Shares in Raytheon Tucson Parent RTX Fall After Engine Defect Disclosed
Jul. 25—Shares in the parent of major Tucson employer Raytheon fell about 10% Tuesday after the company revealed a defect in an airliner jet engine made by its Pratt & Whitney division with its second-quarter earnings report.
Aerospace and defense giant RTX Corp. reported second-quarter earnings of $1.33 billion, or 90 cents per share, on revenue of $18.32 billion, without adjustment for acquisition accounting and non-recurring charges.
On an adjusted basis, RTX beat Wall Street estimates with earnings of $1.29 per share, up 11 cents from second-quarter 2022 and topping the average analyst estimate for $1.17 per share, according to Zacks Investment Research.
But the company also announced a problem with metals used by Pratt & Whitney in manufacturing its PW1100G-JM jet engine, which powers the Airbus A320neo, that will require accelerated removals and inspections over the next year.
RTX didn't estimate the expected cost to correct the engine defect, which will include about 200 accelerated removals by mid-September of this year, but the news sent the company's shares down.
RTX shares closed Tuesday at $87.10 per share, down $9.92 or 10.2%, in trading on the New York Stock Exchange.
RTX Chairman and CEO Greg Hayes said accelerating demand in global commercial aerospace and strong defense spending fueled 12% sales growth and increased operating profit year-over-year, with revenue growth across all RTX business units.
Hayes said the company was raising its full-year sales outlook and tightening its range for earnings per share, while lowering its outlook for free cash flow to reflect the impact of the Pratt & Whitney engine issue.
"The continued safe operation of our fleet will always remain our number one priority," Hayes said in the earnings release.
On a conference call Tuesday, RTX President and Chief Operating Officer Christopher Calio said about 1,200 engines overall will need to be removed and inspected for a rare flaw in powdered metal used in some parts, noting that the cost has not yet been determined.
Sales at Raytheon's Tucson-based Missiles & Defense unit, the Tucson region's biggest employer with about 13,000 local workers, totaled $4 billion in the second quarter, up 12%, while its operating profit rose 23% on an adjusted basis to $348 million.
Major contracts during the second quarter included $1.2 billion for AMRAAM air-combat missile production, $294 million in classified bookings, $265 million for Javelin anti-tank missiles, $251 million for AIM-9X Sidewinder production and $237 million for a counter-drone system for the Army.
Raytheon Intelligence & Space had second-quarter sales of $3.66 billion, up 2% percent versus the prior year on increased demand for its sensing and cyber services, but operating income fell 8% on an unfavorable program mix and higher costs.
Pratt & Whitney posted a 15% increase in sales, to $5.7 billion, but its operating profit dipped 24% due to a customer insolvency that cost $181 million.
Meanwhile, RTX's Collins Aerospace business posted second-quarter sales of $5.85 billion, up 17%, while operating profit rose 36% on an adjusted basis to $837 million.
RTX announced in June it would stop using the name Raytheon Technologies and restructure its business to include just three operating entities — Raytheon, Collins Aerospace and Pratt & Whitney.
Contact senior reporter David Wichner at [email protected] or 520-573-4181. On Twitter: @dwichner. On Facebook: Facebook.com/DailyStarBiz
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