Raytheon Technologies [RTX] on Tuesday reported lower third quarter earnings due to continued weakness in commercial aerospace although the results, adjusted for various charges, topped analysts’ expectations.
Net income in the quarter of $264 million, 17 cents earnings per share (EPS), was down 76 percent from $1.1 billion ($1.33 EPS) a year ago. Excluding discontinued operations, namely Otis and Carrier segments of the former United Technologies Corp., and charges related to the COVID-19 impacts on the economy, accounting adjustments and restructuring costs, adjusted net income of $872 million (58 cents EPS), beat consensus estimates by 8 cents a share.
Sales in the quarter were $14.7 billion and include about $7.5 billion from the former Raytheon Co. The company’s Raytheon Missiles and Defense segment posted $3.8 billion in sales, down 2 percent on a pro forma basis from a year ago, and Raytheon Intelligence and Space $3.7 billion in sales, also down 2 percent from a year ago.
At the operating level, sales fell 34 percent at both the Collins Aerospace and Pratt & Whitney segments on lower product and aftermarket revenue, partially offset by higher military business. Military sales at Collins were up 8 percent organically excluding divestitures and at Pratt 11 percent organically.
Pratt & Whitney swung to an operating loss in the quarter on lower commercial sales and an unfavorable mix of business. At Collins, operating profit was significantly lower, down 94 percent on an adjusted basis, on the lower commercial volume.
Greg Hayes, CEO of Raytheon Technologies, said on the company’s earnings call that commercial air traffic still isn’t expected to return to 2019 levels until at least 2023, which is dependent on wide distribution of a vaccine for COVID-19.
Hayes said the declines in the commercial aerospace business are forcing the company to reduce headcount in the Collins and Pratt segments by 20 percent, about 15,000 positions. The company is also eliminating 4,000 engineering contractors and another 1,000 corporate positions related to the merger of United Technologies and Raytheon earlier this year for a total of 20,000 positions, he said.
Some of the job cuts will be offset by hires in the defense businesses, mainly in engineering, Hayes said.
Hayes also said that the company now plans to increase its planned footprint reductions to between 20 to 25 percent from prior plans of 10 percent. The increase in planned office space reduction will accommodate the “office of the future” where some employees spend more time working from home as they are now during the pandemic, he said.
“That’s going to be a huge savings,” Hayes said of the future hybrid model of telework and traditional office work.
The recent divestitures of the Collins military GPS business and the space ISR business generated net proceeds of about $2 billion, Hayes said. The pending sale of the Forcepoint cyber security business, which will close in three to four months, will add another $1.5 billion in proceeds, further improving the company’s cash and liquidity positions, he said.
Hayes told analysts during the earnings call that the company won’t be doing any “big” mergers and acquisitions but will be “opportunistic” for “relatively low dollar” deals aimed at acquiring technology. He also said the company expects to begin repurchases of its stock in 2021.
Free cash flow in the quarter was a strong $1.2 billion and is still expected to be about $2 billion for 2020.
Total backlog at the end of the quarter stood at $152.3 billion, consisting of $82.1 billion in commercial business and $70.2 billion in defense work.