Raytheon Tumbles on Expectations of Weaker FCF

Raytheon Technologies (RTX:US) shares fell around 14% on Tuesday after the defense giant slashed its free cash flow forecast for the full year, citing issues impacting Pratt & Whitney.

The company said it now expects to generate about $4.8 billion in FY FCF, a downward revision of about $500 million compared to the prior forecast and analyst consensus. This revision completely offsets the raised FY EPS and revenue guidance.

“Accelerating demand in global commercial aerospace and strong defense spending allowed us to deliver 12 percent sales growth and increased operating profit year-over-year, with top-line growth across all RTX business units,” said RTX Chairman and CEO Greg Hayes. 

“Based on the strong performance year-to-date and strong endmarkets, we are raising our full year sales outlook and tightening our adjusted EPS outlook. However, we are lowering our free cash flow outlook to reflect the impact of an issue that has recently come to light, which will require Pratt & Whitney to remove certain engines from service for inspection earlier than expected. The continued safe operation of our fleet will always remain our number one priority.”

Raytheon now sees adjusted EPS of $5.00 on revenue of $73.5 billion, up from the prior forecast for earnings of $4.975 on revenue of $72.5 billion.

For its second quarter, Raytheon said its revenue rose 12% year-over-year to $18.3 billion, easily ahead of the consensus of $17.67 billion. The adjusted earnings per share came in at $1.29, topping the average analyst estimate by $0.11.

Raytheon generated just $193 million in Q2 FCF, a 76% YoY drop.

Several Congress members, including Kevin Hern, Daniel Goldman, John Curtis, Ro Khanna, and Diana Harshbarger were trading RTX shares this year. Most notably, Rep. Khanna was a seller of the stock on February 16, when it closed at $100.97.

Shares were seen trading below $90 apiece on Tuesday.