RTX raised its 2026 forecasts on Tuesday after third-quarter sales rose 11 per cent to $25.0 billion and adjusted earnings rose 33 per cent to $2.26 a share, the company said in its results release. RTX is the aerospace and defense group that owns Pratt & Whitney, Collins Aerospace and Raytheon. Its adjusted EPS outlook for the year is now $7.65 to $7.75, up from $7.10 to $7.25. The number is strong. The composition is more interesting.
Of the $2.26, RTX said $0.25 came from an "IEEPA cost recovery." IEEPA is the International Emergency Economic Powers Act. The release defines the acronym and gives the amounts, and says nothing else about it. By this publication's arithmetic, strip that out and adjusted EPS was $2.01, up about 18 per cent on last year's $1.70. That is still a good quarter. It is a different one from the headline.
What did RTX report?
Sales of $25.0 billion, up 11 per cent, or 12 per cent organically. GAAP diluted EPS was $1.89, against $1.41 a year earlier. The company reported a backlog of $340 billion: $176 billion commercial and $164 billion defense. Chairman and CEO Chris Calio said in the release: "Our strong execution and operational focus in the third quarter enabled RTX to deliver double-digit organic sales growth."
All three businesses grew by double digits, according to the release's segment tables.
| Segment | Q3 sales | Change | Adjusted operating margin | |---|---|---|---| | Collins Aerospace | $8.38 billion | up 10 per cent | 21.3 per cent | | Pratt & Whitney | $9.23 billion | up 10 per cent | 10.5 per cent | | Raytheon | $8.03 billion | up 14 per cent | 14.1 per cent |
How large was the IEEPA cost recovery?
About $0.4 billion of segment operating profit, RTX said: roughly $250 million at Collins and $160 million at Pratt & Whitney, with nothing listed at Raytheon. It also brought in about $0.3 billion of operating cash flow.
That is all the release says. It does not say what cost was recovered, from whom, or whether more is expected. Collins's adjusted margin rose 5.6 percentage points to 21.3 per cent. By this publication's arithmetic, the $250 million recovery alone is worth about 3 points of Collins's margin. Investors will want the company to say what it was before treating the margin as the new base.
Why did free cash flow fall 47 per cent?
Free cash flow was $2.1 billion, down from $4.0 billion a year earlier, and operating cash flow fell 38 per cent to $2.9 billion. The release offers no management explanation. Its cash-flow statement shows swings in working capital: contract liabilities were an outflow of $980 million against an inflow of $986 million a year ago, and inventory absorbed $543 million against a release of $182 million.
Without the roughly $0.3 billion recovery, free cash flow would have been about $1.8 billion, by this publication's arithmetic. Nine-month free cash flow is still higher, at $6.3 billion against $4.7 billion. The full-year target rose to $9.0-$9.2 billion from $8.50-$8.75 billion, which means the company needs about $2.7 billion to $2.9 billion in the final three months, more than it generated in the third quarter.
What else is in the numbers?
Pratt & Whitney's reported operating profit was $608 million, down 19 per cent and a margin of about 6.6 per cent, after a $363 million charge the release attributes to a customer bankruptcy. It says the charges "primarily relate to contract asset exposures with specific customers," and it does not name the customer. Excluding the charge, the adjusted margin was 10.5 per cent. Pratt's commercial aftermarket sales rose 21 per cent, mainly on higher volume of its geared turbofan (GTF) engines.
The forward-looking statements also cite "the identified rare condition in powder metal used to manufacture certain Pratt & Whitney engine parts," which the release says requires accelerated removals and inspections of a significant portion of the GTF fleet. No new cost or timing is given. Raytheon, the missile business, grew fastest, at 14 per cent, as it works through orders such as the SM-3 interceptor contract we reported on 8 October.
The sales outlook rose to $97.0-$97.5 billion from $95.0-$96.0 billion, and organic growth to 10-11 per cent from 8-9 per cent.
What to watch
Two things will settle how good this is. One is whether RTX discloses what the IEEPA cost recovery was and whether more is coming; if it was a one-off, next year's comparison gets harder. The other is fourth-quarter cash flow, which has to beat the third quarter's to meet the new target. The quarterly filing should carry more detail on both.
All RTX figures, the outlook ranges, the segment results, the backlog, the cash-flow statement items, the IEEPA and bankruptcy-charge details, the powder-metal language and the Chris Calio quotation come from RTX's "RTX Reports Q3 2026 Results" release dated 20 October 2026 and the tables it carries. The $2.01 adjusted EPS excluding the recovery, its 18 per cent growth rate, the roughly $1.8 billion free cash flow excluding the recovery, the implied fourth-quarter free cash flow, the recovery's share of Collins's margin and Pratt & Whitney's reported margin are this publication's arithmetic from the release's figures. The analysis is our own.
Topics businessRTXIEEPAearnings
