Shares of RTX Experience Decline Following Pratt & Whitney Engine Challenges

by Warren Seah

Shares of RTX witnessed a noticeable decline on Tuesday, as the prominent aerospace and defense company adjusted its full-year free cash flow projections due to complications with certain Pratt & Whitney engines.

In their latest earnings report, RTX (ticker: RTX) announced an impressive $1.29 earnings per share generated from sales totaling $18.3 billion. It surpassed Wall Street estimates of $1.18 earnings per share on $17.7 billion in sales.

RTX also revised its sales guidance for the full year, raising it to a midpoint of $73.5 billion compared to the previous midpoint of $72.5 billion. Furthermore, their earnings per share guidance increased to a midpoint of $5 per share, up from the previous $4.98 midpoint. According to FactSet, analysts currently project 2023 earnings per share of $5.02.

As a consequence of these developments, shares of RTX experienced a pre-market decline of 9%, trading at $88.11. Simultaneously, S&P 500 and Dow Jones Industrial Average futures remained stable.

It is crucial to note that the present financial results are not the primary cause for concern. RTX mentioned in its second-quarter earnings report that the company now anticipates a full-year free cash flow of $4.3 billion, down from the previous guidance of $4.8 billion. This adjustment is directly attributed to an unusual issue with the powder metal used in manufacturing certain engine components.

Chief Executive Greg Hayes addressed this matter, stating, “We are adjusting our free cash flow outlook to account for the impact of an unforeseen issue that recently emerged, necessitating Pratt & Whitney to expedite the inspection process by removing specific engines from service.”

RTX’s commitment to addressing these challenges associated with Pratt & Whitney engines reflects its relentless pursuit of excellence in aerospace and defense. While the decrease in free cash flow projections may raise concerns, the company remains committed to maintaining its strong position in the industry.

RTX Faces Setback with Turbo Fan Engine Issues

According to a report by Vertical Research Partners analyst Rob Stallard, RTX’s recent issue with its geared turbo fan (GTF) engine has come as an unexpected surprise. This setback adds to the existing maintenance and repair problems, which is another blow for the company. Despite this, RTX has shown a strong operating performance in the second quarter.

While RTX faces challenges, General Electric (GE) sees a small positive impact. GE’s LEAP engines, manufactured in a joint venture with Safran (SAF.France), compete with Pratt & Whitney for single-aisle jet engine market share.

In early trading, GE stock has risen by 4.1%. However, the increase is not solely attributed to Pratt’s situation. On the same day, GE reported better-than-expected earnings and raised its full-year financial guidance.

The success of both RTX and GE can be attributed to the ongoing recovery in commercial airline travel following the Covid-19 pandemic. These positive results also bode well for Boeing (BA), who is set to report second-quarter results the following day. Analysts are predicting sales of $18.6 billion, an increase from $16.7 billion reported in the second quarter of 2021.

Throughout this year, RTX stock has experienced a decline of 3.9%.

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