Investors came into earnings season eager to hear an update on the engine issue that has caused shares of RTX (RTX -0.29%) to plunge in recent months. The company delivered better-than-expected results and announced a massive new share-buyback program, prompting the shares to climb 7% higher in Tuesday trading.
The worst might be over for RTX
It has been a tough year for RTX, the commercial aerospace and defense giant that until earlier this year was known as Raytheon Technologies. In July, the company disclosed issues with the manufacture of thousands of Pratt & Whitney jet engines that would require a costly fix.
On Tuesday, RTX announced third-quarter adjusted earnings of $1.25 per share, besting the $1.14 per share estimate, and a backlog of $190 billion in future orders.
CEO Greg Hayes said RTX has "made significant progress on our assessment of the Pratt & Whitney powder metal manufacturing matter and expect[s] the financial impact to be in line with the previously disclosed charge," meaning no new surprises.
RTX repurchased about $1.4 billion worth of stock during the quarter, taking advantage of the price decline due to the engine issue. The company's board also approved a $10 billion accelerated share-repurchase program, which at Monday's close would equal about 9% of RTX's total market value.
That share repurchase will be funded in part by new debt, with plans to begin paying that debt back as soon as 2024, as well as through divestitures. RTX said it has a deal to sell Raytheon's cybersecurity, intelligence, and services business for $1.3 billion.
Is RTX a buy following third-quarter results?
Even with Tuesday's gains RTX shares are still 25% below their highs for the year, a reflection of the work still to be done. But the announcements should go a long way toward reassuring investors that management has the situation under control.
The engine-related headwinds will weigh on momentum for the next few quarters, but the long-term outlook remains strong. The company's legacy United Technologies commercial aerospace business looks particularly strong, with 30% year-over-year sales growth at its Collins unit, and the defense unit booked $1.21 worth of future business for every $1 billed out in the quarter.
The argument for buying RTX prior to the engine issue was built around the company's attractive exposure to expected growth in both the commercial aviation and defense segments. For those willing to look past near-term issues that thesis remains intact, and even after the Tuesday gains RTX looks attractive at these levels.
