RTX's Tariff Troubles and the Cloud Over Its Sales Guidance

Shares of Raytheon Technologies (RTX) slid following its Q1 2025 update, as investors digested cautious sales guidance and concerns over escalating tariffs. The company’s $83.0–$84.0 billion adjusted sales target for 2025—excluding the impact of new tariffs—has raised questions about how supply chain disruptions and geopolitical tensions could crimp margins. While RTX’s Q1 performance was robust, with 8% organic sales growth driven by soaring commercial aftermarket demand, the exclusion of tariff impacts from its outlook has left investors wary of hidden headwinds.

The Sales Guidance: Caution Amid Strength

RTX’s Q1 2025 results highlighted resilience in its commercial segments. Collins Aerospace delivered an 8% organic sales rise, fueled by a 13% jump in commercial aftermarket demand as air travel rebounded. Pratt & Whitney’s 14% sales growth, driven by a 28% surge in commercial aftermarket activity, underscored the enduring demand for engine maintenance and parts. However, Raytheon’s defense division struggled, with sales down 5% year-over-year due to the divestiture of its cybersecurity business in 2024. Excluding that move, organic sales grew just 2%, reflecting softer demand for air and space defense systems.

The company’s full-year guidance, however, remains conservative. Management emphasized that its $83.0–$84.0 billion sales target does not account for the “recently enacted U.S. and non-U.S. tariffs,” which could reduce profitability or disrupt supply chains. This omission has left investors guessing about the magnitude of tariff-related risks, particularly as RTX relies on global suppliers for critical components.

Tariff Threats: More Than a Headline Risk

RTX’s caution on tariffs is no small matter. The company operates in a highly globalized industry, with supply chains spanning countries that have imposed or faced retaliatory tariffs. For instance, U.S. tariffs on Chinese imports have already strained aerospace manufacturers, while European Union tariffs on U.S. goods could further complicate cross-border transactions.

In its Q1 filing, RTX flagged tariffs as a material risk, citing potential impacts on “supply chain disruptions, cost increases, and delays in material deliveries.” Management also noted that exemptions or operational adjustments might not fully offset these costs. The company’s $217 billion backlog—a record high—provides a buffer, but tariffs could erode margins on future contracts.

Defense Sector Stumbles and Commercial Gains

While commercial aerospace continues to recover, RTX’s defense business faces mixed winds. Raytheon’s 5% sales decline (excluding divestitures) reflects softness in air and space defense programs, though land defense systems like the Patriot missile system saw growth. Meanwhile, the commercial aftermarket’s 21% sales surge in Q1—a key driver of RTX’s results—may cool as air traffic growth normalizes.

CEO Chris Calio called the 8% organic sales growth “broad-based,” but investors are focusing on the “dynamic business environment” he described. With geopolitical risks—from U.S.-China tensions to European defense spending uncertainty—hanging over the sector, RTX’s ability to execute on its backlog while navigating tariffs will be critical.

What’s Next for Investors?

RTX’s shares have underperformed the S&P 500 in recent months, partly due to tariff fears and macroeconomic uncertainty. Yet the company’s Q1 results and $217 billion backlog suggest underlying strength. If management can mitigate tariff impacts—through cost-saving measures, supply chain diversification, or price hikes—the stock could rebound.

However, the lack of clarity on tariff effects in its guidance is a red flag. Investors will scrutinize the Q1 earnings call for specifics, such as whether RTX plans to pass tariff costs to customers or absorb them. A failure to address these concerns could prolong the stock’s slump.

Conclusion: A Wait-and-See Moment

RTX’s shares are caught between strong commercial momentum and the shadow of tariffs. With a backlog that supports its sales guidance and a 10% adjusted EPS growth in Q1, the company’s fundamentals remain intact. But the exclusion of tariff impacts from its outlook highlights lingering uncertainties.

The key question is whether tariffs will disrupt RTX’s ability to achieve its financial targets or simply add a modest drag. If management can demonstrate resilience—say, by securing exemptions or renegotiating supplier terms—the $84.0 billion sales target could still be met. Until then, investors are likely to remain cautious.

For now, RTX’s story is one of cautious optimism. The commercial recovery is real, but the geopolitical clouds over its defense business and global supply chains could linger. A clear plan for tariff mitigation, to be detailed in the coming weeks, will determine whether this dip is a buying opportunity or an early warning of tougher times ahead.