RTX Q1 Earnings: Navigating Tariff Crosscurrents Amid Operational Strength

Raytheon Technologies (RTX) delivered a robust Q1 2025 performance, with strong organic growth and margin expansion across its aerospace and defense segments. However, the earnings call underscored a critical tension: while operational execution remains on track, tariff risks loom as a major wildcard for the year ahead. Investors must weigh RTX’s proven resilience against the uncertainty of escalating global trade tensions.

Operational Excellence Anchors Near-Term Momentum

RTX’s Q1 results reflect disciplined execution across its three core segments: Collins Aerospace, Pratt & Whitney, and Raytheon.

Collins Aerospace led the way with an 8% sales rise to $7.2 billion, driven by a 21% surge in commercial aftermarket sales as air travel rebounded. Defense sales also grew 10%, fueled by programs like the F-35 and Survivable Airborne Operations Center. Adjusted margins expanded 130 basis points to 17.0%, highlighting cost efficiencies.

Pratt & Whitney posted a 14% sales jump to $7.4 billion, with its commercial aftermarket division surging 28% due to higher aircraft utilization. Military sales rose 4% on strength in the Tanker program and F135 Engine Core Upgrade. Margins expanded 130 basis points to 8.0%, aided by lower R&D costs.

Raytheon faced a 5% sales decline due to prior-year divestitures but still saw organic growth of 2%. Defense programs like the Patriot missile system and Long-Range Advanced Surface-to-Air Missile System (LTAMDS) proved resilient. Adjusted margins rose 120 basis points to 10.7%, reflecting productivity gains.

Overall, RTX’s $217 billion backlog—split evenly between commercial ($125 billion) and defense ($92 billion)—remains a key buffer against near-term volatility. CEO Chris Calio emphasized this strength, calling it a “solid foundation for execution.”

Tariff Risks: The Cloud on the Horizon

While RTX’s operational performance is strong, its 2025 outlook excludes the impact of recently enacted tariffs—both U.S. and non-U.S.—which could add up to $850 million in direct costs if sustained. Management warned that tariffs on materials, components, or finished goods could disrupt supply chains, raise costs, and pressure margins.

The risks are twofold:
1. Supply Chain Disruptions: Tariffs on critical materials (e.g., titanium, advanced electronics) could force RTX to seek costlier alternatives or delay production.
2. Margin Erosion: Without pricing flexibility or exemptions, tariffs could reduce the adjusted EPS growth of 10% (to $1.47) reported in Q1.

Mitigation Strategies and the Path Forward

RTX is not passive in the face of these risks. Key mitigation efforts include:
- Diversifying Supply Chains: Reducing reliance on tariff-affected regions (e.g., China) by expanding global sourcing.
- Pricing Adjustments: Passing costs to customers where possible, though this requires balancing competitiveness.
- Operational Efficiency: Leveraging $2.5 billion in segment operating profit growth to offset incremental costs.

The company also highlighted opportunities in defense spending, particularly in Europe, where Rearm initiatives could boost demand for systems like Patriot. RTX’s $750 million Dutch air defense contract underscores its position in this space.

Conclusion: A Balancing Act for Investors

RTX’s Q1 results paint a compelling picture of a company executing well against its backlog and driving margin growth. With organic sales up 8% and free cash flow improving to $792 million, the fundamentals remain solid. However, the exclusion of tariff impacts from its outlook means investors must factor in downside risks.

Key Data Points to Consider:
- Backlog Stability: $217 billion provides a multi-year revenue runway, even under moderate demand shocks.
- Margin Resilience: 120 basis points of margin expansion across segments suggest cost discipline.
- Tariff Exposure: A potential $850 million hit could trim adjusted EPS by ~5-7%, depending on mitigations.

For now, RTX’s stock appears fairly valued, trading at ~15x forward earnings. Investors should monitor the April 22 earnings call transcript for specifics on tariff impacts and mitigation progress. In a world of geopolitical and trade uncertainty, RTX’s diversified portfolio and execution prowess make it a compelling long-term play—if tariffs don’t tip the scales.

In short: RTX is navigating choppy waters with skill, but the storm clouds of tariffs demand close watch.