RTX — Q2 2026 Financial Report Analysis

Every segment got more profitable at once, and the order book grew faster than sales

RTX sold $24.71 billion of products and services in the three months to June 30, 2026, up 14% from $21.58 billion a year earlier. Two things make the quarter more interesting than that number: the reported figure understates the underlying growth, and the order book grew faster than revenue did.

On the first point, RTX sold two Collins businesses during 2025 — the actuation and flight control business and Simmonds Precision Products — so this year's quarter simply contains less company than last year's. Stripping those disposals and currency moves out, sales grew $3.51 billion, or about 16% "organically" (organic growth = growth from the businesses RTX owned in both periods, excluding the effect of currency translation). Divestitures pulled $391 million out of the reported number.

On the second, total backlog — the dollar value of work RTX has under contract but has not yet delivered and recognized as revenue — reached $289 billion at June 30, 2026 against $236 billion a year earlier, a 22% increase. Defense bookings (new orders signed) were roughly $23 billion in the quarter versus $12 billion a year ago.

Operating margin is the share of each sales dollar left after the cost of building and supporting the products and running the company, before interest and tax. RTX's went from 9.9 cents on the dollar to 11.4.

The segments: one clean beat, one comp-flattered, one running hot

Raytheon is the cleanest of the three. Almost all of its $1.27 billion sales increase was organic ($1.256 billion): $0.5 billion more from land and air defense — mainly Patriot air-defense programs — $0.4 billion from naval power on higher Standard Missile volume, and $0.2 billion from AMRAAM air-to-air missiles. Margin improvement came from volume ($0.1 billion of profit) plus favorable mix and performance ($0.1 billion), the latter driven by increased Patriot production including contract awards that landed inside the quarter. Bookings were the standout: $19.9 billion against $9.4 billion a year ago, including $3.7 billion of Patriot GEM-T interceptors for Ukraine, $1.1 billion of AIM-9X, $1.1 billion of AMRAAM, $988 million of GEM-T for Poland via NATO's procurement agency, $827 million of LTAMDS sensors for the U.S. Army, and $4.1 billion across classified contracts. Against $8.27 billion of segment sales, that is a book-to-bill of roughly 2.4 — for every dollar of work delivered, about $2.40 of new work was signed. Raytheon's own backlog rose to $86 billion from $75 billion at year-end 2025.

Pratt & Whitney looks like the biggest improver — operating profit up 50% and margin up 1.9 points — but the comparison is flattered. Of the $246 million profit increase, $119 million sits in "Other," which RTX attributes primarily to the absence of a roughly $0.1 billion charge for a customer bankruptcy booked in Q2 2025. The organic improvement was $121 million, closer to a 25% increase. The sales growth underneath it is real: commercial aftermarket (servicing and spare parts for engines already flying) was up $0.9 billion on volume, and military sales rose $0.5 billion on higher F135 production — though RTX notes that F135 figure benefits from the timing of a contract award in Q3 2025, so the year-over-year comparison is helped by when paperwork landed, not only by more engines. Commercial OEM sales (engines sold to aircraft manufacturers) actually fell $0.1 billion as higher volume was more than offset by mix within large commercial engines.

Collins grew 8% reported but $981 million organically — the 2025 divestitures cost it $404 million of sales in the quarter. Commercial OEM added $0.5 billion on narrowbody and widebody volume, aftermarket $0.3 billion, defense $0.2 billion. Notably, Collins' defense operating profit declined slightly despite higher defense sales, on unfavorable mix — the one place in the quarter where volume and profit moved in different directions. For the first half, RTX also cites higher tariffs as a partial offset to Collins' commercial profit growth.

Earnings quality: what helped and what didn't

GAAP earnings per share rose 28.7%, faster than either sales (+14.5%) or adjusted EPS (+21%). The pieces:

• Acquisition accounting adjustments — non-cash charges, mostly amortization of intangible assets recognized when Raytheon and United Technologies merged — cost $0.27 per share this quarter versus $0.28 a year ago. Essentially neutral to the comparison, but it is why GAAP EPS of $1.57 and adjusted EPS of $1.89 differ.
• The prior-year customer bankruptcy charge at Pratt (~$0.1 billion) makes the year-ago base lower. This is a genuine comp distortion, not operating improvement.
• Tax went the other way. The effective tax rate was 18.0% versus 15.4%, because Q2 2025 contained a benefit from the conclusion of an IRS examination of RTX's 2020 tax year and a larger stock-compensation benefit. A 2.6-point higher tax rate is a real headwind that EPS overcame anyway.
• Interest expense fell to $428 million from $480 million on debt repayments — total debt is $37.4 billion against $37.9 billion at year-end, and debt is 35% of total capitalization.
• Contract estimate revisions were still net negative, just less so. Long-duration defense contracts are accounted for by estimating total cost and profit at completion (an "EAC"); when the estimate worsens, profit already booked is reversed. Net EAC adjustments were negative $66 million this quarter — but that is an improvement from negative $117 million a year ago, and RTX disclosed no single significant adjustment. Nothing in the quarter resembles the program-specific blow-ups this industry is prone to.

So the 31% operating-profit increase is roughly: real organic segment improvement of about $0.5 billion, plus the absence of last year's Pratt charge.

Powder metal: draining, not worsening

The 2023 discovery of a rare contaminant in powder metal used for certain Pratt & Whitney engine parts forced accelerated inspections of the PW1100G Geared Turbofan fleet and a $2.9 billion pre-tax charge that year, reflecting Pratt's 51% share of the program. The status this quarter is quiet, which is the point: no new charge. The accrual for expected customer compensation fell to $0.4 billion at June 30, 2026 from $0.7 billion at December 31, 2025, as credits were issued to customers. RTX estimates a full-year 2026 cash cost of roughly $0.7 billion from the matter and still expects the number of grounded A320neo aircraft ("aircraft on ground") to stay elevated through 2026. RTX repeats that the estimate depends on shop-visit timing, inspection findings, turnaround times and parts availability, and that changes could still be material. Treat it as a cash drag with a known shape rather than a resolved item.

Cash: strong, with a caveat worth naming

Operating cash flow was $3.5 billion in the quarter and free cash flow (operating cash flow less capital spending) $2.9 billion. For the first half, operating cash flow was $5.40 billion against $1.76 billion — capital expenditures of $1.22 billion leave about $4.19 billion of first-half free cash flow versus roughly $0.72 billion a year earlier.

The caveat: RTX states that factoring activity — selling customer receivables to third parties for cash now rather than waiting to be paid — added $1.5 billion to the first-half operating cash flow increase. That is about 40% of the $3.6 billion improvement, and it pulls cash forward rather than generating it from operations. The rest is higher net income and genuine working-capital improvement (faster collections, higher payables). Cash on hand is $8.3 billion.

Takeaway: The quarter's most durable fact is not the 29% EPS increase — that is partly a low prior-year base and was achieved against a higher tax rate — but that backlog grew 22% while sales grew 14%, with Raytheon booking about $2.40 of new orders for every dollar it delivered. RTX is currently filling the order book faster than it can empty it, which sets the revenue line for years, and converts to profit only as fast as capacity and supply chain allow.

Outlook

Management raised full-year 2026 guidance alongside these results: adjusted sales of $95.0–96.0 billion (from $92.5–93.5 billion), organic sales growth of 8–9% (from 5–6%), adjusted EPS of $7.10–7.25 (from $6.70–6.90), and free cash flow of $8.50–8.75 billion (from $8.25–8.75 billion). CEO Chris Calio attributed the raise to first-half performance and the current backlog. RTX also agreed to sell Raytheon's Blue Canyon Technologies business for $620 million.

Note what the guidance does and does not imply. The free cash flow range moved up only at the bottom end, despite a first half that produced $4.19 billion — and roughly $0.7 billion of powder-metal cash cost still sits in the full year. The EPS raise of about $0.40 at the midpoint against a first half that delivered $1.89 of adjusted EPS in Q2 alone suggests management is not extrapolating the second quarter's margin performance straight through.

Our read: the demand side is not the question here. Defense bookings of $23 billion in a single quarter, driven by Patriot and other air-defense orders from Ukraine, Poland via NATO and the U.S. services, plus the supplementary U.S. defense funding RTX cites, give multi-year revenue visibility that few industrials have. The open questions are conversion and cost. Pratt's 8.3% margin remains far below Collins' 15.9% and Raytheon's 12.6%, and it still carries powder-metal cash costs and a commercial OEM mix that is currently a profit drag. Collins' defense profit fell on mix even as defense sales rose, and tariffs are an acknowledged cost headwind. The risk over the next several quarters is less that orders dry up than that RTX cannot build and service fast enough — every extra dollar of backlog is also a dollar of production, supplier and overhaul capacity that has to exist before it becomes revenue.