Aerospace and defense company Raytheon (NYSE:RTX) reported Q1 CY2025 results beating Wall Street’s revenue expectations , with sales up 5.2% year on year to $20.31 billion. On the other hand, the company’s full-year revenue guidance of $83.5 billion at the midpoint came in 0.8% below analysts’ estimates. Its non-GAAP profit of $1.47 per share was 7.5% above analysts’ consensus estimates.
Revenue: $20.31 billion vs analyst estimates of $19.96 billion (5.2% year-on-year growth, 1.7% beat)
Adjusted EPS: $1.47 vs analyst estimates of $1.37 (7.5% beat)
Adjusted EBITDA: $3.2 billion vs analyst estimates of $3.11 billion (15.7% margin, 2.7% beat)
The company reconfirmed its revenue guidance for the full year of $83.5 billion at the midpoint
Management reiterated its full-year Adjusted EPS guidance of $6.08 at the midpoint
Operating Margin: 10%, in line with the same quarter last year
Free Cash Flow was $792 million, up from -$125 million in the same quarter last year
Organic Revenue rose 8% year on year (12.2% in the same quarter last year)
Market Capitalization: $168.4 billion
"We are off to a strong start to 2025 with 8 percent organic sales growth* and 10 percent adjusted EPS growth*, including 120 basis points of segment margin expansion* in Q1," said RTX President and CEO Chris Calio.
Company Overview
Originally focused on refrigeration technology, Raytheon (NSYE:RTX) provides a a variety of products and services to the aerospace and defense industries.
Defense Contractors
Defense contractors typically require technical expertise and government clearance. Companies in this sector can also enjoy long-term contracts with government bodies, leading to more predictable revenues. Combined, these factors create high barriers to entry and can lead to limited competition. Lately, geopolitical tensions–whether it be Russia’s invasion of Ukraine or China’s aggression towards Taiwan–highlight the need for defense spending. On the other hand, demand for these products can ebb and flow with defense budgets and even who is president, as different administrations can have vastly different ideas of how to allocate federal funds.
Sales Growth
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, RTX’s sales grew at an excellent 12.3% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.
RTX Quarterly Revenue
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. RTX’s annualized revenue growth of 9.2% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.
RTX Year-On-Year Revenue Growth
We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, RTX’s organic revenue averaged 11.2% year-on-year growth. Because this number is better than its normal revenue growth, we can see that some mixture of divestitures and foreign exchange rates dampened its headline results.
RTX Organic Revenue Growth
This quarter, RTX reported year-on-year revenue growth of 5.2%, and its $20.31 billion of revenue exceeded Wall Street’s estimates by 1.7%.
Looking ahead, sell-side analysts expect revenue to grow 4.1% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will face some demand challenges.
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Operating Margin
RTX was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.6% was weak for an industrials business.
On the plus side, RTX’s operating margin rose by 11.8 percentage points over the last five years, as its sales growth gave it immense operating leverage.
RTX Trailing 12-Month Operating Margin (GAAP)
In Q1, RTX generated an operating profit margin of 10%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
RTX’s flat EPS over the last five years was below its 12.3% annualized revenue growth. However, its operating margin actually expanded during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.
RTX Trailing 12-Month EPS (Non-GAAP)
Diving into the nuances of RTX’s earnings can give us a better understanding of its performance. A five-year view shows RTX has diluted its shareholders, growing its share count by 56.1%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
RTX Diluted Shares Outstanding
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
For RTX, its two-year annual EPS growth of 9.9% was higher than its five-year trend. Accelerating earnings growth is almost always an encouraging data point.
In Q1, RTX reported EPS at $1.47, up from $1.34 in the same quarter last year. This print beat analysts’ estimates by 7.5%. Over the next 12 months, Wall Street expects RTX’s full-year EPS of $5.87 to grow 6.8%.
Key Takeaways from RTX’s Q1 Results
We enjoyed seeing RTX beat analysts’ organic revenue expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its full-year revenue guidance slightly missed and its full-year EPS guidance fell slightly short of Wall Street’s estimates. Overall, this quarter was mixed. The market seemed to focus on the negatives, and the stock traded down 4% to $121 immediately after reporting.
