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Text: I'm on the Slide 2 of the of the deck for those of you following along.
So, a couple of months ago, we held our first Investor Day as Raytheon Technologies and that day we laid out our 2025 goals to deliver strong top line growth, margin expansion and at least $10 billion in free cash flow by 2025, all while continuing to invest in our businesses and return significant cash to our shareowners.
We continue to be confident in the future because of our strong franchises, the resilient markets in which we operate, our innovative technologies, and our relentless focus on operational excellence and cost reduction, which will drive margin expansion and strong cash flows into the future.
And we continue to see encouraging trends across our market.
Our confidence in our ability to achieve these targets remain strong and as you saw at the end of May, the Department of Defense released the fiscal year '22 budget request, which was generally in line with our expectations with respect to our portfolio of products and the investments we're making in differentiated technologies, including missile defense, space-based systems, next-generation propulsion and hypersonics.
Major RTX programs fared well as -- overall as modernization funding remains at near historic highs.
Requested funding for these programs is favorable to the overall DoD modernization request when compared to last year's plan for fiscal year '22.
It's also worth noting that the overall classified funding request, which supports a significant part of our Intelligence & Space portfolio was also very well supported.
So I'd say we're well positioned with the administration's priorities, driven by our innovative technologies and capabilities to address the evolving threat environment.
This is demonstrated of course by the significant awards we received this quarter, which included over $1 billion in classified bookings at RIS and two important franchise wins in our Missiles & Defense business where we were awarded almost $2 billion for the Long-Range Standoff weapon or LRSO, and $1.3 billion for the Next-Generation Interceptor.
A thing also we should note that the Patriot franchise remains robust as evidenced by Switzerland becoming the 18th partner nation to select the Patriot air defense system.
At the same time, commercial air traffic demand continues to gain momentum across many of our domestic markets as global economies reopen and vaccinations increase.
In the U.S. daily travelers throughout the TSA checkpoints have averaged over $2 million per day in July, and that's more than doubled since January of this year.
That said, we are monitoring the COVID variants and the impact on travel and there's still work to do on global vaccinations and on international border reopenings.
Strong execution against an increasingly favorable backdrop enabled us to deliver top and bottom line growth on both a year-over-year and a sequential basis.
So given our performance year-to-date and the recent trends across our end markets, we're going to raise the low end of our full year sales outlook by $500 million to a new range of $64.4 billion to $65.4 billion.
And we're also going to raise and tighten our adjusted earnings per share outlook with a new range of $3.85 to $4 per share and we're increasing our free cash flow outlook to a range of $4.5 billion to $5 billion for the year.
I'm pleased with the strong orders we saw in the quarter, which grew our company backlog to a record $152 billion and that's a 3% increase since the first quarter.
Our defense book-to-bill was a strong 1.12 resulting in a defense backlog of over $66 billion and commercial backlog increased by $3.5 billion in the quarter.
On the capital allocation front, we repurchased $632 million on shares bringing us to over $1 billion in share repurchase year-to-date and we're on track to meet our commitment of buying back at least $2 billion of shares for the year.
We also continue to execute on the merger integration activities and given our substantial progress and the robust pipeline of opportunities, we're going to raise our gross cost synergy target by another $200 million to $1.5 billion and that $1.5 billion will be realized in the four -- first four years following the merger.
That's now 50% more than our original synergy commitment and there's great execution by the team but I would tell you, we're not done yet.
Like everything, there's always more to do.
In addition to making good progress in our synergy targets, we're also making significant progress on our structural cost reduction projects, which you've heard about back in our May meeting.
We have a pipeline with hundreds of opportunities including the previously announced actions that we're working across the business.
Let me just give you a couple of examples of what we are doing.
And our Collins Aerostructures business has scheduled over 125 lean events this year, and they're focused on specifically reducing the takt time, labor time for the A320neo nacelle.
We've invested in lean events such as these throughout the pandemic because they've allowed the Aerostructures business to reduce nacelle manufacturing time by over 75%.
Of course, though our normal goal here is about an 87% learning curve, these lean events allow us to exceed that in incredible ways.
At Pratt, we continue to build on the overhaul capability and drive turnaround time across the geared turbofan network.
The team has made good progress this year, demonstrated a 15% turnaround time, an improvement over the past year.
But importantly, they're on track to drive a 30% reduction by the end of this year.
These improvements are the direct result to repair infrastructure development and additional productivity improvements across the network, including the application of lean principles in their sharp design as well as automation.
Our strong culture of operational excellence is enabled of course, by the core operating system and significant investments in digital technology and other strategic projects.
Altogether, these initiatives will save over $5 billion in cost through 2025.
So you can see the market fundamentals are strong, we're laser focused on operational excellence and our key franchises are driving strong financial performance.
I'm on Slide 4.
As you could expect, I'm pleased with where we landed for the quarter.
We exceeded our expectations for both adjusted earnings per share and free cash flow.
Sales were $15.9 billion, which was at the high end of our outlook range and up 10% organically versus prior year on an adjusted pro forma basis and up 4% sequentially.
Our strong performance was driven by the momentum in commercial aerospace and continued growth in defense.
Adjusted earnings per share of $1.03 was ahead of our expectations, primarily driven by commercial aftermarket and contract-related settlements at Collins but also better than expected performance at Pratt, RIS and RMD.
On a GAAP basis, earnings per share from continuing operations was $0.69 per share and included $0.34 of acquisition accounting adjustments and net significant and/or nonrecurring items.
Free cash flow of $966 million exceeded our expectations primarily due to the continuation of better than expected collections and lower than expected capital expenditures.
Before I hand it over to Jennifer, let me give you a little color on our synergy progress.
We achieved $185 million of incremental gross cost synergies in the quarter, bringing our year-to-date savings to $390 million and given the pace that we realize these synergies on to-date, we're increasing our 2021 cost synergy target by $50 million, which brings our new target to the year -- for the year to $660 million.
Collins also achieved nearly $50 million of further acquisition synergies in the quarter, bringing total Rockwell Collins acquisition-related savings to nearly $560 million since the deal closed in November of 2018, and we now expect Collins to meet their $600 million acquisition synergy target in 2021, a year ahead of schedule.
So great work by the Collins team on that front.
So with that, I'll hand it over to Jennifer to take you through the segment results, and I'll come back and talk a bit about the outlook.
Starting with Collins Aerospace on Slide 5.
Sales were $4.5 billion in the quarter, up 6% on an adjusted basis driven primarily by the recovery of the commercial aerospace industry, and up 11% on an organic basis.
By channel, commercial aftermarket sales were up 24% driven by a 30% increase in parts and repair, a 16% increase in modification and upgrades, and a 15% increase in provisioning.
Sequentially, commercial aftermarket sales were up 15% with growth in all three channels most notably provisioning, which grew at 40% and parts and repair, which grew 14%.
Commercial OE sales were up 8% from the prior year, driven principally by the recovery of the commercial aerospace industry.
Growth in narrow body, regional and business jets was particularly offset by expected declines in wide-body sales.
And military sales were down 7% on an adjusted basis to the prior year divestitures and down 1% organically on a tough compare.
Recall Collins military sales were up 10% in the same period last year.
Adjusted operating profit of $518 million was better than expected and was up $494 million from the prior year, driven primarily by higher commercial aftermarket and OE sales, the benefit of continued cost reduction actions as well as favorable contract settlements that were worth about $50 million.
Looking ahead, we continue to expect Collins full year sales to be down-mid to down-low-single digit with higher expected commercial aftermarket volumes offsetting slightly less than expected OE deliveries.
And given the favorable mix in the first half of the year, the commercial recovery and the benefit of cost containment measures, we are increasing Collins full-year operating profit outlook to a new range of up $100 million to $275 million versus prior year.
Shifting to Pratt & Whitney on Slide 6.
Sales of $4.3 billion were up 19% on an adjusted basis and up 21% on an organic basis, primarily driven by the recovery of the commercial aerospace industry.
Commercial aftermarket sales were up 41% in the quarter with legacy large commercial engine shop visits up 56% and Pratt Canada shop visits up 18%.
As expected, we also saw a continued ramp in GTF shop visits in the quarter.
Commercial OEM sales were up 30% driven by higher GTF deliveries within Pratt large commercial engine business and general aviation platforms at Pratt Canada.
Military sales were down 3% also on a tough compare given Pratt's military sales were up 11% in the same period last year.
A continued ramp in the F135 sustainment was more than offset by lower material inputs on production program.
Adjusted operating profit of $96 million was slightly better than expected and was up $247 million from the prior year, driven primarily by higher commercial aftermarket sales and favorable shop visit mix.
Looking ahead, we continue to expect Pratt's full year sales to be up low to mid-single digit.
And we are increasing the low end of Pratt's full-year operating profit outlook by $25 million to a new range of down $50 million to up $25 million versus 2020.
Turning now to Slide 7.
RIS sales were $3.8 billion, up 12% versus the prior year on an adjusted basis and adjusted pro forma basis, including the pre-merger stub period, sales were up 6% driven by strength in Airborne ISR Program within sensing and effects as well as strength in the classified cyber programs within cyber training and services.
Adjusted operating profit in the quarter of $415 million was slightly better than expected and was up $86 million year-over-year on an adjusted pro forma basis, driven primarily by program efficiencies.
The quarter also benefited from a gain on a real estate transaction.
RAF had $4 billion of bookings in the quarter resulting in strong book-to-bill of 1.13 and a backlog of $19.4 billion.
Significant bookings included approximately $1.1 billion on classified programs as well as several other notable awards, including the STARS follow-on award for the FAA to implement a terminal automation system in their airports, and our first production award for the U.S. Navy Next Generation Jammer Mid-Band system that utilizes RTX industry-leading gallium nitride technology.
It's worth noting that we continue to expect RIS full year book-to-bill to be about 1.
Turning to RIS full year outlook, we continue to expect sales to grow low to mid single digit, and we are increasing the low end of RIS' operating profit outlook by $25 million to a new range of up $150 million to $175 million versus adjusted pro forma 2020.
Turning now to Slide 8.
RMD sales were up $4 billion up 15% to prior year on an adjusted basis and adjusted pro forma basis, which again includes pre-merger stub period.
Sales were up 9% driven primarily by higher volume on the international Patriot program and on StormBreaker program, both which included liquidation of pre-contract costs.
Adjusted operating profit of $532 million was slightly better than expected and was up $121 million versus prior year on adjusted pro forma basis due to favorable mix and higher program efficiencies.
RMD had $6.1 billion of bookings in the quarter resulting in an exceptionally strong book-to-bill of 1.55, and a backlog of $29.7 billion.
In addition to the franchise awards that Greg discussed, RMD also had a number of other notable awards in the quarter.
We also continue to expect RMD's full year book-to-bill to be about 1.
Turning to RMD's full-year outlook, we continue to expect sales to grow low to mid single digit, and we are increasing the low end of RMD's operating profit by $25 million to a new range of up $50 million to $75 million versus 2020 on an adjusted pro forma basis.
I'm on Slide 9.
Let me update you on how we see the current environment as we look to the second half of the year.
Starting with our commercial end markets, as I've discussed many times before, the shape of the commercial recovery remains critical to our outlook.
That said, we are encouraged by the pace of the vaccine distribution and continued signs of improving air travel demand in many domestic markets.
However, we continue to see international air traffic and border reopenings recover slower than we had expected around the world.
Keep in mind about 65% of 2019 air travel was international.
And while the first half of the year was a little stronger than expected and we're seeing signs of strong summer travel, we still need to see the reopening of international borders and the return of long-haul routes to drive continued sequential aftermarket growth in the second half of the year.
Looking longer term, we continue to expect commercial air traffic to return to 2019 levels by the end of 2023 with domestic and narrow-body fleets recovering before International and wide-body fleets.
Moving to our defense end markets.
We were pleased with what we saw in the fiscal year '22 defense budget request and we remain confident in our ability to grow our defense businesses as we look ahead.
Shifting to operational excellence.
As Greg mentioned, we're increasing our gross merger cost synergy target to $1.5 billion and that's driven by higher savings from the corporate and segment consolidations as well as additional procurement and supply chain savings.
At the same time, we're maintaining a focus on implementing our core operating system and driving structural cost reduction across the businesses.
And finally, our financial flexibility is underpinned by our strong balance sheet, which supports our investments in the business and our capital deployment commitments.
Following our strong first half, we're confident in our full year outlook.
As Greg discussed, we're bringing up the low end of our sales range by $500 million and we're raising our adjusted earnings per share range to $3.85 to $4 per share or up about $0.33 from the midpoint of our prior outlook.
About half of the increase comes from the segments, primarily Collins and the other half is from $0.13 of tax improvement and about $0.03 of lower corporate tax items.
The $0.13 tax benefit is driven by the ongoing optimization of the company's legal and financing structure that we expect to realize discretely in the third quarter.
On the cash side, given the improved earnings outlook, we now expect free cash flow in the range of $4.5 billion to $5 billion for the year.
With that, I'll hand it back to Greg to wrap things up.
So we're on the final slide here, Slide 11.
I just want to reiterate our priorities for 2021 and again, no surprises here.
These priorities remain the same that is first and foremost to continue to support our employees, our customers and our suppliers and communities during the pandemic, and to keep our employees safe.
Our team is dedicated to solving our customers' most complex problems by investing in differentiated technologies to capitalize on our strong franchises.
At the same time we're going to continue to execute on the integration and deliver the cost synergies and we're committed to operational excellence to drive further structural cost reduction across all of our businesses.

user
compname posts q2 adjusted earnings per share $1.03.
q2 adjusted earnings per share $1.03.
q2 gaap earnings per share $0.69 from continuing operations.
q2 sales $15.9 billion versus refinitiv ibes estimate of $15.84 billion.
sees fy adjusted earnings per share $3.85 to $4.00.
sees fy sales $64.4 billion to $65.4 billion.
sees 2021 free cash flow of $4.5 - $5.0 billion.

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