RTX (RTX) Q1 2026 earnings review
Strong Execution and Defense Margins Overpower Tariff Headwinds
RTX delivered a highly profitable Q1, blending stable 9% reported revenue growth with a 21% surge in Adjusted EPS. Unlike previous quarters where the Pratt powder-metal issue overshadowed results, this quarter highlights strong operational execution and backlog conversion. The standout is the Raytheon segment, where operating margins expanded 150 basis points year-over-year to 12.2% on soaring defense demand. While tariffs and unfavorable commercial original equipment (OE) mix continue to compress Collins Aerospace margins, management's confidence in the broader trajectory is evident in their raised FY26 sales and earnings guidance.
🐂 Bull Case
Raytheon segment margins hit 12.2%, a significant recovery from the ~10% range seen early last year, driven by higher volume in land, air defense, and naval munitions.
Free Cash Flow jumped 65% year-over-year to $1.3B, indicating that working capital management and past supply chain bottlenecks are stabilizing.
🐻 Bear Case
Despite a massive backlog, Pratt & Whitney commercial OE sales actually shrank 1% year-over-year due to lower engine deliveries, highlighting persistent supply chain or airframer constraints.
Collins Aerospace adj. operating margins grew a mere 10 basis points (to 17.1%) despite a 5% revenue increase, directly penalized by higher tariffs and unfavorable OE mix.
⚖️ Verdict: 🟢
Bullish. The 21% Adjusted EPS growth and raised full-year outlook confirm that RTX is successfully transitioning from 'managing crises' (GTF engine recalls, supply chain chaos) to executing on its record $271B backlog.
Key Themes
Raytheon Defense Execution is Accelerating
Raytheon's Adjusted Operating Profit surged 25% YoY on 10% sales growth, pushing margins to 12.2%. This is a sharp acceleration compared to 25Q1 (10.7% margin). Favorable program mix in high-demand systems like Patriot, GEM-T, and naval munitions is delivering excellent operating leverage. With defense representing $109B of the $271B total backlog, this segment is structurally shifting to a higher baseline of profitability.
Commercial Aftermarket Remains the Profit Engine
Pratt & Whitney organic sales jumped 11%, overwhelmingly driven by a 19% surge in commercial aftermarket. Airframers are struggling to deliver new planes, forcing airlines to fly older equipment longer. This stable, high-margin revenue stream continues to offset weaknesses in OE deliveries and directly fueled P&W's 21% jump in operating profit.
Tariffs Cannibalizing Collins' Margins
While overall RTX margins improved, Collins Aerospace saw its Adjusted Operating Margin stay virtually flat YoY (17.1% vs 17.0%) despite adding nearly $400M in new sales. Management explicitly cited higher tariffs and unfavorable commercial OE mix as the culprits. This remains a persistent, structural headwind that is dampening the segment's otherwise stable top-line growth.
Pratt Commercial OE Contradicts Production Ramp Narrative
Management stated they are 'making significant investments to increase output,' yet Pratt & Whitney's commercial OE sales declined 1% year-over-year due to lower engine deliveries. This specific data point contradicts the broader narrative of a smooth production ramp, suggesting that airframer delays or lower-tier supply chain bottlenecks (like castings/forgings) are still restricting new engine output.
Global Macro Defense Picture is Highly Supportive
The macro environment continues to provide a massive tailwind. RTX's defense backlog grew to $109B (up from $92B in 25Q1). The persistent demand for high-end systems (F135 engines, AMRAAM, Patriot) to replenish global stockpiles has given RTX unprecedented long-term visibility, shielding it from commercial aerospace cyclicality.
Other KPIs
Accelerating. This is a massive 65% increase over the $792M reported in 25Q1. Stronger operating cash flows ($1.85B) easily covered the $546M in CapEx. This early-year cash generation de-risks the full-year FCF target.
Stable and massive. Comprised of $162B commercial and $109B defense. For context, this represents nearly 3 full years of revenue at current run rates, providing exceptional forward visibility.
Guidance
Raised and Decelerating vs Q1 pace. Management bumped the range up from $6.60-$6.80. The $6.80 midpoint represents ~8% YoY growth over FY25 ($6.29). While positive, this is a deceleration from the 21% EPS growth delivered in Q1, implying tougher comps or management conservatism in the back half of the year.
Raised and Stable. Upgraded from $92.0-$93.0B, this implies 5% to 6% organic sales growth. This assumes continued strong execution in commercial aftermarket and defense backlog conversion.
Stable. Confirmed previous guidance. Given the $1.3B generated in Q1, RTX needs to average ~$2.4B per quarter for the rest of the year, which aligns with historical seasonality patterns.
Key Questions
Pratt Commercial OE Bottlenecks
Pratt Commercial OE sales shrank 1% due to lower engine deliveries. Are these declines driven primarily by airframer adjustments (e.g., Airbus/Boeing delays), or are you still facing internal supply chain constraints on new engine builds?
Tariff Mitigations at Collins
Collins' margins were essentially flat year-over-year despite a 5% revenue increase, with tariffs cited as a headwind. What is the expected timeline for pricing actions or supply chain shifts to fully offset these tariff pressures?
Raytheon Margin Sustainability
Raytheon achieved an impressive 12.2% adjusted operating margin this quarter. How much of this expansion was due to favorable Q1 milestone timing, and should investors view 12%+ as the new structural baseline for this segment?