RTX Q3 2026 Earnings: Raises Outlook as Aftermarket and Defense Demand Accelerate

RTX reported a stronger third quarter, with sales rising 11% to $25.0B and GAAP EPS increasing 34% to $1.89. Adjusted EPS reached $2.26, up 33%, although the result included $0.25 per share of International Emergency Economic Powers Act (IEEPA) cost recovery.

The central investment development was broad-based operating momentum across commercial aerospace and defense, reinforced by a record $340B backlog and a higher full-year outlook. However, part of the quarter’s margin expansion and earnings increase came from IEEPA recoveries and other favorable items, while Pratt & Whitney continues to manage GTF fleet remediation and a customer-bankruptcy charge.

Earnings Snapshot

As Reported on the Call

The Bigger Story

RTX’s quarter showed the benefit of having exposure to both aerospace aftermarket demand and rising global defense procurement. Commercial original-equipment sales, commercial aftermarket revenue, and defense sales each grew at double-digit organic rates, while the company secured substantial multiyear munitions awards.

The most consequential strategic development was the conversion of four munitions framework agreements into undefinitized production contracts, including approximately $23B for Tomahawk and more than $14B for AMRAAM. Management said the combined contracts have roughly $70B of value and provide demand visibility for Raytheon over nearly a decade.

That visibility does not translate immediately into revenue. RTX expects sales and profit to build over the next several years as it expands capacity, qualifies suppliers, and ramps production. The company expects the agreements to support Raytheon margin expansion over time, but execution will depend heavily on supply-chain capacity, government funding, and the ability to increase production rates by two to four times on certain programs.

Revenue and Operating Performance

RTX sales rose 11% to $25.0B, or 12% organically. By channel, commercial OE sales increased 10%, commercial aftermarket sales rose 16%, and defense revenue increased 10%.

Collins Aerospace generated $8.4B in sales, up 10% reported and 12% organically after excluding divestitures. Commercial OE sales increased 23%, supported by higher narrowbody and widebody aircraft production. Commercial aftermarket revenue rose 9%, led by modifications and upgrades, provisioning, and parts and repair. Defense sales increased 7% on higher volume across several programs.

Pratt & Whitney sales increased 10% to $9.2B. The principal driver was a 21% increase in commercial aftermarket revenue, primarily from higher GTF maintenance volume. Commercial OE revenue declined 5% because of large-engine mix, while military sales rose 2%.

The GTF aftermarket remains the most important commercial operating variable for Pratt. Management said PW1100G MRO output rose more than 35% year over year in the quarter and more than 30% year to date. Aircraft-on-ground levels were relatively stable sequentially, as higher MRO output offset expected summer-season engine removals. Management expects AOGs to decline in the fourth quarter.

Raytheon sales increased 14% to $8.0B, driven by higher volume in naval programs and land and air defense systems, including Patriot, Standard Missile, and Tomahawk. Raytheon’s quarterly bookings totaled $52.3B, producing a 6.5x book-to-bill ratio and lifting its backlog to $130B. The extraordinary bookings level reflects the large munitions contract awards rather than a normal quarterly run rate.

Profitability and Margins

RTX reported GAAP operating profit of $3.3B, up from $2.5B a year earlier. Adjusted operating profit increased 34% to $4.0B, with adjusted segment operating profit up 39% to $3.9B. Adjusted segment margin expanded 310 basis points to 15.2%.

The improvement was broad-based, but IEEPA recovery was a meaningful contributor. RTX said IEEPA recovery added approximately $0.4B to adjusted segment operating profit and $0.25 to adjusted EPS. It accounted for roughly 160 basis points of the company’s segment-margin expansion.

Collins delivered the strongest margin result. Adjusted operating profit rose 50% to $1.8B, and adjusted margin expanded 560 basis points to 21.3%. Higher commercial volume, favorable mix, structural cost actions, and roughly $250M of IEEPA recovery drove the increase. Management said Collins’ third-quarter operating performance was “clean,” but fourth-quarter margin is expected to decline sequentially as IEEPA recovery does not repeat, OE mix shifts, and research, development, and digital spending rise.

Pratt & Whitney’s reported operating profit fell 19% to $608M because it included a $363M charge related to a customer bankruptcy. On an adjusted basis, operating profit increased 29% to $968M and margin rose 160 basis points to 10.5%. Higher GTF aftermarket volume and about $160M of IEEPA recovery outweighed unfavorable large-engine and aftermarket mix as well as higher SG&A expense.

Raytheon’s adjusted operating profit rose 32% to $1.1B, with margin improving to 14.1% from 12.2%. Higher volume, favorable Patriot mix, and improved productivity were the main drivers. Investors should note that Raytheon’s productivity included approximately $85M of benefits from an international contract modification and a favorable offset-obligation adjustment.

Demand, Customers and Pricing

RTX ended the quarter with a record $340B backlog, including $176B in commercial business and $164B in defense. Management said new commercial and defense awards exceeded $81B during the quarter.

Commercial aerospace demand remained resilient despite airline cost pressures and slightly lower global revenue passenger kilometers year over year. Management cited 16% organic commercial aftermarket growth, strong MRO demand, and aircraft retirements that remain in line with expectations. It also pointed to a growing installed base, with Collins’ commercial fleet content base and Pratt’s narrowbody-powered fleet both growing at a mid-single-digit rate.

Pratt received more than 800 GTF engine orders and commitments year to date and now has a backlog of more than 8,000 engines. British Airways selected GTF engines for up to 60 A320neo-family aircraft, adding another operator to the installed base.

Management expects the GTF Advantage engine and the Hot Section Plus upgrade package to support longer-term durability improvement. The first GTF Advantage-powered aircraft entered service with United Airlines during the quarter. RTX expects the Hot Section Plus package, which management said can provide 90% to 95% of the Advantage time-on-wing benefit for the existing fleet, to enter MRO visits early next year, subject to certification completion.

Defense demand is equally central to the outlook. RTX cited continued U.S. demand for munitions depth and integrated air and missile defense, alongside rising international procurement. Raytheon’s international backlog represented 37% of total backlog, or 52% excluding the Tomahawk and AMRAAM awards added during the quarter.

What Is RTX’s Guidance for Full-Year 2026?

RTX raised its full-year 2026 outlook following its third-quarter performance and IEEPA recovery.

Management said the higher sales outlook reflects continued defense strength, higher Collins commercial OE production, and stronger GTF aftermarket volume at Pratt.

By channel, RTX now expects commercial OE growth at the high end of high-single-digit growth, commercial aftermarket growth in the low-double-digit to low-teens range, and defense growth in the low double digits.

At the midpoint, management attributed the adjusted EPS guidance increase primarily to roughly $0.28 of operating performance improvement and approximately $0.25 of IEEPA recovery. The outlook is therefore stronger operationally, but the recovery remains an important contributor to the increase.

Balance Sheet, Cash Flow and Capital

RTX generated $2.9B of operating cash flow and $2.1B of free cash flow in the quarter. Free cash flow was down from $4.0B a year earlier, when cash flow benefited from proceeds related to a business disposition. Third-quarter operating cash flow included about $0.3B of IEEPA recovery.

Capital expenditures were $749M, up from $614M a year earlier, as RTX continues to invest in aerospace MRO capacity, defense production, and supply-chain capabilities. Management said the new munitions contracts use a collaborative funding structure intended to preserve upfront free cash flow, with revenue recognized as costs are incurred on the programs.

Cash and cash equivalents were $9.2B at September 30, up from $7.4B at year-end 2025. Long-term debt, including current maturities, was about $37.2B, compared with about $37.7B at year-end.

Management expects Pratt’s cash generation to improve over the next several years as more GTF shop visits convert into paid overhaul events. It said about 80% of GTF contracts are under long-term agreements and that the majority are structured as pay-at-shop-visit arrangements.

What Investors Should Watch

1. GTF MRO Output and AOG Reduction

Pratt’s GTF aftermarket growth is driving revenue and profit improvement, but the investment case still depends on the company reducing aircraft-on-ground levels while managing the powder-metal inspection and removal program. Higher shop output and shorter turnaround times would support both customer confidence and margin expansion.

2. Raytheon’s Munitions Ramp

The large Tomahawk, AMRAAM, SM-6, and SM-3 IIA agreements materially extend Raytheon’s demand visibility. The near-term test is whether RTX can add suppliers, secure constrained inputs such as rocket motors and electronics, and increase output without sacrificing profitability.

3. Margin Durability Beyond IEEPA Recovery

IEEPA recovery provided a substantial third-quarter benefit to earnings and margins, particularly at Collins and Pratt. Investors should focus on margin progression excluding that recovery, including Collins’ structural cost savings, Raytheon productivity, and Pratt’s aftermarket mix.

4. Commercial Aftermarket Resilience

Management continues to see durable airline and MRO demand, but airline fuel costs and flight-activity changes remain relevant risks. Sustained shop visits, stable retirements, and continued high-content overhaul activity would support the commercial outlook.

5. Cash Conversion During Capacity Investment

RTX raised full-year free-cash-flow guidance, but production growth requires higher capital spending and working-capital investment. The ability to fund capacity expansion while maintaining strong conversion from earnings to cash will be important as the defense backlog moves into production.

AlgovestIQ Takeaway

RTX’s third quarter strengthened the case that its aerospace and defense portfolio is entering a period of broad-based growth. Collins is benefiting from higher aircraft production, aftermarket demand, and internal cost actions. Pratt’s GTF aftermarket is expanding rapidly, while Raytheon has secured unusually large multiyear demand visibility for critical munitions.

The quality of the earnings improvement, however, is somewhat more nuanced than the headline figures suggest. IEEPA recoveries added $0.25 to quarterly adjusted EPS and supported a sizable portion of margin expansion. Raytheon also benefited from approximately $85M of favorable productivity-related items, while Pratt’s reported earnings absorbed a $363M customer-bankruptcy charge.

The central question is whether RTX can convert its record backlog into sustained revenue, margin, and cash-flow growth after temporary recoveries roll off. Collins’ structural cost program, Pratt’s GTF MRO execution and durability upgrades, and Raytheon’s ability to build capacity across a constrained supply chain will determine that outcome.

Evidence of sustained margin expansion excluding IEEPA benefits, falling GTF AOGs, steady commercial aftermarket demand, and rising munitions output would reinforce the operating thesis. Conversely, supply constraints, weaker airline utilization, renewed GTF disruption, or delays in defense production ramps would challenge the pace at which the backlog translates into earnings and cash flow.