Raytheon Technologies Corp. [RTX] on Tuesday posted strong fourth quarter financial results driven by its commercial aerospace work.
Net income in the quarter soared nearly 400 percent to $686 million, 46 cents earnings per share (EPS), from $135 million (9 cents EPS) a year ago. Excluding acquisition accounting adjustments, restructuring costs, and other non-recurring charges, adjusted earnings of $1.08 EPS topped consensus estimates by six cents a share.
For all of 2021, adjusted earnings were $4.27 EPS, which was ahead of the high-end of RTC’s outlook of $4.20.
Sales in the quarter increased 4 percent to $17 billion from $16.4 billion and for the year were up 14 percent to $64.4 billion versus $56.6 billion in 2020. Sales in the quarter and in 2021 were $100 million lower than the company expected due to the divestiture in early December of the Global Training and Service business.
For 2022, RTC projects sales between $68.5 billion and $69.5 billion, representing between 7 and 9 percent organic growth. The forecast includes a $1 billion headwind related to the sale of the Global Training and Services.
RTC expects adjusted earnings between $4.60 and $4.80 EPS in 2022. The earnings outlook is 15 cents below analysts’ expectations on the high-end of the range.
Most of the earnings growth in 2022 will come from results at the operating segments and to a lesser extent lower share count and interest expense. Headwinds include pension expenses, higher taxes, and corporate items.
Supply chain issues, particularly stemming from labor shortages and workforce impacts related to COVID-19, continue to be a challenge, Greg Hayes, RTC’s chairman and CEO, said on the company’s earnings call. The company has over 13,000 product suppliers and less than 100 are a “real concern,” he said, adding that “it only takes one to make us miss a shipment.”
If a continuing resolution for funding government operations is extended for all of 2022, sales would face a $500 million to $600 million headwind, Neil Mitchill, RTC’s chief financial officer, said on the call.
Free cash flow in 2021 was a robust $5 billion and RTC is forecasting $6 billion for 2022. The company still expects to generate $10 billion in free cash flow in 2025.
At the operating level, sales growth in the quarter was driven by commercial aftermarket and original equipment volume at the Pratt & Whitney engine and Collins Aerospace segments as the commercial markets showed continued improvement. Defense sales were down on fewer workdays in the quarter, lower volume on the F135 engine for the F-35 fighter jet, decreased spare sales on legacy aircraft engine programs, and lower international volume.
Operating profit also benefited from robust commercial demand, partially offset by mixed results in the defense segments due lower sales and program efficiencies, partially offset by improved productivity in some areas.
RTC took a $147 million charge in the quarter related to an ongoing investigation by the Department of Justice into cost accounting matters at a legacy Raytheon defense business. Including previous charges related to the accounting matters, the company currently estimates total charges to be $290 million.
Cost synergy savings in 2021 as a result of the April 2020 merger of United Technologies Corp. and Raytheon Co. totaled $760 million, bringing total savings to more than $1 billion so far, which is two years ahead of the original target, Hayes said.
Backlog at the end of 2021 stood at $156 billion, with commercial accounting for $93 billion and defense $63 billion. Backlog at the end of 2020 stood at $150.1 billion.