RTX Q4 Deep Dive: Commercial and Defense Demand Drive Momentum, Margin Expansion in Focus

Aerospace and defense company Raytheon (NYSE:RTX) beat Wall Street’s revenue expectations in Q4 CY2025, with sales up 12.1% year on year to $24.24 billion. The company expects the full year’s revenue to be around $92.5 billion, close to analysts’ estimates. Its non-GAAP profit of $1.55 per share was 5.3% above analysts’ consensus estimates.

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StockStory’s Take

Raytheon's Q4 results were met with a positive market response, driven by robust growth across its commercial and defense businesses. Management pointed to double-digit gains in commercial original equipment and aftermarket sales, as well as increased defense orders and backlog, as the primary contributors. CEO Chris Calio highlighted progress in operational execution, with output rising notably in critical programs and backlog reaching a record $268 billion. Additionally, investments in capacity and digitalization were credited for improved productivity and cost management across manufacturing sites.

Looking forward, Raytheon's guidance for the coming year centers on sustained demand in both commercial aerospace and defense segments. Management expects further growth from production rate increases on major aircraft platforms, continued expansion in defense programs, and operational productivity improvements. Calio emphasized that strategic investments in manufacturing capacity, automation, and digital analytics are intended to support higher output and efficiency, while CFO Neil Mitchill noted that disciplined cost controls and targeted R&D spending will remain priorities as the company navigates supply chain challenges and pursues margin expansion.

Key Insights from Management’s Remarks

Management attributed the quarter’s momentum to durable global demand, execution on major commercial and defense contracts, and operational upgrades throughout its facilities.

• Commercial aerospace momentum: Demand for air travel and aircraft production remained robust, with significant increases in both original equipment and aftermarket sales across major platforms like the A320 NEO, 737 MAX, and 787. Management cited a growing installed base and resilient passenger demand as ongoing catalysts.

• Defense backlog expansion: The defense segment secured multiple high-value awards, including contracts for Patriot and Tamir missile systems, and achieved a book-to-bill ratio above 1.3. CEO Chris Calio described international defense spending as a key driver, noting NATO allies' commitments to increased budgets and heightened demand in Asia Pacific and the Middle East.

• Digital factory investments: The company accelerated deployment of proprietary analytics and AI tools across over half its manufacturing hours, leading to substantial reductions in inventory and production cycle times. Management reported a 45% decrease in aged inventory at the Lansing facility and a 35% reduction in circuit card production times at Andover.

• GTF engine program progress: The GTF (Geared Turbofan) engine fleet management plan progressed as planned, with aircraft-on-ground rates declining over 20% and maintenance, repair, and overhaul output up 39% in Q4. The addition of new MRO partners in the UAE and Spain is expected to support ongoing growth.

• Capital allocation and capacity expansion: Raytheon increased capital expenditures and R&D investments to over $10 billion in 2025, focusing on expanding manufacturing capacity in key locations and advancing automation. Management emphasized balancing shareholder returns with investment in future demand fulfillment.

Drivers of Future Performance

Raytheon’s outlook for the next year is shaped by continued strong demand in both commercial and defense markets and ongoing investments in operational efficiency.

• Sustained commercial aerospace growth: Management expects further increases in aircraft production rates and aftermarket service opportunities, particularly on new-generation platforms. The company is positioning to capitalize on resilient air travel and a growing installed base, which should fuel high-single-digit aftermarket growth.

• Defense program execution and backlog conversion: With a record backlog and expanded international orders, Raytheon plans to ramp output on core missile and sensor programs. Management flagged the need to synchronize supply chains and accelerate delivery as priorities, while also noting potential margin benefits from increased international mix.

• Productivity and cost management: Operational efficiency initiatives, including digital factory rollouts and cost reduction programs at Collins, are expected to drive segment margin expansion. However, management acknowledged ongoing headwinds from tariffs, higher capital expenditures, and supply chain constraints, which will require careful execution to maintain profitability targets.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the pace of commercial aircraft production increases and aftermarket service uptake, (2) the ability to ramp defense output and convert backlog efficiently amid global supply chain pressures, and (3) the impact of digital factory investments and cost reductions on segment margins. Progress in integrating new MRO partners and capacity expansions will also be key to sustaining growth.

RTX currently trades at $201.76, up from $194.13 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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