RTX (RTX) Q3 2026 earnings review
Raytheon's backlog grows by half, but RTX's cash flow falls
Missile orders enlarged Raytheon's order book by half, while tariff refunds flattered RTX's profit. Sales at the maker of Pratt & Whitney engines and Raytheon missiles grew 11%, and profit per share excluding one-offs rose 33%. Chairman and chief executive Chris Calio raised the full-year outlook a third time. But by our math the plan has sales growth slowing to about 5% in the fourth quarter.
| Sales | $25.0B +11% from a year ago; +12% from businesses owned a year ago |
|---|---|
| Profit per share, excluding one-offs | $2.26 +33% from a year ago, including $0.25 of tariff refund |
| Company backlog | $340B +36% from a year ago; +$51B since June |
| Full-year profit-per-share outlook | Raised $7.65–7.75; middle of the range up $0.53 |
⚖️ Verdict: 🟢 Bullish
The story got better because customers committed to years of missile production, and RTX raised its plan by more than the refund it collected. One caution: without that refund, Pratt & Whitney earned no more per dollar of sales than a year ago. Another: operating cash flow came in far below last year's.
The question now is whether RTX can build what it has sold. New factory capacity may turn the missile orders into sales at a rising pace, or suppliers of rocket motors and castings may cap output while the backlog accumulates. Fourth-quarter sales growth in January, set against the slowdown the plan implies, will tell.
🐂 Bull Case
Missile Orders Lift Raytheon's Backlog by Half
Raytheon is RTX's missile and air-defense business, and its order book is where the group's growth story starts. Chairman and chief executive Chris Calio said demand "remains robust", with "over $81 billion of new commercial and defense awards" producing "a record backlog of $340 billion".
Two contracts did most of the work. The US government placed multi-year orders for Tomahawk cruise missiles and AMRAAM air-to-air missiles, which the slides say "provide firm long-term production demand", and Raytheon's own backlog jumped to $130 billion from $86 billion in June.
- Tomahawk: about $23 billion, "to ramp annual production above 1,000 units"
- AMRAAM: over $14 billion, for a ramp "up to 1,900 units per year"
- Raytheon orders to sales: 6.5 times this quarter, against 2.4 times in the second quarter
- Defense backlog across RTX: $164 billion, up 59% from a year ago
This matters because for a year the growth promise sat in framework agreements that were not in the backlog. Now the orders sit in it, so the question moves from whether customers will buy to whether Raytheon can build. Sales rose 14% this quarter, and the full-year plan asks for low-teens growth, so factory capacity sets the pace.
What to watch: Raytheon's fourth-quarter sales growth in January against the low-teens full-year plan. A rate above the plan would show the new capacity already turning orders into sales.
Collins Margin Rose Even Without the Tariff Refund
Collins Aerospace, RTX's aircraft parts and systems business, earned 21.3 cents of profit per dollar of sales excluding one-offs, up from 15.7 cents a year ago. About $250 million of that profit came from refunds of tariffs paid under the International Emergency Economic Powers Act, which RTX calls IEEPA recovery.
By our math the margin without the refund was 18.4%, still 2.7 points above a year ago. Collins credits "drop through on higher commercial volume" and "commercial mix", and the slides say it is advancing "structural cost actions across Collins". Commercial original-equipment sales grew 23%, the fastest line in the segment.
The gain matters because the standing worry was that widebody work such as the 787 carries little profit, so faster sales would dilute margins. The mix drag did not show this quarter, but one quarter with a large refund inside it is a poor test.
What to watch: Collins' fourth-quarter profit, which the raised full-year plan puts near $1.39 billion by our math, 13% above a year ago. A figure above that would show the cost actions holding without refund help.
Outlook Raised by More Than the Refund
RTX sets a full-year outlook for sales, profit per share and free cash flow, and it has lifted all three at each of this year's three quarterly reports. Only $0.25 of this quarter's profit per share came from the tariff refund, so about $0.28 of the latest raise reflects the business itself by our math.
- Sales: $97.0–97.5 billion, middle of the range up $1.75 billion
- Profit per share excluding one-offs: $7.65–7.75, middle up $0.53
- Free cash flow: $9.0–9.2 billion, middle up $475 million
- Sales from businesses owned a year ago: 10–11% growth, from 8–9%
This matters because the July plan pointed to second-half growth of only about 3% to 5% by our math, and the quarter delivered 11%. That shows the July plan was cautious; it does not show the fourth quarter will be. The new plan still has fourth-quarter growth at less than half this quarter's rate by our math, against a hard comparison.
What to watch: fourth-quarter sales growth against the rate the plan implies. A result well above it again would mean RTX sets each plan with the same caution, and the next one deserves the same reading.
🐻 Bear Case
Pratt's Margin Did Not Improve Without the Refund
Pratt & Whitney builds jet engines, including the GTF engine on Airbus A320neo jets, and sells the repairs and spare parts those engines need. RTX reported Pratt's profit excluding one-offs up 29% and credited "higher commercial aftermarket volume".
The refund did most of it. About $160 million of the $968 million came from IEEPA recovery. By our math profit without it rose 8%, and the margin slipped to 8.8% of sales from 8.9%. Pratt named "large commercial OE mix, commercial aftermarket mix, and higher SG&A expense" as the offsets, and a $363 million customer-bankruptcy charge pushed its reported profit down 19%.
- Commercial aftermarket sales: up 21%
- Commercial original-equipment sales: down 5%, while large engine shipments rose 1% to 269
- Selling and administrative costs across RTX: 7.7% of sales, up 1.3 points
This matters because the thesis for Pratt is that GTF repair work, now flowing faster as shops cut turnaround times, should lift margins. PW1100 repair output rose over 35% from a year ago, the slides say, yet the margin without the refund fell. Either the repair work earns less than the thesis assumes or ramp costs absorb it, and RTX does not disclose GTF aftermarket margins. The GTF Advantage engine "entered service in October" and adds nothing to this year's figures.
What to watch: Pratt's fourth-quarter margin, with the full-year plan implying about $806 million of profit by our math, only 4% above a year ago. Another quarter at or below last year's margin would mean the repair ramp adds sales but not yet profit.
Most New Backlog Has No Final Contract Terms
For a year the open question has been when the US government's munitions framework agreements with Raytheon, which sat outside the backlog, would turn into contracts. This quarter about $37 billion of Tomahawk and AMRAAM orders entered the backlog, but the release calls them "multi-year undefinitized production contracts".
An undefinitized contract lets work and funding start before the two sides fix the final price and terms. So the backlog counts the volume, and the slides describe it as "firm long-term production demand", but Raytheon and its customer have not yet set the margin. Those two awards are about 45% of the quarter's new orders. By our math they also account for most of the $51 billion rise in company backlog.
This matters because Raytheon's margin reached 14.1% on "favorable mix, including Patriot programs", and about $85 million of that profit came from a contract change and an offset adjustment RTX flagged as one-time. By our math the margin without them was 13.1%. Whether the new missile volume prices at that level decides how much of the backlog growth reaches profit.
What to watch: the definitization of the Tomahawk and AMRAAM contracts and any disclosed margin assumption, most likely in the next quarterly filing. Terms close to Raytheon's current margin would mean the order book carries its profitability with it.
Operating Cash Flow Fell Well Below Last Year
RTX generated far less cash from operations than a year ago, when catch-up deliveries after a strike at Pratt and customer advances pulled cash forward. Working capital, the money tied up in inventory and unpaid bills, swung from a source of cash to a use of it.
- Operating cash flow: $2.9 billion, down 38% from a year ago
- Free cash flow: $2.1 billion, including about $0.3 billion of tariff refund cash
- Working capital: used $1.2 billion, against a $1.2 billion contribution a year ago
- Customer advances (contract liabilities): fell $980 million, after a $986 million rise a year ago
- Inventory: up $544 million in the quarter, to $15.0 billion
This matters because the ramp RTX has sold needs cash before it pays: parts for missiles and engines go into inventory first, and customers are now consuming the advances they paid earlier. RTX still raised its full-year cash plan, so by our math the fourth quarter must deliver less cash than the same quarter last year while carrying the heaviest capital spending of the year.
What to watch: fourth-quarter operating cash flow and the inventory line in the year-end balance sheet. Inventory still rising faster than sales would mean the munitions and engine ramp is absorbing cash ahead of revenue.
Risks This Quarter Did Not Answer
Five standing concerns got no new numbers in the release or the slides, so each stays where it was until the quarterly filing or the call transcript gives a reading.
- Supplier throughput for rocket motors, castings and microelectronics: the slides say RTX is "Ramping critical munitions output at Raytheon", with no unit figures.
- Powder metal compensation at Pratt: the accrual and this year's cash cost appear only in the quarterly filing, not supplied here.
- Share repurchases: none again this quarter, while dividends cost $984 million and cash reached $9.2 billion; the policy question stays open.
- Cost Accounting Standards claims and the compliance monitor: filing-only matters with no update in these materials.
- Collins widebody mix dilution: the margin rose this quarter, but the full-year plan implies a lower fourth-quarter profit than this quarter's, so the test continues.
👓 Other Themes
Tariff Refunds Added $0.4 Billion to Profit
RTX paid tariffs last year under the International Emergency Economic Powers Act and sought refunds; this quarter it booked about $0.4 billion of IEEPA recovery in segment profit and collected about $0.3 billion in cash. The recovery lifted profit per share by $0.25, and RTX counts it inside the headline figures rather than excluding it as a one-off.
💲 Other KPIs
Capital spending rose to $749 million, or 3.0% of sales. A year ago it took 2.7%. The full-year plan of about $3.1 billion leaves about $1.14 billion for the fourth quarter by our math, the heaviest of the year. RTX is adding munitions, sensor and engine-repair capacity, so the ratio keeps climbing.
Net debt, borrowings less cash, fell to $28.2 billion from $30.5 billion at year-end. Cash built up to $9.2 billion while RTX repaid almost no debt in the quarter. A year ago net debt stood at $33.1 billion, and $5.7 billion of borrowings now come due within a year.
Diluted shares rose to 1,368 million, up 0.7% from a year ago. RTX has bought back no stock since a $50 million purchase in early 2025, while stock pay and 401(k) matches add shares each quarter. The growth has slowed from about 1% a year ago, but every quarter still adds dilution.
🔮 Guidance
Raised. The plan now has sales up about 10% for the year, to $97.3 billion at the middle. By our math that leaves about $25.5 billion for the fourth quarter, or 5% growth. This quarter grew 11%, and the year-ago fourth quarter grew 12%, so the comparison is hard. Third raise this year; the latest lift of $1.75 billion is smaller than July's $2.5 billion.
Raised. Sales from businesses owned a year ago should grow 10–11%, after 13% in the first nine months. By our math the fourth quarter needs only about 5%, less than half the nine-month pace. The year-ago fourth quarter grew 14% on this measure, the hardest comparison of the year, so the slowdown is mostly arithmetic.
Raised. Profit per share excluding one-offs should reach $7.70 at the middle, up 22% on last year. By our math the fourth quarter needs $1.77, up 14% from a year ago. That is below this quarter's figure even after removing the refund. Third raise this year and the largest: the $0.53 lift compares with $0.38 in July.
Raised. Free cash flow should reach $9.1 billion at the middle, up 15% on 2025. Nine months in, RTX has produced $6.3 billion, so by our math the fourth quarter needs about $2.8 billion. That is 13% below the same quarter last year, which carried catch-up deliveries and customer advances. The middle of the range moved up $475 million, the largest of three moves this year.
Raised. Collins should add $925–975 million of profit this year, up from $550–625 million in July's plan, the largest segment raise. By our math that implies about $1.39 billion in the fourth quarter, 13% above a year ago. It is below this quarter's $1.79 billion, which carried the refund. Sales should grow high-single digits as reported and low double digits from businesses owned a year ago.
Raised. Pratt should add $475–525 million of profit this year, against $275–350 million in July's plan. About $160 million of the lift is the refund already booked. By our math the fourth quarter needs about $806 million, only 4% above a year ago. Sales growth stays at high-single digits, unchanged, so the segment's plan asks for little more than it already delivered.
Raised. Raytheon should add $800–850 million of profit, up from $575–650 million, and sales should grow low teens rather than high-single to low double digits. By our math the fourth quarter needs about $1.03 billion of profit, 17% above a year ago, after 32% growth this quarter. The segment's sales outlook has moved up at every report this year.
Unchanged. Capital spending stays at about $3.1 billion for the year. Nine months in, RTX has spent $1.96 billion, so by our math the fourth quarter carries about $1.14 billion, the heaviest of the year. Among the smaller lines, interest expense moved down to about $1.6 billion and corporate costs to about $175 million; the tax rate and pension income are unchanged.
❓ Key Questions
When will the Tomahawk and AMRAAM contracts get final terms?
About $37 billion of this quarter's orders are undefinitized, so their price and margin are open. The timing of definitization decides when the backlog's profitability becomes knowable, and whether it matches Raytheon's current margin.
What margin does Pratt earn on GTF repair work?
Aftermarket sales rose 21% and PW1100 repair output over 35%, yet Pratt's margin without the refund slipped. A standalone GTF aftermarket margin would show whether the ramp is adding profit or only volume.
How much of the tariff refund claim remains outstanding?
RTX booked about $0.4 billion of recovery against roughly $0.5 billion claimed. Whether the rest arrives, and whether the government's appeal can reverse any of it, sets next year's starting point.
Why did customer advances fall nearly $1 billion?
Contract liabilities dropped $980 million in the quarter after rising a year ago, the largest swing in working capital. If advances on the new missile contracts arrive later, fourth-quarter cash depends on their timing.
Will share buybacks resume now cash exceeds $9 billion?
RTX repurchased no stock again this quarter while cash rose to $9.2 billion and net debt fell. The company has not said what would restart them or how the defense-contractor executive order weighs on the decision.