RTX did almost everything a defense giant is supposed to do this quarter. The stock sold off anyway.
The parent of Raytheon, Pratt & Whitney, and Collins Aerospace reported Q1 sales of $22.1 billion, up 9%. Adjusted earnings came in at $1.78 per share, beating estimates by nearly 18%. Management raised its full-year EPS outlook to $6.70 to $6.90 and lifted sales guidance to $92.5 to $93.5 billion.
Then the company buried the real news in a footnote. Trump's tariffs will hit RTX with an $850 million bill this year, most of it through Pratt & Whitney's jet engine parts. The stock dropped more than 4%.
Pratt & Whitney builds jet engines, and jet engines are one of the most globalized products on earth. Turbine blades from one country. Casings from another. Precision bearings from a third. Every import charge stacks.
Collins Aerospace, which makes the cabin systems and electronics inside most commercial planes, faces the same web.
Defense revenue is somewhat insulated - it's built in the US for US buyers. But the commercial aerospace line is exposed, and it's the fastest-growing part of the company right now.
RTX is a bellwether. If this is what tariffs do to a company with scale, pricing power, and long-term contracts, it's going to look worse at smaller industrial names without those defenses.
Boeing reports next week. GE Aerospace already flagged its own tariff drag. The read-through to the rest of the aerospace supply chain is the story Wall Street is pricing, not the beat-and-raise at the top of the release.
Raytheon's defense backlog is sitting at record highs, with missile demand from allied buyers running well ahead of last year's pace. That backlog is what keeps the floor under RTX earnings when the commercial side gets squeezed.
Commercial aerospace is the fast-grower though. Orders at Collins Aerospace have picked up as airlines refresh fleets, which is why the tariff hit stings: it lands on the part of the business investors were betting on for the upside.
The read-through to Boeing and GE Aerospace is the same shape. Defense holds. Commercial grows. Tariffs take a bite out of both sides because the supply chains overlap at the engine and avionics level.
Think of RTX as the canary in the aerospace supply chain. If an $850 million bill lands on a company with record backlog and pricing power, the smaller suppliers downstream are going to print a worse version of the same story.
The other read-through sits at the airlines. A higher tariff bill at Pratt & Whitney works its way into new engine prices, which gets passed into aircraft lease rates, which ends up on the carrier's cost line inside a year.
That's the piece RTX management can't fix on its own. Investors are watching to see whether congressional pushback or a policy reversal trims the $850 million figure before year-end.
Defense backlog is at record highs. Commercial orders are strong. The underlying business is healthy.
But "healthy business minus policy-shock tax bill" is a story investors have to price. They just did.
The beat was real. The $850 million bill was too.
