RTX (RTX) Q4 2025: Backlog Surges 23% to $268B, Driving Multi-Year Growth Visibility
RTX’s record $268 billion backlog, up 23%, signals multi-year demand tailwinds across both commercial and defense segments. The company’s execution on operational efficiency and digital transformation is translating to margin expansion and robust cash flow. Management’s 2026 outlook leans on continued productivity gains, aggressive capacity investment, and a balanced capital allocation between dividends and growth initiatives.
Summary
- Order Book Depth: Record backlog underpins sustained growth and margin expansion across all segments.
- Capacity Ramp: Aggressive investment in manufacturing and supply chain resilience supports output acceleration.
- Execution Focus: Digital and operational initiatives are delivering measurable productivity gains and cost leverage.
Performance Analysis
RTX closed 2025 with organic sales up 11% year-over-year, propelled by a balanced mix of commercial original equipment (OE), aftermarket, and defense growth. Commercial OE and aftermarket revenues both posted double-digit gains, while defense rose 8%, reflecting resilient demand for both new aircraft and military systems. Segment-level operating profit also increased, with margin expansion evident across all three business units—Collins Aerospace, Pratt & Whitney, and Raytheon.
Free cash flow reached $7.9 billion, a significant jump even after absorbing $1 billion in powder metal compensation and $600 million in tariff-related costs. The company reduced debt by $1.1 billion and completed a non-core divestiture, further strengthening its balance sheet. Backlog growth was especially pronounced in commercial (up 29%) and defense (up 13%), signaling robust forward visibility.
- Aftermarket Momentum: Commercial aftermarket, a high-margin revenue stream from parts and services, saw 18% growth, signaling strength in RTX’s installed base monetization model.
- Defense Awards Scale: Raytheon booked $40 billion in awards, with international backlog mix rising to 47%, reflecting global security demand.
- Operational Leverage: Productivity initiatives, including digital factory integration, contributed to margin gains and working capital improvements.
Segment performance was broad-based, with Collins Aerospace delivering 9% organic sales growth and Pratt & Whitney up 17%. Raytheon’s 6% organic growth was supported by large defense wins and improved contract mix, while all units contributed to consolidated margin expansion.
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
"Free cash flow for the quarter was very strong at $3.2 billion, bringing our full year free cash flow to $7.9 billion... We paid down $1.1 billion of debt and completed the divestiture of the Collins-Simmons business."
Neil, Executive Vice President and Chief Financial Officer
Strategic Positioning
1. Backlog and Demand Visibility
RTX’s $268 billion backlog, up 23% year-over-year, anchors multi-year revenue growth and supports management’s confidence in sustained top-line expansion. Commercial orders, including over 1,500 GTF engines and 2,400 Pratt Canada engines, reflect airline and OEM demand, while defense awards highlight global security needs and growing international mix.
2. Capacity and Digital Transformation
RTX is investing over $10 billion annually in capital expenditures (CapEx) and research and development (R&D) to expand production, automate factories, and deploy digital analytics. Over 50% of manufacturing hours are now digitally connected, driving inventory reductions and cycle time improvements. Capacity additions in key locations (e.g., Tucson, Huntsville, Asheville) are designed to support critical programs and future backlog conversion.
3. Segment-Level Execution and Mix
Collins Aerospace is leveraging cost actions and digitalization to expand margins, even as tariffs remain a headwind. Pratt & Whitney is balancing OE and aftermarket growth, with shop visit volume and heavier work scopes supporting margin improvement. Raytheon is capitalizing on international defense demand, productivity gains, and favorable contract mix to approach its long-term margin targets.
4. Capital Allocation Discipline
RTX maintains a dual focus on sustaining dividends and funding growth. Management reiterated its commitment to shareholder returns while ramping CapEx to meet both current backlog and anticipated demand surges. Debt reduction and non-core divestitures further enhance capital flexibility.
5. Supply Chain and Industrial Base Strengthening
Rather than pursuing vertical integration, RTX is infusing capital into its supplier base and seeking new partners to address bottlenecks in castings and solid rocket motors. Management views supplier health as critical to meeting defense ramp requirements and is collaborating with the Department of Defense to accelerate throughput and capacity.
Key Considerations
RTX’s strong close to 2025 sets the stage for continued multi-segment growth, but the company’s execution on capacity, supply chain, and digital transformation will be decisive in capitalizing on its record backlog.
Key Considerations:
- Backlog Conversion Pace: Ability to translate record orders into output and revenue hinges on supply chain synchronization and factory ramp-up.
- Aftermarket Durability: Sustained double-digit aftermarket growth is key for margin expansion as the installed base matures and new engines enter service.
- Defense Mix Shift: Growing international sales and munitions output will shape Raytheon’s margin profile and global positioning.
- Tariff and Cost Drag: Tariffs and compensation outflows remain headwinds, but cost actions and pricing are offsetting much of the impact.
- Capital Allocation Balance: Management must continue to balance shareholder returns with aggressive investment in growth and resilience.
Risks
Execution risk remains elevated as RTX must deliver on aggressive capacity expansion and supplier development to satisfy backlog conversion. Tariffs, input cost inflation, and lingering compensation outflows (e.g., powder metal) could pressure margins. Regulatory scrutiny and shifting government procurement priorities, especially in defense, add further uncertainty. Management’s guidance assumes no material supply chain setbacks or geopolitical disruptions.
Forward Outlook
For 2026, RTX guided to:
- Adjusted sales of $92-93 billion, representing 5-6% organic growth
- Adjusted EPS of $6.60-$6.80, with free cash flow between $8.25 billion and $8.75 billion
For full-year 2026, management expects:
- All three segments to deliver organic sales and operating profit growth, with continued margin expansion
- CapEx of $3.1 billion and R&D approaching $3 billion, focused on capacity and technology
Management highlighted:
- Productivity and digital initiatives as key drivers of cost leverage
- Continued focus on backlog conversion and supply chain resilience
Takeaways
RTX’s record backlog and operational execution provide a strong foundation for sustained growth, but the next phase will test the company’s ability to convert orders into output at scale.
- Backlog Depth: The $268 billion backlog provides exceptional visibility, but timely execution and supply chain health are now the gating factors.
- Margin Expansion: Digital factory initiatives and aftermarket growth are driving margin gains, but tariffs and compensation costs remain a drag.
- Capacity Build-Out: Investors should monitor CapEx deployment, supplier ramp, and productivity metrics as leading indicators of RTX’s ability to meet demand and sustain cash flow growth.
Conclusion
RTX enters 2026 with unparalleled demand visibility and a clear focus on operational excellence, digital transformation, and capital discipline. The company’s ability to deliver on its aggressive growth and margin targets will depend on supply chain execution, factory ramp, and continued investment in both people and technology.
Industry Read-Through
RTX’s results and commentary highlight a broad-based aerospace and defense upcycle, with both commercial and government customers driving multi-year demand. The company’s digital and manufacturing investments set a new bar for operational excellence in the sector. Supply chain bottlenecks and industrial base constraints remain industry-wide challenges, and the focus on supplier health and capacity investment will likely be echoed by peers. Global defense spending trends, especially in NATO and Asia-Pacific, signal ongoing tailwinds for the sector, while aftermarket strength underscores the value of installed base monetization models across aerospace.