RTX. Through Q3, we have delivered 10% organic sales growth this year while keeping headcount flat across the organization.

Speaker #2: Hey Gautam, yeah?

Speaker #7: Was, was wondering if you could, just update us on your expectations through 26 on, the GTF compensation payments. Has there been any change to the timing of when we get down, to a much lower level of AOGs and the like?

Speaker #7: And is the provision still adequate?

Speaker #5: Thanks Gautam, I'll, I'll take that one. You know, today we sit here in the financial outlook remains consistent with, the outlook that we've had for now a couple of years.

Speaker #5: You know, the team continues to be disciplined with our compensation payments to our customers. I'd say we're right on track with where we expect it to be this year.

Speaker #5: We have some more to go, a little bit heavier fourth quarter payments. That was all planned and contemplated in our outlook. We said between 1.1 and 1.3 billion for the year.

Speaker #5: And so the residual falls into next year. I'd say right now, no change to that outlook; it seems on track. You're.

Christopher Calio: This has been a key enabler in driving six consecutive quarters of year-over-year adjusted segment margin expansion. With respect to the GTF fleet management plan, our financial and technical outlook remains on track. PW1100 MRO output was up 9% in the quarter and is up 21% year to date. We continue to work with our supply chain partners to increase the flow of critical value stream material to ramp MRO output. In Q3, we saw another quarter of solid progress with growth in isothermal forgings up 16% and structural castings up 29% year over year. Exiting the third quarter, this material flow has supported a record high number of PW1100 gate three starts, which is where we reassemble engines during a shop visit, putting Pratt & Whitney in a position to deliver about 30% MRO output growth for the year.

Speaker #7: Thank you.

Speaker #5: welcome.

Speaker #1: Next question comes from the line of Braun Epstein with Bank of America. Your line is open.

Speaker #7: Hey, yeah, good, good morning guys. can you speak a little bit to the margins in Collins? It seems like the incremental margins might have been a little bit weaker than what we were thinking.

Speaker #7: Is that tariff-related, or how should we think about that?

Speaker #5: Hey Ron, good morning. Yeah, definitely tariff related. You know, during the quarter, Collins saw about $90 million of headwind from year-over-year tariffs.

Speaker #5: Actually, the same number that Pratt saw for the quarter. So, I think if you put that aside, the team's doing a great job making that a smaller number as we move forward.

Speaker #5: a number of mitigations have been identified, but, you know, that's really the key driver there in what's, dragging down the margins. I think as we go forward, you know, we continue to do, a lot of work to continue to support our products and qualification for, USMCA treatment or, you know, bonds as we re-export material outside of the United States.

Christopher Calio: Across the company, we continue to focus on increasing critical manufacturing capacity to support growth, including investing over $600 million this year in expansion projects. For example, Raytheon is on track to invest $300 million in capacity expansion to deliver the growing backlog. This includes the Redstone Missile Integration Facility in Huntsville, Alabama, which will increase site capacity by 50% and support the growing demand for our naval programs, including the Standard Missile franchise. Shifting to innovating for future growth, Pratt & Whitney Canada was selected by the EU's Clean Aviation Program to design and integrate a hybrid electric propulsion demonstrator for regional aircraft. This system integrates a 250-kilowatt electric motor and advanced propeller technology from Collins Aerospace and is expected to improve fuel efficiency by approximately 20%. Additionally, Collins Aerospace is nearing final certification of its next-generation braking system for the A321XLR aircraft.

Speaker #5: So, and of course, pricing. So there's an opportunity there to continue to mitigate, you know, the headwinds, but that's what you saw in the, in the third quarter.

Speaker #5: And you'll see that again in the fourth quarter, obviously, for both Collins and Pratt too. Gotcha, thank you very much.

Speaker #2: Yeah, you're welcome.

Speaker #1: Next question comes from the line of Sheila Kayaglu with Chefri's. Your line is open.

Speaker #8: good morning guys and thank you for the time. maybe if I could go back, go back to Pratt and if we could just talk about the moving pieces for the top line and, also the bottom line, just on commercial, you raised commercial OE revenue guidance by 150.

Speaker #8: That Pratt pointing to mix. How do we think about, you know, is that just the GTF advantage coming in, so higher revenues per engine and the spares mix?

Speaker #8: And then how that factors into the bottom line with the negative engine margin headwind. Is it still 150 to 200 million in 25? And how we think about the higher MRO output in, into a fourth quarter and into 26?

Christopher Calio: The design incorporates proprietary carbon technology and is expected to extend brake life and drive improved profitability on our maintenance support portfolio. Raytheon recently demonstrated two significant effector technology achievements. The AMRAAM team successfully completed the longest ever air-to-air shot from a fifth-generation fighter. The StormBreaker team, in just 50 days, designed, developed, and tested a new ground launch demonstrator version of this air-launched effector, which will expand the capabilities and future applications for this product. We remain focused on leveraging the breadth and scale of RTX. As we've highlighted before, we continue to develop and deploy our data analytics and AI tools to improve productivity and the speed and quality of decision-making in our business. We're strategically using these tools to support the highest impact opportunities across the company, including increasing munitions and OE production rates, growing GTF MRO output, and improving sales and inventory planning and management.

Speaker #5: Sure, let me take that, Sheila. You know, as I said earlier on the call here, the, the Pratt uptick in the revenue outlook is about 1.1 billion at the midpoint of our guidance.

Speaker #5: about 150 million of that is on the OE side. And I would say it has nothing to do with the GTF advantage at this point.

Speaker #5: It's really just the, you know, finalization of the year, the mix of spare engines versus install engines, and the volumes that we see there.

Speaker #5: So, that's what's driving the top line there, frankly. You know, we're also seeing, you know, the about 100 million dollars on the defense side of Pratt & Whitney.

Speaker #5: And we're happy to get the Lot 18 production contract executed in the third quarter. That drove most of the growth, that Pratt saw in the military side in the third quarter.

Speaker #5: and so, you know, as we play that forward, the material receipts coming in, we expect a little bit of upside there. The rest sits in the aftermarket.

Christopher Calio: For example, the Raytheon AMRAAM team has deployed multiple proprietary digital AI tools to proactively identify production bottlenecks and reduce rework, which has contributed to output more than doubling year to date through Q3 on the program. These examples highlight the progress that we continue to make across our strategic priorities, and I'm pleased with the results they are yielding throughout the company. With that, let me turn it over to Neil to take you through the third quarter results and our updated outlook for the full year. Neil?

Speaker #5: And if you, if you think about the third quarter and the fourth quarter MRO output that we've just talked about, that comes with revenue.

Speaker #5: So that there's a heavy mix of that towards, the GTF. Obviously, that comes with some profit, but not the same kind of profits that we see on the V-2500.

Speaker #5: That said, on the V-2500, I talked about 800 shop visits for the full year. I'd say we're right on track. It's been pretty linear throughout the first three quarters of the year.

Speaker #5: So we expect another quarter of about the same level of volume on the V-2500. Those shop visits are getting a little bit heavier, and so that's what you're seeing in the top line.

Neil Mitchill: All right, Chris. Thanks. I'm on slide five. In the third quarter, adjusted sales of $22.5 billion were up 12% on an adjusted basis and 13% organically. As Chris mentioned, this was a very strong result in the quarter, with commercial aftermarket up 18% and commercial OE and defense both up 10%. Adjusted segment operating profit of $2.8 billion was up 19%, and we saw 70 basis points of consolidated segment margin expansion with contributions from all three segments. Adjusted earnings per share of $1.70 was up 17% from the prior year, driven primarily by segment operating profit growth. In addition, the quarter also benefited from several tax items, including legal entity reorganizations, which impacted EPS by approximately $0.12. These items more than offset a $0.04 headwind from the recently enacted tax legislation. On a GAAP basis, EPS from continuing operations was $1.41 and included $0.29 of acquisition accounting adjustments.

Speaker #5: And of course, that's dropping to the bottom line. As it relates to full year negative engine margin, no change to the outlook, from the beginning of the year.

Speaker #5: Still within that $150 million to $200 million year-over-year headwind, expect it's going to land somewhere in the middle of that at the end of the year.

Speaker #1: Great. Thank you.

Speaker #5: You're welcome.

Speaker #1: Next question comes from the line of Seth Sethman with JP Morgan. Your line is open.

Speaker #2: Hey, good morning. wanted to, as a just quick, hey, quick clarification and, and question just to following up on, on Sheila's question. At, at Pratt and, and GTF, given negative engine margin outlook still the same, are we still thinking about 14% growth in GTF deliveries for the year?

Speaker #2: And which implies a, you know, very, very strong Q4? and then, as a question, I guess, you know, as, as we think about where the company's going to exit this year, balance sheet should be getting into better shape.

Speaker #2: you know, how do you think about capital deployment? as, as we go forward and, you know, maybe, maybe, balancing the ability to start returning some, some cash along with maybe some of the investment requirements that, that might be ahead, especially on the, on the defense side.

Speaker #3: As a reminder, this conference is being recorded for replay purposes. On the call today are Christopher Calio, Chairman and Chief Executive Officer, Neil Mitchill, Chief Financial Officer, and Nathan Ware, Vice President of Investor Relations.

Neil Mitchill: Free cash flow was very strong at $4 billion, driven by working capital improvement, including strong collections and some advanced payments tied to contract awards in the quarter that were accelerated from Q4. Cash flow for the quarter also included approximately $275 million for powdered metal related compensation and $220 million of tariff-related impacts. With respect to capital allocation, we returned over $900 million to shareholders through dividends in the quarter, and with our focus on further strengthening our balance sheet, we paid down $2.9 billion of debt in the quarter. During the quarter, we completed the sale of the actuation business, and earlier this month, we also completed the sale of Collins Siemens Precision Products business for $765 million. Okay. Turning to slide six, let me provide a few details on our updated outlook for the full year.

Speaker #5: Yep, thanks. appreciate, the question there. as it relates to, I'm sorry, the first question was on, GTF, yeah, engines. As it relates to that, when we started the year, I talked about growth that was similar to last year.

Speaker #3: This call is being webcast live on the internet, and there is a presentation available for download on the RTX website at www.rtx.com. Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding acquisition accounting adjustments and net non-recurring and/or significant items, often referred to by management as other significant items.

Speaker #5: Didn't put an exact number on it. As I sit here today, I think we're going to end up in the high double, high single digit, rather, growth rate.

Speaker #5: So think about 8 to 10% kind of range. so that, you could do the math on the fourth quarter there. You know, broader, broader, thinking about capital return, you know, we were really pleased with the level of debt paydown that we've made year to date, as you all know, we did, some buyback a number of years ago.

Speaker #3: The company also reminds listeners that the earnings and cash flow expectations, along with any other forward-looking statements provided in this call, are subject to risks and uncertainties.

Speaker #5: We took some debt out, and we've been repaying that over the last couple of years. We'll continue to do that as we move into next year.

Neil Mitchill: As you've seen with our third quarter results, execution and momentum across all three segments continues to be strong. Given this operating performance, along with the strength of our end markets, we are updating our outlook for the full year. On the top line, we are raising our full-year adjusted sales outlook to a range of $86.5 billion to $87 billion, up from our prior range of $84.75 billion to $85.5 billion. This now translates to between 8% and 9% organic sales growth for the year, up from our prior range of 6% to 7%. By channel, at the RTX level and adjusting for divestitures, we now expect commercial aftermarket sales to grow mid-teens year over year, up from our prior outlook of low teens, primarily driven by heavier shop visit content that we saw in Q3 at Pratt & Whitney.

Speaker #3: RTX SEC filings including its forms 8K, 10Q, and 10K provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements.

Speaker #5: and get back to the levels that we enjoyed of debt before, executing that transaction. You know, I think as we step back, we're prioritizing the dividend as we always have, and we expect that to continue to grow with earnings over the next couple of years.

Speaker #3: Once the call becomes open for questions, we ask that you limit your first round to one question per caller to give everyone the opportunity to participate.

Speaker #5: and then making sure that we're making the right investments in the business for the future. Research and development, capital, we've got a healthy level of, CapEx invested, expected this year, two and a half to 2.7 billion.

Speaker #3: To ask a question, you will need to press *1 on your telephone. You may ask further questions by reinserting yourself into the queue as time permits.

Speaker #5: Similar amounts of company funded R&D, throughout the, the business this year, and I expect that to continue, as we look forward. Chris?

Speaker #3: With that, I will turn the call over to Mr. Calio.

Speaker #2: Yeah, no, just to emphasize something that Neil said there, which he spot on. And that's, you know, the, as the, as the need for investment in defense potentially continues to grow, those are things that historically we've been able to do in addition to our capital, you know, deployment and, and allocation strategy.

Speaker #4: Thank you, and good morning, everyone. We delivered a very strong quarter of results in Q3, which reflects our intense focus on execution, the broad utilization of our core operating system, and the durable demand for our products.

Neil Mitchill: On the commercial OE side, we expect sales to grow around 10% for the year, up from our prior outlook of high single digits year over year. On defense, we continue to expect sales to grow mid-single digits. On the bottom line, given the performance across all three segments, we are increasing adjusted earnings per share $0.30 on the low end of our range and $0.25 on the high end. At the midpoint, the increase is primarily driven by approximately $0.20 of improved segment operating profit, with the rest coming from a few below-the-line items. Within this updated outlook, there is no change to the net tariff headwind we discussed on our last earnings call. All in, we now see adjusted EPS at a new range of between $6.10 and $6.20 for the full year, up from our prior range of $5.80 to $5.95.

Speaker #4: On the top line, sales were up 13 percent organically year over year, with double-digit growth in each of Commercial OE, Commercial Aftermarket, and Defense.

Speaker #2: If you just look at our average investment, it's about a billion and a half a year company funded investment in defense. Capacity, automation, R&D.

Speaker #4: Adjusted segment operating profit was up 19 percent year over year, with growth in margin expansion across all three segments. And free cash flow was robust at $4 billion in the quarter.

Speaker #2: So we've been able to continue to invest where the business case makes sense. And for us, Seth, it's really a conversation with the government around long-term demand signals.

Speaker #4: Keeping us on track for the full year. Underpinning these results is the continued strength in the global demand for our products and services. In commercial aerospace, passenger air travel has remained resilient, with global RPKs on track for approximately 5 percent growth this year.

Speaker #2: How do we build a business case around investing when we can have visibility into the long-term demand? When we, when we've seen it, and when we feel good about it, you know, we've, we've invested.

Speaker #2: But again, I think in terms of the capital deployment strategy, it's an and, not an or. We can do both.

Speaker #4: We continue to see positive OE production trends, which drove a significant increase in production at Collins in the quarter, as well as at Pratt, which saw a 6 percent growth in large commercial engine deliveries.

Speaker #5: Great, very helpful, thanks.

Speaker #1: Next question comes from the line of Scott Mikus from Milnius Research. Your line is open.

Speaker #4: Commercial aftermarket also remained strong. Supported by our large and growing installed base. Including over 100 billion of out-of-warranty content at Collins, and heavier shop visit content across our MRO activities.

Speaker #5: Morning, Chris and Neil.

Speaker #2: Scott, good morning.

Speaker #5: Chris, you mentioned V-2500 retirements have been low, and it's a trend we've seen coming out of COVID. We're kind of at a point where ASK, at least domestic ASKs, are growing below the pre-COVID trend.

Neil Mitchill: Specific to Q4, we expect another quarter of strong operational performance at the segment level, with segment profit up around 10% year over year, excluding the impact of tariffs and recent divestitures at Collins Aerospace. Below the line, the Q3 $0.12 tax benefit I mentioned will not repeat. We expect a higher effective tax rate in the fourth quarter. On free cash flow, we are on track to achieve our outlook of between $7 billion and $7.5 billion for the year. The primary drivers of our fourth quarter free cash flow will be the same as we saw in the third quarter: segment operating profit growth and working capital improvement.

Speaker #4: Aircraft retirements have remained low, with only one and a half percent of the V2500 fleet retired so far this year. And Pratt Canada, with nearly 70,000 engines in service, has seen over 15 percent growth year to date in commercial aftermarket.

Speaker #5: Next year, Boeing and Airbus will probably deliver 1,300 narrowbodies. We'll have potentially hundreds of GTF-powered aircraft returning to service. So when you think about V-2500 shop visit visibility in the next year, are you requiring customers to put down deposits to reserve shop visits just to make them a little bit more sticky?

Speaker #4: On the defense side, we continue to be exceptionally well positioned to meet the growing needs of our U.S. and international customers. In particular, with respect to munitions and integrated air and missile defense.

Speaker #2: Yeah, thanks for the question, Scott. So look, you know, and Neil said this upfront, the demand for the V-2500 continues to be strong. And that's, you know, separate and apart from what you just mentioned.

Speaker #4: Both core capabilities of our company. On the orders front, our book-to-bill in the quarter was 1.63, resulting in a backlog of $251 billion, up 13 percent year over year.

Neil Mitchill: As we look beyond this year, we feel good about the momentum we're seeing across our business, including our growing backlog and end market strength that continues to position us well for continued top-line growth, margin expansion, and solid free cash flow conversion. Like we do every year, we'll be back on our fourth quarter earnings call in January with our detailed outlook for 2026. With that, let me hand it over to Nathan to take you through the segment results for the third quarter.

Speaker #2: And that's because, frankly, what's the dynamic of what's going on in the fleet? Obviously, people need to continue to use their Vs. But it's also the characteristics of that fleet.

Speaker #4: The activity in the quarter included 37 billion of new awards, with 23 billion of defense, and 14 billion of commercial orders. On the commercial side, through Q3, our book-to-bill this year was 1.71, and our backlog has grown 18 percent since the end of 2024.

Speaker #2: It's still a relatively young fleet, average age is 15 years, 15% haven't seen a first shop visit, 40% haven't seen a second shop visit.

Speaker #2: So there is just natural, significant aftermarket runway ahead. On that program, customers, you know, love the application. And so we feel good about the demand on this going forward.

Speaker #4: Showing the exceptional demand for our products and technologies, at both Collins and Pratt. At RAYTHEON, we booked over 8 billion of orders for munitions, including approximately 2.5 billion for GMT, to support multiple international customers.

Nathan Ware: All right. Thanks, Neil. Starting with Collins Aerospace on slide seven, sales were $7.6 billion in the quarter, up 8% on an adjusted basis and 11% organically, driven by strength across all three channels. Adjusting for divestitures by channel, commercial OE sales were up 16% versus prior year, driven primarily by higher volume on narrow-body platforms. Recall, last year included the impact of the Boeing work stoppage in the quarter. Commercial aftermarket sales were up 13%, driven by a 17% increase in mods and upgrades, a 13% increase in parts and repair, and a 10% increase in provisioning. Defense sales were up 6% versus the prior year, driven by higher volume across multiple programs and platforms, including the survivable airborne operations center program.

Speaker #2: Frankly, above where we thought it would be, a year, two years ago, it continues to have runway.

Speaker #4: And 2.1 billion for AMRAAM. The largest order in the 30-year history of that program. RAYTHEON was also awarded a significant counter-drone contract for Coyote production, from the US Army.

Speaker #4: Coyote has proven to be extremely effective in the field, and we've recently developed a lower-cost, non-kinetic Coyote payload to combat drone swarms. And Pratt was awarded over 3 billion to support the F-135 engine, including the lot 18 production contract.

Speaker #4: So overall, our end markets and operational performance remain strong as we enter the fourth quarter. Based on this, we're raising our full-year outlook for adjusted sales and EPS, and maintaining our free cash flow outlook of 7 to 7 and a half billion.

Nathan Ware: Adjusted operating profit of $1.2 billion was up $98 million versus the prior year, as drop-through in higher commercial aftermarket, defense, and commercial OE volume, along with lower R&D expense, was partially offset by unfavorable commercial OE mix and the impact of higher tariffs across the business. Turning to Collins Aerospace's full-year outlook, we continue to expect sales to grow mid-single digits year over year on an adjusted basis and high single digits organically. We now expect operating profit growth between $325 million and $375 million versus 2024, up from our prior expectation of between $275 million and $350 million, driven by drop-through in higher commercial aftermarket volume. Keep in mind, this updated profit range includes an approximately $60 million year-over-year headwind associated with the business divestitures completed this year.

Speaker #4: Neil will take you through the details in a few minutes. But before that, let me provide an update on our strategic priorities on slide four.

Speaker #4: Starting with executing on our commitments, our focus on driving performance improvements through our core operating system has continued to generate productivity across RTX. Through Q3, we have delivered 10 percent organic sales growth this year, while keeping headcount flat across the organization.

Speaker #4: This has been a key enabler in driving six consecutive quarters of year-over-year adjusted segment margin expansion. With respect to the GTF fleet management plan, our financial and technical outlook remains on track.

Speaker #4: PW1100 MRO output was up 9 percent in the quarter, and is up 21 percent year to date. We continue to work with our supply chain partners to increase the flow of critical value stream material to ramp MRO output.

Nathan Ware: Shifting to Pratt & Whitney on slide eight, sales of $8.4 billion were up 16% on both an adjusted and organic basis, driven by strength across all channels. Commercial OE sales were up 5%, driven by increased volume in large commercial engines and favorable mix in Pratt Canada. Commercial aftermarket sales were up 23%, driven by higher volume in both large commercial engines and Pratt Canada. In military engines, sales were up 15% in the quarter, driven primarily by the F135 program, including higher volume associated with the Lot 18 contract award. Adjusted operating profit of $751 million was up $154 million versus the prior year, driven by drop-through in higher commercial aftermarket and military volume. This growth more than offset increased large commercial OE deliveries, higher SG&A expense, and the impact of higher tariffs across the business.

Speaker #4: In Q3, we saw another quarter of solid progress with growth in isothermal forgings up 16 percent, and structural castings up 29 percent year over year.

Speaker #4: Exiting the third quarter, this material flow has supported a record high number of PW1100 Gate 3 starts, which is where we reassemble engines during a shop visit.

Speaker #4: Putting Pratt in a position to deliver about 30% MRO output growth for the year. Across the company, we continue to focus on increasing critical manufacturing capacity to support growth.

Speaker #4: Including investing over $600 million this year in expansion projects. For example, RAYTHEON is on track to invest $300 million in capacity expansion to deliver the growing backlog.

Speaker #4: This includes the Redstone Missile Integration Facility in Huntsville, Alabama. Which will increase site capacity by 50 percent, and support the growing demand for our naval programs, including the standard missile franchise.

Speaker #4: Shifting to innovating for future growth, Pratt Canada was selected by the EU's Clean Aviation Program to design and integrate a hybrid electric propulsion demonstrator for regional aircraft.

Nathan Ware: Turning to Pratt & Whitney's full-year outlook, we now expect sales to grow low to mid-teens on an adjusted and organic basis, an increase from our prior range of up low double digits, driven by strength in commercial aftermarket and favorable commercial OE mix. We now expect operating profit growth between $350 million and $400 million versus 2024, up from our prior expectation of between $200 million and $275 million, driven by drop-through in higher commercial aftermarket volume and favorable commercial OE mix. Now turning to Raytheon on slide nine, sales of $7 billion in the quarter were up 10% on both an adjusted and organic basis, driven by higher volume on land and air defense systems, including International Patriot, and higher volume on naval programs, including multiple classified programs, SM-6, and the Evolved SeaSparrow Missile.

Speaker #4: This system integrates a 250 kilowatt electric motor and advanced propeller technology from Collins and is expected to improve fuel efficiency by approximately 20 percent.

Speaker #4: Additionally, Collins is nearing final certification of its next-generation braking system for the A321 XLR aircraft. The design incorporates proprietary carbon technology, and is expected to extend brake life, and drive improved profitability on our maintenance support portfolio.

Speaker #4: And RAYTHEON recently demonstrated two significant effector technology achievements. The AMRAAM team successfully completed the longest ever air-to-air shot from the fifth-generation fighter, and the Stormbreaker team in just 50 days designed, developed, and tested a new ground-launch demonstrator version of this air-launched effector.

Speaker #4: Which will expand the capabilities and future applications for this product. And finally, we remain focused on leveraging the breadth and scale of RTX. As we've highlighted before, we continue to develop and deploy our data analytics and AI tools to improve productivity, and the speed and quality of decision-making in our business.

Nathan Ware: Adjusted operating profit of $859 million was up $198 million versus the prior year, driven by favorable program mix, including International Patriot, improved net productivity, and higher volume. Net productivity improved $57 million year-over-year. Recall, Q3 of last year included an unfavorable impact of $53 million related to a classified program. Bookings in the quarter were $15.9 billion, resulting in a book-to-bill of 2.27 and a record backlog of $72 billion. International backlog represented 44% of Raytheon's total at the end of the quarter and was up 18% on a dollar basis year-over-year. Other key awards in the quarter included $1.5 billion for LTM's production and over $500 million for Stinger production. These awards will support both domestic and international customers. On a rolling 12-month basis, Raytheon's book-to-bill is 1.43.

Speaker #4: For strategically using these tools to support the highest impact opportunities across the company, including increasing munitions and OE production rates, growing GTF MRO output, and improving sales and inventory planning and management.

Speaker #4: For example, the Raytheon AMRAAM team has deployed multiple proprietary digital AI tools to proactively identify production bottlenecks and reduce rework, which has contributed to output more than doubling year-to-date through Q3 on the program.

Speaker #4: These examples highlight the progress that we continue to make across our strategic priorities. And I'm pleased with the results they are yielding throughout the company.

Speaker #4: With that, let me turn it over to Neil to take you through the third quarter results and our updated outlook for the full year.

Nathan Ware: Turning to Raytheon's full-year outlook, we continue to expect sales to grow low single digits year-over-year on an adjusted basis and mid-single digits organically. We now expect operating profit growth between $400 million and $450 million versus 2024, up from our prior expectation of between $225 million and $300 million, driven by the favorable international program mix we saw during the third quarter. With that, I'll hand it back over to Chris.

Speaker #4: Neil?

Speaker #2: Alright, Chris. Thanks. Among slide five, in the third quarter, adjusted sales of $22.5 billion were up 12 percent on an adjusted basis and 13 percent organically.

Speaker #2: As Chris mentioned, this was a very strong result in the quarter, with commercial aftermarket up 18%, and commercial OE and defense both up 10%.

Speaker #2: Adjusted segment operating profit, up $2.8 billion, was up 19 percent, and we saw 70 basis points of consolidated segment margin expansion, with contributions from all three segments.

Neil Mitchill: Okay. Thanks, Nathan. We have great momentum across RTX. We delivered strong top and bottom line growth this quarter, and our end markets remain robust, as seen by our recent customer wins and 1.63 book-to-bill in the quarter. Our backlog now stands at $251 billion, and we remain focused on our strategic priorities across the company, giving us confidence in our ability to deliver strong growth in sales, earnings, and free cash flow well beyond this year. With that, let's open it up for questions.

Speaker #2: Adjusted earnings per share of $1.70 was up 17 percent from the prior year, driven primarily by segment operating profit growth. In addition, the quarter also benefited from several tax items, including legal entity reorganizations, which impacted EPS by approximately $0.12.

Speaker #2: These items more than offset a 4-cent headwind from the recently enacted tax legislation. On a GAAP basis, EPS from continuing operations was $1.41 and included 29 cents of acquisition accounting adjustments.

Operator: In the interest of time and to allow for broader participation, you are asked to limit yourself to one question. To ask a question, you will need to press star one on your telephone. The first question will come from the line of Rob Stallard with Vertical Research. Your line is open.

Speaker #2: Free cash flow was very strong at 4 billion, driven by working capital improvement, including strong collections and some advanced payments tied to contract awards in the quarter that were accelerated from Q4.

Speaker #2: Cash flow for the quarter also included approximately 275 million for powdered metal-related compensation, and 220 million of tariff-related impacts. With respect to capital allocation, we returned over 900 million to shareholders through dividends in the quarter, and with our focus on further strengthening our balance sheet, we paid down 2.9 billion of debt in the quarter.

[Analyst]: Thanks so much. Good morning.

[Company Representative]: Morning.

[Analyst]: Morning, Rob. This is probably for Neil. You've raised the aerospace OEM guidance for the year. I was wondering if you could dive into the details below that and probably in conjunction for Chris, I suppose. How confident are you in delivering those new LEAP engines to Airbus with regard to their target for the full year? Thank you.

Speaker #2: And finally, during the quarter, we completed the sale of the actuation business, and earlier this month we also completed the sale of Collins Simmons Precision Products business for $765 million.

[Company Representative]: Thanks, Rob. Let me start on the guidance, and then I'll hand it over to Chris. Again, really strong quarter here in the third quarter. What we've done with our outlook is we've dropped through that goodness for the full year. Also, taking up the top line, if I kind of focus that around the midpoint at the top line at the RTX level, we'll see about $1.6 billion increase. Commercial aftermarket is a large portion of that. Commercial OE is about $200 million there. I'd say that $50 million of that is coming from Collins Aerospace. The rest of it is at Pratt & Whitney.

Speaker #2: Okay, turning to slide six, let me provide a few details on our updated outlook for the full year. As you've seen with our third quarter results, execution and momentum across all three segments continues to be strong.

Speaker #2: Given this operating performance, along with the strength of our end markets, we are updating our outlook for the full year. On the top line, we are raising our full-year adjusted sales outlook to a range of $86.5 billion to $87 billion, up from our prior range of $84.75 billion to $85.5 billion.

[Company Representative]: What we're seeing there is continued delivery strength on the Collins Aerospace side, particularly as we get into the last quarter of the year here on increased rates on 737 and 787. On the Pratt & Whitney side, I'd attribute that to the engine mix. On the aftermarket side, a lot of that sits at Pratt & Whitney. About $1.1 billion of the $1.6 billion that we're talking about on the increase sits inside of Pratt & Whitney, with the majority of that in the aftermarket. We had a really strong third quarter. As you heard Chris talk about, the increase in MRO output is driving GTF aftermarket. We're also seeing a strong V2500 mix and heavy shop visits there. Again, letting that drop through for the full year, and you'll see that both on the top and the bottom line.

Speaker #2: This now translates to between 8 and 9 percent organic sales growth for the year. Up from our prior range of 6 to 7 percent.

Speaker #2: By channel, at the RTX level, and adjusting for divestitures, we now expect commercial aftermarket sales to grow in the mid-teens year over year, up from our prior outlook of low teens, primarily driven by heavier shop visit content that we saw in Q3 at Pratt.

Speaker #2: On the commercial OE side, we expect sales to grow around 10 percent for the year, up from our prior outlook of high single digits year over year.

Speaker #2: And on defense, we continue to expect sales to grow mid-single digits. On the bottom line, given the performance across all three segments, we are increasing adjusted earnings per share by 30 cents on the low end of our range and 25 cents on the high end.

[Company Representative]: Finally, there's a couple hundred million dollars at Raytheon on the defense side. We've got 10 consecutive quarters here of material receipt growth, and we're continuing to get ready for the delivery of that large backlog and a backlog we expect to continue to grow. Those are the big moving pieces on the top line. Of course, dropping through on the bottom line, you see the profit there. We've had some favorability on below-the-line items as well, and we're letting that kind of come through as we stare at just 90 days to go.

Speaker #2: At the midpoint, the increase is primarily driven by approximately $0.20 of improved segment operating profit, with the rest coming from a few below-the-line items.

Speaker #2: And within this updated outlook, there is no change to the net tariff headwind we discussed on our last earnings call. All in, we now see adjusted EPS at a new range of between $6.10 and $6.20 for the full year.

Neil Mitchill: Hey, Rob. I'll pick it up from there on the second part of your question on deliveries. Overall, we feel pretty good about how we've executed this year and supported the production ramps for both the aircraft, for all the aircraft, you know, OEMs. We're going to continue to work very closely with Airbus to make sure that they have what they need down the stretch of the year, while also continuing to balance the allocation of material as we've talked about before because we've got to continue to support the fleet. That's going to continue to be a focus. I'll remind folks that we're up over 50% versus our 2019 production levels. We've continued to ramp production pretty robustly. I'm going to work very closely with our airframe customers to make sure they have what they need so they can hit their deliveries for the end of the year.

Speaker #2: Up from our prior range of $5.80 to $5.95. Specific to Q4, we expect another quarter of strong operational performance at the segment level, with segment profit up around 10 percent year over year, excluding the impact of tariffs and recent divestitures at Collins.

Speaker #2: Below the line, the Q3 12 cent tax benefit I mentioned will not repeat, we expect a higher effective tax rate in the fourth quarter.

Speaker #2: On free cash flow, we are on track to achieve our outlook of between 7 and 7 and a half billion for the year, with the primary drivers of our fourth quarter free cash flow will be the same as we saw in the third quarter.

Speaker #2: Segment operating profit growth and working capital improvement. And as we look beyond this year, we feel good about the momentum we're seeing across our business, including our growing backlog and end market strength, that continues to position us well for continued top-line growth, margin expansion, and solid free cash flow conversion.

[Analyst]: That's great. Thank you.

Operator: Our next question comes from the line of Miles Walton from Wolfe Research. Your line is open.

[Analyst]: Thanks. Good morning. Neil, maybe just a clarification first, and then maybe Chris, a question on the Raytheon segment. On the clarification, the 30% output for the full year, just want to make sure that's 30% output for GTF, and so a pretty steep Q4 MRO output improvement you're looking for there. Chris, on the Raytheon outlook, could you just comment on the limitations to growth? It's clearly not a demand situation here that you're poor on and would expect that the Raytheon segment revenue would start to accelerate pretty meaningfully. Obviously, we saw some of that here in the third quarter, but didn't raise the full year. Maybe what are the limitations there?

Speaker #2: And like we do every year, we'll be back on our fourth quarter earnings call in January with our detailed outlook for 2026. So with that, let me hand it over to Nathan to take you through the segment results for the third quarter.

Speaker #1: Alright, thanks Neil. Starting with Collins on slide seven. Sales were 7.6 billion dollars in the quarter, up 8 percent on an adjusted basis, and 11 percent organically.

Speaker #1: Driven by strength across all three channels. Adjusting for divestitures, by channel, commercial OE sales were up 16 percent versus prior year, driven primarily by higher volume on narrow-bodied platforms.

Neil Mitchill: Yeah. Thanks, Miles. Maybe your question on the GTF MRO output, I'll start there. You're right, through the year to date, up about 20%. We need to get to that 30% level. MRO output, as I've said pretty consistently, is the key to continuing to push down our AOG levels. I think we're in a pretty good position to be able to hit that 30% for the full year, and there's several factors that kind of put us in that position. First, we exited September with the record number of gate three starts. As I said previously, that's the reassembly and then the testing process. I feel good how we've come out of the gate here, no pun intended. Material flow in the critical value streams was pretty strong. Isothermal forgings were up 16% year-over-year, as I mentioned. Structural castings, 29% year-over-year. Another piece here is our repair networks.

Speaker #1: Recall, last year included the impact of the Boeing work stoppage in the quarter. Commercial aftermarket sales, were up 13 percent, driven by a 17 percent increase in mods and upgrades, a 13 percent increase in parts and repair, and a 10 percent increase in provisioning.

Speaker #1: Defense sales were up 6 percent versus the prior year, driven by higher volume across multiple programs and platforms, including the survival of the Airborne Operations Center program.

Speaker #1: Adjusted operating profit, up $1.2 billion, was up $98 million versus the prior year, as drops in higher commercial aftermarket, defense, and commercial OE volume, along with lower R&D expense, were partially offset by unfavorable commercial OE mix and the impact of higher tariffs across the business.

Speaker #1: Turning to Collins full-year outlook, we continue to expect sales to grow mid-single digits year over year on an adjusted basis, and high single digits organically.

Neil Mitchill: Demonstrated some strong increase here in Q3, 30% year-over-year. That helps lessen the demand for new parts, which should, again, help the flow in gate two. We've continued to see progress with productivity in our shops. Exited Q3 in September with about 80% of our MRO completions on the GTF, averaging 110-day turnaround time in the shop. That's on heavier work scopes. Those are the things that I think put us in position to go drive here in the fourth quarter on MRO output, ultimately to support the fleet. On your questions on Raytheon, I'll invite Neil to come in as well if he wants to talk about some of the puts and takes in the quarter. Overall, the headline story here is just continued exceptionally strong demand, right? The book-to-bill in the quarter at 2.27, $16 billion of new orders.

Speaker #1: And we now expect operating profit growth between 325 and 375 million dollars versus 2024, up from our prior expectation of between 275 and 350 million dollars, driven by drop through on higher commercial aftermarket volume.

Speaker #1: Keep in mind, this updated profit range includes an approximately $60 million year-over-year headwind associated with the business divestitures completed this year.

Speaker #1: Shifting to Pratt & Whitney on slide eight, sales of $8.4 billion were up 16 percent on both an adjusted and organic basis, driven by strength across all channels.

Speaker #1: Commercial OE sales were up 5 percent, driven by increased volume in large commercial engines and a favorable mix in Pratt Canada. Commercial aftermarket sales were up 23 percent, driven by higher volume in both large commercial engines and Pratt Canada.

Neil Mitchill: The demand is there, and we're continuing to invest in capacity to ensure that that demand can be met. You heard us talk about the $300 million this year. If you just think about since 2020, just at Raytheon alone, it's been about $1 billion on capacity expansions and automation. For us, it's looking at the supply chain and making sure that it continues to be healthy. We're seeing our 10th consecutive quarter of material receipts growth, which is great. We've got to continue to see that accelerate upwards across all of our critical value streams, whether that be microelectronics, rocket motors, and the like. While performance has stabilized and been good, we need to continue to see that accelerate in 2026 and beyond because the demand is there. Chris, I'll just add to that a little bit. You know, Miles, you alluded to it.

Speaker #1: In military engines, sales were up 15 percent in the quarter. Driven primarily by the F-135 program, including higher volume associated with the lot 18 contract award.

Speaker #1: Adjusted operating profit, up $751 million, was up $154 million versus the prior year, driven by drop-through on higher commercial aftermarket and military volume.

Speaker #1: This growth more than offset increased large commercial OE deliveries, higher SG&A expense, and the impact of higher tariffs across the business. Turning to Pratt's full-year outlook, we now expect sales to grow low to mid-teens on an adjusted and organic basis.

Neil Mitchill: The third quarter is seeing a very substantial 10% organic growth at Raytheon. If you look under the covers there, just a couple, you know, kind of anecdotes. Our naval power business is in line with that level of growth, but our land and air defense systems business is significantly higher than that. That growth that you're talking about, we're seeing come through in that side of the business in particular as it relates to Patriot and GEM-T output. The business is very diverse, as you know. When you look at it at the Raytheon level, I still think we're going to see very strong aggregate organic growth going forward. Certainly, within the areas of munitions and air defense systems, we're seeing growth that's well above what we're reporting at the Raytheon level.

Speaker #1: An increase from our prior range of up below double digits, driven by strength in the commercial aftermarket and favorable commercial OE mix. We now expect operating profit growth between $350 million and $400 million versus 2024, up from our prior expectation of between $200 million and $275 million, driven by drop-through on higher commercial aftermarket volume and favorable commercial OE mix.

Speaker #1: Now turning to RAYTHEON on slide nine, sales of 7 billion in the quarter, were up 10 percent on both an adjusted and organic basis, driven by higher volume on land and air defense systems, including international Patriot, and higher volume on naval programs including multiple classified programs, SM-6, and the evolved Sea Sparrow missile.

[Analyst]: Thanks.

Neil Mitchill: You're welcome.

Speaker #1: Adjusted operating profit of 859 million, was up 198 million dollars versus the prior year. Driven by favorable program mix, including international Patriot, improved net productivity, and higher volume.

Operator: Next question comes from the line of Peter Arment from Baird. Your line is open.

[Analyst]: Yeah. Thanks. Hey, good morning, Chris and Neil. Nice results.

Neil Mitchill: Thanks, Peter.

[Analyst]: Maybe we just stick with, you know, in RTX, you know, it's not just been a top-line story or the backlog. You've also had really, you know, good performance on the margin side of things and continue to show really good margin expansion. How should we think about that as this kind of continues to see growth accelerate, but you've got higher international mix? Maybe just walk us through kind of your thinking around, you know, RTX's margins in the longer term. Thanks.

Speaker #1: Net productivity improved by $57 million year over year. Recall that Q3 of last year included an unfavorable impact of $53 million related to a classified program.

Speaker #1: Bookings in the quarter were 15.9 billion, resulting in a book-to-bill of 2.27, and a record backlog of 72 billion dollars. International backlog represented 44 percent of RAYTHEON's total at the end of the quarter.

Neil Mitchill: Yeah. Peter, you're absolutely right. When we talk about the backlog at Raytheon, which is substantial, huge orders in the quarter. Maybe you think about the international portion of that backlog. It now sits at about 44%. Our top three programs in that backlog are international. That certainly provides a tailwind. I would also tell you the team continues to focus heavily on our core operating system and driving productivity and efficiency in our shops to take costs down and to drive productivity. I can give you a number of examples this year where Phil and the team have used our core operating principles to drive increased production and to drive down costs. If you just think about some of our top programs, we're going to have significant increases in production this year.

Speaker #1: It was up 18 percent on a dollar basis year-over-year. Other key awards in the quarter included $1.5 billion for LTMS production and over $500 million for Stinger production.

Speaker #1: These awards will support both domestic and international customers. And on a rolling 12-month basis, RAYTHEON's book-to-bill is 1.43. Turning to RAYTHEON's full-year outlook, we continue to expect sales to grow low single digits year over year on an adjusted basis, and mid-single digits organically.

Speaker #1: And we now expect operating profit growth between $400 million and $450 million versus 2024, up from our prior expectation of between $225 million and $300 million, driven by the favorable international program mix we saw during the third quarter.

Neil Mitchill: Just think AMRAAM, you think GEM-T, Coyote, significant production ramps, again, enabled by more efficiency in our shops, which again drives down cost and provides some margin tailwind. Peter, I'll add that during the third quarter, really pleased to see positive productivity on top of significant year-over-year productivity. Obviously, we had a one-time item last year, but year to date, it's about $75 million or so of productivity improvement. That's on top of $160 million last year. The business is getting back to its formula of driving efficiencies and driving productivity. Clearly, the growing backlog creates more opportunities for us to do that. Those are significant items here in the quarter. The mix was heavily international-focused, particularly on the Patriot deliveries. We'll see that change a little bit in the fourth quarter.

Speaker #1: With that, I’ll hand it back over to Chris.

Speaker #2: Okay, thanks, Nathan. We have great momentum across RTX. We delivered strong top and bottom-line growth this quarter, and our end markets remain robust as seen by our recent customer wins and a 1.63 book-to-bill in the quarter.

Speaker #2: Our backlog now stands at 251 billion, and we remain focused on our strategic priorities across the company. Giving us confidence in our ability to deliver strong growth in sales, earnings, and free cash flow well beyond this year.

Speaker #2: With that, let's open it up for questions.

Speaker #3: In In the interest of time and to allow for broader participation, you are asked to limit yourself to one question. To ask a question, you will need to press star one on your telephone.

Neil Mitchill: Long-term, as Chris said, the mix of the backlog supports an expanding margin, and we're happy to see the productivity continuing to develop in the business. The only thing I would add to that, Peter, just to build on Neil's comment, is it's not only the mix of international and domestic, it's the mix in terms of the product that you're seeing in there. In terms of the $16 billion in orders this particular quarter, $8 billion in effectors. Those are things directly in the core capabilities of Raytheon where we've got mature processes, where we've been able to historically yield productivity. Another piece of good news on that front.

Speaker #3: The first question will come from the line of Rob Stalard with Vertical Research. Your line is open.

Speaker #5: Thanks so much, good morning.

Speaker #1: Good morning.

Speaker #2: Good morning, Rob.

Speaker #5: this is Ravi for Neil. you've raised the, aerospace OEM guidance for the year. So I was wondering if you could, dive into the details below that, and probably in conjunction for, for Chris, I suppose.

Speaker #5: How confident are you in delivering those new LEAP engines to Airbus with regard to their target for the full year? Thank you.

[Analyst]: Appreciate the call. Thanks, guys.

Neil Mitchill: You're welcome.

Operator: Next question comes from the line of Scott Deuschle with Deutsche Bank. Your line is open.

[Analyst]: Hey, good morning.

Neil Mitchill: Morning, Scott.

[Analyst]: Hey, Scott.

Neil Mitchill: Neil, it looks like Pratt commercial OE revenue was up 5% on 6% higher shipments. Was the GTF spare engine ratio down year over year this quarter, or are these spare engines just being heavily discounted for the customers that are impacted by the powdered metal issue? Just trying to understand. Yeah. I wouldn't say, you know, thanks, Scott, for the question. I would not say that our spare engines are being heavily discounted, as you all know, and as Chris has talked about earlier today. We're balancing the output of installs, spares, and material to the MRO network. We're doing the same thing here in the third quarter. I would not say there's any major difference in the level of mix between OE and spares that we saw in the quarter. As we've talked about in the past, we expect that to continue.

Neil Mitchill: There's a lot of demand for all of these engines, whether they're going to Airbus, whether they're going directly to an airline customer, or material heading into the MRO network. Nothing unique there in the quarter. As we look at the fourth quarter, we do expect continued OE step up there on a year-over-year basis. There'll be a little bit more headwind from the higher negative engine margin in the fourth quarter. Again, still expect reasonable balance of spares and the typical fourth quarter aftermarket performance from Pratt.

[Analyst]: Great. Thank you.

Neil Mitchill: You're welcome.

Operator: Next question comes from the line of Christine Liwag from Morgan Stanley. Your line is open.

[Analyst]: Hey, good morning, everyone. Maybe touching base on the Boeing 737 MAX and 787. You know, can you level set us regarding the run rate you're currently producing and how we should think about incremental margins on these programs as volumes continue to ramp up? Ultimately, how does that expectation relate to your overall Collins Aerospace margins expectations?

Neil Mitchill: Yeah. Thanks, Christine. As it relates to Boeing ramp, first of all, really pleased to see the approval on the ability to go to a higher rate on 737. I would say we are, at this point, aligned with Boeing on the rates that they're at now and where they want to go across Collins. As we've said before, Collins has delivered at a higher rate in the past. We've got the capacity to support the volume ramp and feel good as this continues to go to higher rates that we're going to be prepared to support Boeing in their effort to do that. Like everything else, it's going to come down to the continued health of the supply chain. We've been very, very transparent with where we are with the supply chain and what we need.

We've continued to ramp production pretty robustly, and again, we're going to work very closely with our airframe customers to make sure they have what they need so they can hit their deliveries for the end of the year.

Thank you.

Our next question comes from the line of Miles Walton from Wolfe research. Your line is open.

Neil Mitchill: That's continued to bear fruit and feel like we're in a good position to continue to support Boeing as they move forward. If I just pick up there, obviously, when we set the outlook at the beginning of the year, we had a set of assumptions, and we were delivering to that. There was a little bit of inventory in the channel. Now that we're more than three-quarters of the way through the year, a lot of that is behind us. We're pretty synchronized with Boeing and their delivery schedule. Obviously, the mix of higher 787, as you all know, on the Collins side comes with some margin challenges. Longer term, as Chris alluded to here, these rates are increasing back to levels that we've capacitized for.

Thanks, good morning. Um, Neil maybe just a clarification first. And then, uh, maybe Chris a question on rayon segment. On the clarification, the 30% output.

Neil Mitchill: We'll get better absorption, and that will contribute to the continuation of margin expansion in the Collins business as it relates to the OE business. Of course, as you get more and more of these new aircraft out there, along with that comes provisioning and the aftermarket that goes along with all of that. I think it's right on track. Of course, we'll be back in January with a little bit more precise outlook for next year. We see growth ahead on the Collins front.

Operator: Great. Thank you. Next question comes from the line of Gautam Khanna from TD Cowen. Your line is open.

[Analyst]: Yeah, thanks. Good morning, guys.

Neil Mitchill: Hey, Gautam. Yeah?

[Analyst]: Was wondering if you could just update us on your expectations through 2026 on the GTF compensation payments. Has there been any change to the timing of when we get down to a much lower level of AOG than the like? Is the provision still adequate?

Neil Mitchill: Thanks, Gautam. I'll take that one. Today we sit here and the financial outlook remains consistent with the outlook that we've had for now a couple of years. The team continues to be disciplined with our compensation payments to our customers. I'd say we're right on track with where we expect it to be this year. We have some more to go, a little bit heavier fourth quarter payments. That was all planned and contemplated in our outlook. We said between $1.1 billion and $1.3 billion for the year, and the residual falls into next year. I'd say right now, no change to that outlook. It seems on track.

[Analyst]: Thank you.

Neil Mitchill: You're welcome.

Operator: Next question comes from the line of Ron Epstein with Bank of America. Your line is open.

[Analyst]: Good morning, guys. Can you speak a little bit to the margins in Collins Aerospace? It seems like the incremental margins might have been a little bit weaker than what we were thinking. Is that tariff-related or how should we think about that?

Neil Mitchill: Hey, Ron. Good morning. Yeah, definitely tariff-related. During the quarter, Collins saw about $90 million of headwind from year-over-year tariffs, actually the same number that Pratt saw for the quarter. I think if you put that aside, the team's doing a great job making that a smaller number as we move forward. A number of mitigations have been identified. That's really the key driver there in what's dragging down the margins. I think as we go forward, we continue to do a lot of work to continue to support our products and qualification for USMCA treatment or bonds as we re-export material outside of the United States. Of course, pricing. There's an opportunity there to continue to mitigate the headwinds. That's what you saw in the third quarter. You'll see that again in the fourth quarter, obviously, for both Collins and Pratt too.

[Analyst]: Gotcha. Thank you very much.

Neil Mitchill: Yeah, you're welcome.

Operator: Next question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is open.

[Analyst]: Good morning, guys, and thank you for the time.

Neil Mitchill: Thank you, Sheila.

[Analyst]: Maybe if I could go back to Pratt & Whitney and if we could just talk about the moving pieces for the top line and also the bottom line. Just on commercial, we raised commercial OE revenue guidance by $150 million at Pratt & Whitney, pointing to mix. How do we think about, you know, is that just the GTF advantage coming in, so higher revenues per engine and the spares mix? How does that factor into the bottom line with the negative engine margin headwind? Is it still $150 million to $200 million in 2025? How do we think about the higher MRO output into the fourth quarter and into 2026?

Neil Mitchill: Sure. Let me take that, Sheila. As I said earlier on the call here, the Pratt uptick in the revenue outlook is about $1.1 billion at the midpoint of our guidance. About $150 million of that is on the OE side. I would say it has nothing to do with the GTF advantage at this point. It's really just the finalization of the year, the mix of spare engines versus install engines, and the volumes that we see there. That's what's driving the top line there, frankly. We're also seeing about $100 million on the defense side of Pratt & Whitney. We're happy to get the Lot 18 production contract executed in the third quarter. That drove most of the growth that Pratt saw on the military side in the third quarter. As we play that forward, the material receipts coming in, we expect a little bit of upside there.

Neil Mitchill: The rest sits in the aftermarket. If you think about the third quarter and the fourth quarter MRO output that we've just talked about, that comes with revenue. There's a heavy mix of that towards the GTF. Obviously, that comes with some profit, but not the same kind of profits that we see on the V2500. That said, on the V2500, I talked about 800 shop visits for the full year. I'd say we're right on track. It's been pretty linear throughout the first three quarters of the year. Expect another quarter of about the same level of volume on the V2500. Those shop visits are getting a little bit heavier. That's what you're seeing in the top line. Of course, that's dropping to the bottom line. As it relates to full-year negative engine margin, no change to the outlook from the beginning of the year.

Neil Mitchill: Still within that $150 to $200 year-over-year headwind. I expect it's going to land somewhere in the middle of that at the end of the year.

[Analyst]: Great. Thank you.

Neil Mitchill: You're welcome.

Operator: Next question comes from the line of Seth Seedman with JPMorgan. Your line is open.

[Analyst]: Hey, good morning.

Neil Mitchill: Morning.

[Analyst]: I want to ask you just a quick clarification and question, just following up on Sheila's question at Pratt & Whitney and GTF. Given negative engine margin outlook still the same, are we still thinking about 14% growth in GTF deliveries for the year, which implies a very, very strong Q4? As a question, as we think about where the company is going to exit this year, balance sheet should be getting into better shape. How do you think about capital deployment as we go forward and maybe balancing the ability to start returning some cash along with maybe some of the investment requirements that might be ahead, especially on the defense side?

Neil Mitchill: Thanks. Appreciate the question there. As it relates to, I'm sorry, the first question was on GTF engines. As it relates to that, when we started the year, I had talked about growth that was similar to last year. I didn't put an exact number on it. As I sit here today, I think we're going to end up in the high single-digit growth rate. Think about 8% to 10% kind of range. You could do the math on the fourth quarter there. Broader, thinking about capital return, we were really pleased with the level of debt paydown that we've made year to date. As you all know, we did some buyback a number of years ago. We took some debt out. We've been repaying that over the last couple of years.

Neil Mitchill: Continue to do that as we move into next year and get back to the levels that we enjoyed of debt before executing that transaction. I think as we step back, we're prioritizing the dividend, as we always have, and we expect that to continue to grow with earnings over the next couple of years. Then making sure that we're making the right investments in the business for the future: research and development, capital. We've got a healthy level of CapEx invested expected this year, $2.5 to $2.7 billion. Similar amounts of company-funded R&D throughout the business this year. I expect that to continue as we look forward. Chris? Yeah. No, just to emphasize something that Neil said there, which he's spot on.

Neil Mitchill: That's, as the need for investment in defense potentially continues to grow, those are things that historically we've been able to do in addition to our capital deployment and allocation strategy. If you just look at our average investment, it's about $1.5 billion a year company-funded investment in defense, capacity, automation, R&D. We've been able to continue to invest where the business cases make sense. For us, Seth, it's really a conversation with the government around long-term demand signal. How do we build a business case around investing when we can have visibility into the long-term demand? When we've seen it and when we feel good about it, we've invested. Again, I think in terms of the capital deployment strategy, it's an and, not an or. We can do both.

[Analyst]: Great. Very helpful. Thanks.

Operator: Next question comes from the line of Scott Mikus from Melius Research. Your line is open.

[Analyst]: Morning, Chris and Neil.

Neil Mitchill: Scott, good morning.

[Analyst]: Chris, you mentioned V2500 retirements have been low, and that's a trend we've seen coming out of COVID. We're kind of at a point where ASKs, at least domestic ASKs, are growing below the pre-COVID trend. Next year, Boeing and Airbus will probably deliver 1,300 narrowbodies. We'll have potentially hundreds of GTF-powered aircraft returning to service. When you think about V2500 shop visit visibility in the next year, are you requiring customers to put down deposits to reserve shop visits just to make them a little bit more sticky?

Neil Mitchill: Yeah. Thanks for the question, Scott. Look, you know, as Neil said up front, the demand for the V2500 continues to be strong. That's, you know, separate and apart from what you just mentioned. That's because, frankly, it's the dynamic of what's going on in the fleet, obviously. People need to continue to use their Vs. It's also the characteristics of that fleet. It's still a relatively young fleet. Average age is 15 years. 15% haven't seen a first shop visit. 40% haven't seen a second shop visit. There is just natural significant aftermarket runway ahead on that program. Customers, you know, love the application. We feel good about the demand on this going forward. Frankly, above where we thought it would be a year, two years ago, it continues to have runway.

[Analyst]: All right, thank you.

Operator: Next question comes from the line of Doug Hart with Bernstein. Your line is open.

[Analyst]: Good morning. Thank you. Doug, on Raytheon, you talked some about margins before. This quarter, you got over that 12% level that I know you've been looking at for some time. When you talk about the opportunities here, higher volumes, more international, more mature fixed price work, are you kind of where you want to be already, or can we see more upside from here on margins as you go forward over the next few years? It does set up well.

Neil Mitchill: Yeah. You know, Doug, we're really pleased, again, with where, you know, Raytheon is. I mentioned up, you know, before, demand is the big headline. If you think about the composition of that backlog, the growing piece that's, you know, international at 44%, that's up from a year ago. I feel really good about the mix and the tailwind that it can provide. I'll also, you know, remind folks that when you think about the $50 billion in reconciliation for munitions replenishment and Golden Dome for America, those things are not in our backlog today. Those are potentially, you know, additive to the backlog. Again, Doug, we're going to need to continue to see supply chain health to get to these levels. As you know, it's a very interconnected supply chain within defense.

Neil Mitchill: If you want to raise, you know, production on a number of programs, you've got to make sure that you're deconflicting, again, some of those suppliers, making sure we're bringing new suppliers, you know, to bear to be able to meet the ramp here. That's going to be the critical piece here in our ability to convert this into upside. It's not going to be the demand, and it's not going to be the composition of the backlog. It's, are we going to get the supply chain in a healthy enough place to be able to deliver at these higher rates? I will tell you that that's been a focus area of ours.

Operator: Next question comes from the line of Ken Herbert with RBC. Your line is open.

[Analyst]: Good morning. Thanks, Chris and Neil. I wanted to see if you can talk about the up 13% in the Collins aftermarket and specifically the pieces within that and what you're seeing on the retrofit side. I wanted to see for both Collins and Pratt for sort of catalog pricing, are you getting similar levels on spare parts this year as you did last year, or are you seeing any incremental pushback on the catalog pricing this year from customers?

Neil Mitchill: Yeah. Thanks, Ken. Maybe just briefly on Collins, and then Neil can add some additional color. You know, again, Collins double-digit organic growth in all three of its aftermarket channels: parts and repair, provisioning, mods, and upgrades. I feel very good about the strength we're seeing in the Collins aftermarket. As you know, it's got over $100 billion of out-of-warranty installed base. An incredibly strong position to work from from an aftermarket growth perspective. On the pricing for both Pratt & Whitney and Collins, again, given what's going on in terms of tariffs and given the demand in the marketplace, I think both have been appropriately aggressive in pricing this year. As we look towards next year, got to see how things shake out on the tariff front.

Neil Mitchill: We're going to continue to be aggressive in terms of catalog pricing because of the value that we bring and because of the demand that's out there. To add some color on the quarter's aftermarket performance, I think what was notable was the parts and repair. We're seeing 13% organic growth there. That's indicative of aircraft that are flying that you need sort of the brake-fix type of aftermarket that Collins has, which comes with very good margins. I think that was encouraging to see. On the mods and upgrades, up 17% organic. If you look a little bit into that, you're going to see that the interiors business was up significantly during the quarter. Top-line growth really, really strong. Still working through some older contracts there.

Neil Mitchill: I would tell you on the top line, delivering that backlog, position for continued growth as well as expanding margins on the interiors business, which is one of the items that will fuel next year's margin expansion for Collins.

Operator: Our last question comes from the line of Gavin Parsons with UBS. Your line is open.

[Analyst]: Thank you. Morning.

Neil Mitchill: Morning.

[Analyst]: Hey, guys. I wanted to ask about 2026 free cash flow conversion. I think you made some recent comments, and there's a little bit of market confusion or investor confusion around that. If you could bridge some of the major moving pieces as we go into 2026, and then, you know, why reiterate the 2025 free cash guide while raising everything else? Thank you.

Neil Mitchill: Thanks. Let me start with 2025. You know, we set out the year with a goal of $7 to $7.5 billion of free cash flow. As we sit here today, we're very comfortable with that for the full year. There's been some moving pieces. I'll remind you, back in the second quarter, we had some tariff headwinds that we onboarded, about $600 million. We offset that with lower cash taxes for the year. That's sort of neutralized. As you kind of roll forward to where we sit today, obviously, we're getting stronger operating profit. We're seeing a little bit of growth in the inventory, or I'd say less reduction in the inventory. We were pleased to see inventory come down a couple hundred million dollars sequentially Q2 to Q3. Things are moving in the right direction.

Neil Mitchill: I think we'll see another few hundred million dollars of inventory reduction as we exit the year. There's been some stocking there to prepare for this continued growth. We're making sure that we balance our sales and inventory and ops planning using the core operating system to do that. That was one of the things that sort of offset a little bit here in the fourth quarter. That said, really strong collections in the third quarter. We had catch-up from the Pratt & Whitney work stoppage in the second quarter that helped bolster the results. We also had some advances that the Raytheon business in particular, as well as the execution of the Lot 18 contract at Pratt & Whitney, brought some cash into the third quarter, things that were planned in the fourth quarter.

Neil Mitchill: As we sit here and you look at the implied fourth quarter, very achievable, positioning us, I think, for a nice start to 2026 as well. I'm not going to get into the specifics of 2026, but if you look at 2025 and you think about the $7.25 billion at the midpoint, you also think about the level of powdered metal compensation embedded in that, you can see that our baseline free cash flow is in the $8 to $8.5 billion range. Next year, as we look forward, obviously, we expect powdered metal payments to come down. Working capital still remains an opportunity for us. We have very heavy levels, but we have very heavy growth plans ahead of us. We'll be balancing that as we move forward. I'll be back in January to provide a more detailed walk on that front. Yeah.

Neil Mitchill: Maybe just to add to it, Gavin, I think long term, we think the 90 to 100% of free cash flow is where this business is positioned to sit. If you just step back, you've got some momentum around that with some of the fundamental attributes in this business. A $251 billion backlog in place to drive growth. Commercial OE production is ramping. Air traffic has been resilient. Of course, we've got large installed base, both Collins Aerospace and Pratt & Whitney, which have long aftermarket tails. We've talked a lot today about the growth in defense spending. Put all those things together, and that's where we get to that longer-term 90 to 100% conversion.

[Analyst]: Thanks a lot.

Operator: With that, there are no more analysts in the queue. I will now turn the call back over to Nathan Ware.

[Analyst]: All right. Thank you, Desiree. That concludes today's call. As always, the Investor Relations team will be available for follow-up questions. Thank you all for joining us, and have a good day.

Operator: This now concludes today's conference. You may now disconnect.