RTX (RTX) Q4 2025: $268B Backlog Powers 23% Surge, Multi-Year Defense Ramp Locks In Visibility
RTX’s record $268 billion backlog, up 23%, cements multi-year demand visibility across both commercial and defense segments. The company is executing on capacity expansion, digital manufacturing, and aftermarket scale, while navigating tariff and supply chain headwinds. With robust order flow and margin expansion across all segments, RTX enters 2026 with high operational leverage and strategic clarity on capital allocation and industrial base strengthening.
Summary
- Backlog Expansion Secures Growth: Record backlog and book-to-bill ratios position RTX for sustained revenue and margin expansion.
- Defense and Aftermarket Lead Margin Upside: Productivity gains and defense demand drive higher segment profitability.
- Capacity Investments Underpin Multi-Year Ramp: Accelerated CapEx and supply chain initiatives support long-term output and technology leadership.
Performance Analysis
RTX delivered double-digit organic sales growth, with Q4 adjusted sales up 14% organically and full-year sales reaching $88.6 billion, an 11% organic increase. The company’s performance was broad-based: commercial original equipment (OE), which refers to new aircraft parts and engines sold to manufacturers, rose 10% for the year, with commercial aftermarket up 18% and defense up 8%. Free cash flow surged to $7.9 billion, reflecting strong operational execution and working capital discipline.
Segment analysis shows Pratt & Whitney led with 25% sales growth in Q4, driven by both commercial and military engines, while Collins Aerospace and Raytheon each posted high single-digit organic growth. Margin expansion was evident across all divisions, with Raytheon’s 130 basis point improvement standing out, underpinned by productivity and favorable mix. Tariff headwinds and higher SG&A did temper some operating leverage, but were offset by pricing actions and cost controls. Notably, the robust backlog—$161 billion commercial, $107 billion defense—translates to a book-to-bill ratio of 1.56, providing multi-year revenue visibility and supporting higher forward guidance for 2026.
- Commercial Aftermarket Power: Out-of-warranty content and MRO (maintenance, repair, overhaul) growth drive recurring high-margin revenue streams.
- Defense Programs Accelerate: Major awards and international orders, especially in munitions and missile defense, fuel Raytheon’s record backlog and margin trajectory.
- Cash Flow Surges: Strong collections and disciplined inventory management enabled $3.2 billion Q4 free cash flow, supporting debt paydown and reinvestment.
RTX’s operational tempo is rising, with digital factory initiatives and targeted CapEx enabling both output and cost efficiency, while the backlog mix increasingly favors higher-margin, core competency programs.
Executive Commentary
"We delivered strong sales, adjusted EPS, and free cash flow in the fourth quarter, underscoring our momentum and focus on execution across RTX. Our performance continues to be driven by the durable demand for our products and services and operational improvements enabled by our core operating system."
Chris Caglio, President and Chief Executive Officer
"All in, 2026 is expected to be another strong year of financial performance for RTX, with all three segments delivering growth in organic sales and operating profit, with continued margin expansion and solid cash conversion."
Neil, Executive Vice President and Chief Financial Officer
Strategic Positioning
1. Backlog-Driven Visibility and Global Demand
The $268 billion backlog, up 23% year-over-year, is a defining strategic asset for RTX. With a book-to-bill of 1.56, the company is insulated from short-term demand shocks and can plan capacity and capital allocation with confidence. International defense demand is particularly robust, with NATO and Asia-Pacific budgets rising and Raytheon’s international backlog mix now at 47%. This global demand underwrites multi-year revenue and margin visibility.
2. Capacity Expansion and Digital Manufacturing
RTX is executing a $10.5 billion CapEx and R&D program in 2026, targeting munitions, sensors, and next-gen engine capacity. Over half of manufacturing hours are now digitally connected, enabling real-time data analytics, bottleneck identification, and productivity gains. For example, Pratt’s Lansing facility reduced aged inventory by 45%, and Raytheon’s Andover site cut circuit card production cycle times by 35%. These investments are directly supporting output ramp and cost efficiency.
3. Aftermarket and Installed Base Monetization
Commercial aftermarket is a recurring revenue engine for RTX, fueled by a growing installed base of both aircraft systems and engines. Out-of-warranty content at Collins now exceeds $105 billion, while MRO output at Pratt rose 39% in Q4. The GTF (Geared Turbofan) engine program is a key lever, with shop visit content and heavier maintenance driving margin expansion. Upgrades like the GTF Advantage and Hot Section Plus retrofit are expected to further improve durability and profitability.
4. Defense Transformation and Strategic Partnerships
RTX is well positioned for the global defense transformation, with Raytheon’s portfolio spanning munitions, integrated air and missile defense, and space-based interceptors. Strategic partnerships—such as the DeepStrike autonomous launcher and expanded MRO networks—are reinforcing technology leadership and customer intimacy. The company is also actively collaborating with the Department of Defense to accelerate output, strengthen the industrial base, and co-invest in capacity expansion.
5. Capital Allocation and Industrial Base Strengthening
RTX is balancing shareholder returns with industrial investment, maintaining its dividend while accelerating debt paydown and CapEx. The company’s approach to supply chain bottlenecks is to strengthen and diversify the supplier base, rather than pursue vertical integration, focusing on infusing capital into key value streams (e.g., solid rocket motors, castings) to support sustained output ramp.
Key Considerations
RTX’s 2025 results and 2026 outlook reflect a company leveraging scale, backlog, and operational discipline to address both secular defense and commercial aerospace tailwinds. The following considerations are central to the investment case:
Key Considerations:
- Multi-Year Backlog Locks in Growth: Backlog covers 85% of 2026 sales, reducing forecast risk and enabling confident capacity planning.
- Productivity and Digitalization Drive Margins: Digital factory initiatives and cost reduction efforts are compounding margin expansion, especially at Collins and Raytheon.
- Aftermarket Scale Mitigates Cyclicality: Recurring, high-margin aftermarket revenue from a growing installed base provides resilience and cash flow stability.
- CapEx and R&D Fund Next-Gen Platforms: Aggressive investment in automation, new products, and advanced manufacturing underpins long-term competitive advantage.
- Defense Transformation Requires Industrial Base Agility: Execution on munitions and missile defense ramp is contingent on supply chain resilience and collaborative government partnerships.
Risks
Key risks include supply chain constraints, particularly in castings and solid rocket motors, which could limit output ramp and margin capture. Tariff volatility remains a drag on Collins margins, though management expects some tailwind in 2026. Regulatory and political pressures on capital allocation and defense contracting could introduce new constraints or force shifts in investment priorities. Execution risk around digital transformation and large-scale CapEx also bears monitoring, especially as the company manages a record backlog and multi-year ramp.
Forward Outlook
For 2026, RTX guided to:
- Adjusted sales of $92–93 billion, or 5–6% organic growth
- Adjusted EPS of $6.60–$6.80
- Free cash flow of $8.25–$8.75 billion
For full-year 2026, management expects:
- Growth in all three segments, with margin expansion and robust cash conversion
Management highlighted several factors that support this outlook:
- 85% of 2026 sales already in backlog, providing high visibility
- Continued productivity gains and pricing actions to offset input cost pressures
Takeaways
RTX’s execution on backlog conversion, digital manufacturing, and aftermarket monetization is driving both top-line growth and margin expansion.
- Backlog Depth Secures Multi-Year Growth: The $268 billion backlog underpins RTX’s ability to invest, ramp output, and deliver on both commercial and defense demand.
- Operational Leverage Emerging: Digital factory initiatives and productivity programs are translating into segment margin gains and robust cash flow, even as CapEx rises.
- Defense and Aftermarket Remain Key Levers: Investors should watch for further margin expansion in Raytheon and sustained high-margin aftermarket growth at Pratt and Collins as core drivers of value.
Conclusion
RTX exits 2025 with unmatched backlog visibility, operational momentum, and strategic clarity. The company’s multi-year investment in capacity, digitalization, and supply chain resilience positions it to capitalize on secular defense and commercial aerospace tailwinds, while maintaining financial discipline and shareholder returns.
Industry Read-Through
RTX’s backlog surge and capacity investment signal a broad, durable upcycle for both commercial aerospace and defense primes. The company’s digital factory progress and supply chain initiatives set a new bar for operational efficiency, with implications for peers facing similar output ramp and margin pressures. International defense demand and government co-investment trends are likely to benefit other global primes, while the focus on aftermarket monetization and installed base scale provides a template for recurring revenue growth across the sector. Supply chain fragility remains a shared risk, underscoring the need for industrial base strengthening and collaborative government engagement industry-wide.