RTX — Q3 2026 Financial Report Analysis

Overview

RTX, the company behind Collins Aerospace (aircraft systems), Pratt & Whitney (jet engines) and Raytheon (missiles and air defense), grew third-quarter 2026 sales 11% to $24.97 billion and GAAP diluted EPS 34% to $1.89. All three businesses grew sales by double digits. Two one-off items of similar size pulled in opposite directions: a roughly $0.4 billion refund of import tariffs that the U.S. Supreme Court struck down, and a roughly $0.4 billion charge at Pratt & Whitney after an airline customer went bankrupt. The bigger news is the order book. Defense bookings were about $59 billion in the quarter, against $23 billion a year earlier. Most of that came from multi-year Tomahawk and AMRAAM missile contracts, and total backlog (orders signed but not yet delivered) jumped to a record $340 billion from $268 billion at the start of the year.

Results summary

"Organic" growth strips out businesses bought or sold and currency moves. RTX sold Collins' actuation and flight-control business and its Simmonds Precision Products business in 2025, which took about $124 million off this quarter's sales.

Segment performance

Segment operating profit excludes acquisition-accounting amortization and a pension accounting adjustment, which is why the segments add up to more than the GAAP total.

Collins Aerospace. Organic sales rose 12%. Per the earnings release, commercial original-equipment sales (parts fitted to new aircraft) rose 23%, aftermarket (spare parts, repairs and upgrades for planes already flying) rose 9%, and defense rose 7%. The 10-Q attributes the OE increase to "higher volume on narrowbody and widebody programs." Operating profit rose 42%, and margin jumped 4.8 points to 21.3%. About $250 million of that profit was the tariff refund, according to the release. Without it, the adjusted margin was roughly 18.3% against 15.7% a year ago, so the improvement is real but smaller than it looks. Defense profit was "relatively flat," the filing says, because higher volume "was mostly offset by mix."

Pratt & Whitney. Sales rose 10%. Commercial aftermarket grew 21%, "primarily GTF" (the Geared Turbofan engine on the Airbus A320neo, which is going through an inspection program, see below). Commercial OE fell 5% because of "large commercial engine mix." Reported profit fell 19% to $608 million because of a $363 million charge tied to a customer bankruptcy. RTX describes the charge as relating "primarily … to contract asset exposures with specific customers," meaning work already done and booked as revenue that it now does not expect to be paid for. RTX does not name the customer. Excluding that charge, adjusted profit was $968 million and the margin 10.5%. Of that, about $160 million was tariff refund. Strip it out too and the underlying margin is about 8.8%, roughly where it was a year ago (8.9%). Aftermarket growth is real, but large-engine mix and higher SG&A (overhead) costs are absorbing it.

Raytheon. Sales rose 14%, driven by Standard Missile and Tomahawk (naval programs, +$0.5 billion organically), Patriot (+$0.3 billion) and AMRAAM (+$0.1 billion). Margin rose 1.9 points to 14.1%. The filing credits better net EAC adjustments (revisions to estimated profit on long-running contracts) of about $0.1 billion, higher volume of about $0.1 billion and better mix of about $0.1 billion. The release adds that about $85 million came from an international contract modification and a favorable adjustment to an offset obligation. Those are one-time items. Without them the margin would be about 13.1%, still up a full point.

The order book: what the $59 billion actually is

The defense booking surge is concentrated in a few contracts. Raytheon booked $23 billion for Tomahawk cruise missiles for the U.S. Navy, $14.3 billion for AMRAAM air-to-air missiles for the U.S. Air Force, $3.1 billion for UK Army training systems, $1.8 billion for SPY-6 radars and $3.0 billion of classified work. Raytheon's backlog alone is now $130 billion, up from $75 billion at the end of 2025.

Many of these awards are undefinitized contract actions (UCAs): the Pentagon lets work start before the final price and terms are agreed. The 10-Q lists four UCAs from the third quarter and early fourth quarter, with total values of up to about $23 billion (Tomahawk, seven years), $20.7 billion (AMRAAM), $24.4 billion (SM-6) and $6.3 billion (SM-3 IB). It also states that "funding for each UCA is subject to Congressional appropriations made on a fiscal year basis." So the backlog is real, but the final prices are not yet fixed, and the money has to be voted year by year. RTX says it has "certain contractual recovery remedies" if funding falls short. Commercial backlog also rose, to $176 billion from $161 billion in December.

What the headline numbers hide

• The adjusted figure keeps one one-off and removes the other. RTX's adjusted EPS of $2.26 excludes the $0.20-per-share bankruptcy charge and the $0.09 of investment gains, but keeps the $0.25 tariff refund (the release calls it "IEEPA cost recovery"). Both are unusual, but only the bad one is removed. That is defensible: the refund repays tariff costs that went through operating results earlier. Still, it means $2.26 overstates the repeatable run-rate. A like-for-like figure is about $2.01, up roughly 18% from $1.70.
• GAAP vs adjusted, in full. The $0.37 gap between GAAP $1.89 and adjusted $2.26 is $0.26 of acquisition-accounting amortization (a non-cash write-down of intangible assets from past acquisitions) plus $0.11 of net one-offs: the bankruptcy charge, minus the investment gains, plus small restructuring and pension items.
• Cash conversion is fine over nine months, weak this quarter. Nine-month operating cash flow of $8.27 billion was 1.16 times net income of $7.11 billion. Q3 operating cash flow of $2.87 billion includes about $0.3 billion of tariff-refund cash. The year-on-year drop comes mostly from contract liabilities (customer prepayments), which were a $0.69 billion cash outflow over nine months against a $1.33 billion inflow a year earlier. The 10-Q puts that down to "lower advances at Raytheon and lower billings relative to revenue recognition, primarily at Pratt & Whitney." Factoring (selling receivables to banks for early cash) added $0.3 billion more than last year, which flatters operating cash flow a little.
• Inventory is building. Inventory rose 11.9% to $14.95 billion since December and contract assets (work done but not yet billable) rose 9.4% to $18.70 billion. Nine-month sales grew 11.5%, so this is roughly in step with growth and consistent with gearing up for higher missile production, not a sign that sales are stalling. It does tie up cash.
• EPS growth came from operations, not buybacks. RTX repurchased no stock in 2026, and diluted share count rose about 0.7% to 1,368 million. Lower interest expense ($381 million vs $449 million net, after debt repayments) added roughly 4 cents. The tax rate was steady at 18.0% vs 17.7%.
• Other income rose to $161 million from $63 million, almost entirely $159 million of gains on investments, which RTX itself excludes from adjusted results.

Did last time's read hold up?

Our Q2 2026 report said demand was not the question and that the open questions were conversion and cost: Pratt & Whitney's margin (8.3% then), Collins' defense profit being hurt by mix, and tariffs as a cost headwind. Demand turned out even stronger than that report allowed: backlog grew another $51 billion. On cost, the picture is mixed. Collins' defense profit was again flat on mix. Tariffs flipped from a headwind to a roughly $0.4 billion one-time benefit after the court ruling. Pratt's underlying margin, excluding both one-offs, was about 8.8%, slightly better than Q2 but not a step change. The Q2 report also noted that the free-cash-flow guidance had only moved up at the bottom end. This time the whole range was raised.

Takeaway: Strip out the tariff refund and the bankruptcy charge and RTX still grew adjusted EPS about 18% on 12% organic sales growth, which is a strong quarter. But the number that changed most is the order book. Backlog rose $51 billion in three months, and Raytheon booked about $6.50 for every dollar it delivered. RTX now has years of missile work sold. The constraint on earnings is how fast it can build and get paid, at prices that are partly still being negotiated.

Outlook

RTX raised full-year 2026 guidance for the second quarter in a row:

The EPS raise is about $0.53 at the midpoint, and roughly half of it ($0.25) is the third-quarter tariff refund already banked. Nine-month adjusted EPS is $5.93, so the range implies $1.72–1.82 in Q4, below Q3's $2.26 and below Q3's ex-refund $2.01. That looks conservative, or it allows for Q4 costs RTX has not spelled out. Nine-month free cash flow is about $6.31 billion ($8.27 billion operating cash flow minus $1.96 billion capital spending), so the range implies $2.7–2.9 billion in Q4. That is achievable if Raytheon's new contracts bring the customer advances that were missing this year.

Two known items still weigh on cash. RTX expects about $0.7 billion of 2026 cash cost from the GTF powder-metal problem (a contaminant in metal used for certain engine parts, which has forced extra inspections and kept A320neo jets grounded). The accrual for customer compensation is down to $0.2 billion from $0.7 billion in December, and grounded aircraft are expected to stay "elevated through 2026." Separately, RTX says airline customers face higher jet fuel prices because of conflict in the Middle East, which could weaken low-cost carriers. The bankruptcy charge this quarter is a reminder that this is a credit risk on Pratt's receivables as well as a demand risk.

Our view: the defense side has unusual visibility for an industrial company. The main uncertainties are execution (supply chain, rare earths and microelectronics are named constraints) and final pricing on the UCAs. Commercial aftermarket growth should keep supporting Collins and Pratt. The quarter to watch is Q4: whether free cash flow lands near $2.8 billion, and whether Pratt's underlying margin moves meaningfully above 9%.

Source: RTX Form 10-Q for the quarter ended September 30, 2026 (filed October 20, 2026), and the Q3 2026 earnings release (Form 8-K Exhibit 99, October 20, 2026) for adjusted EPS, free cash flow, segment adjusted figures and guidance.