RTX FY2026 Q3 Earnings: $2.26 Adjusted EPS on a Record $340B Backlog — With a $0.25 Tariff Assist

RTX earned $2.26 per share on an adjusted basis in the third quarter of 2026, up 33% from a year ago and 27% above the $1.78 consensus — but $0.25 of that print came from a one-time refund of tariffs a court has since declared unlawful, while a $363 million customer-bankruptcy charge did the opposite damage inside Pratt & Whitney. Underneath the noise, the signal is a backlog that swelled to a record $340 billion on more than $81 billion of quarterly awards.

The Headline Numbers​

Every figure below comes from the Form 10-Q and the earnings release filed October 20, 2026. Reported sales were $24,965 million, up 11% year over year and 12% organically.

The P&L and the cash flow statement tell opposite stories, and both are true. Earnings surged on volume drop-through and a tariff refund; cash conversion collapsed because contract assets kept swelling — up $1.6 billion in nine months on sales running ahead of billings at Pratt & Whitney and Raytheon — while last year's quarter had benefited from unusually favorable collections timing. Operating cash flow of $2.9 billion even includes roughly $0.3 billion of IEEPA refund cash received, so the underlying conversion deteriorated more than the headline suggests. For a long-cycle contractor this is working-capital timing, not distress — but it is the number that disciplines the earnings beat.

Revenue Deep Dive​

All three segments grew, with defense the standout. Segment sales below are from the release's reconciliation; they tie to the 10-Q's segment note.

Collins Aerospace grew 10% reported and 12% organically, excluding divestitures: commercial original equipment up 23% on higher narrowbody and widebody volume, commercial aftermarket up 9% on modifications, upgrades, provisioning, parts and repair, and defense up 7% across multiple programs. Operating profit jumped 42% to $1,789 million (21.3% margin), with adjusted profit up 50% on drop-through from higher commercial volume, favorable mix, and approximately $250 million of IEEPA recovery. Note the comparison is flattered: Q3 2025's reported profit included a gain on the sale of the actuation and flight control business.

Pratt & Whitney grew 10% on a 21% surge in commercial aftermarket — higher volume, primarily GTF — plus 2% military growth, partly offset by a 5% decline in commercial OE on large-engine mix. Reported operating profit fell 19% to $608 million because of the $363 million customer-bankruptcy charge; adjusted profit rose 29% to $968 million (10.5% margin) on aftermarket drop-through and roughly $160 million of IEEPA recovery, held back by OE mix, aftermarket mix, and higher SG&A.

Raytheon was the growth leader at +14%, driven by higher volume on naval programs and land and air defense systems — Patriot, Standard Missile, and Tomahawk. Operating profit rose 32% to $1,133 million (14.1% margin) on productivity, volume, and favorable mix including Patriot programs, with about $85 million from an international contract modification and a favorable offset-obligation adjustment.

Management's demand language was unambiguous. "Demand for our products remains robust with over $81 billion of new commercial and defense awards, resulting in a record backlog of $340 billion," said Chairman and CEO Chris Calio. That is the robust-demand theme stated outright, and the ledger-adjacent evidence backs it: contract liabilities — customer advances — stand at $21.6 billion, and Raytheon alone booked $52 billion of defense orders in the quarter, including multi-year production contracts for Tomahawk (about $23 billion) and AMRAAM (about $14.3 billion) to accelerate missile output. What management did not say matters too: there is no "demand exceeds supply" or sold-out language anywhere in the release or the 10-Q, even as the filing warns it expects supply-chain disruptions to continue. Demand is strong; the constraint is input availability, not order coverage.

The Margin Story​

Margins have expanded in a near-straight line since the 2023 powder-metal trough, and Q3 extended the streak: gross margin hit 23.3%, up nearly 3 points from Q3 2025's 20.4%. But read the mechanics before extrapolating. About $0.4 billion of the quarter's gross profit is the IEEPA tariff refund sitting in products cost of sales — strip it out and gross margin is roughly 21.7%, still expanding, just less dramatically. Meanwhile SG&A ran hot at 7.7% of sales versus 6.4% a year ago, driven by the $363 million bankruptcy charge; without it, SG&A would have been about 6.2%, actually below last year's ratio despite higher employee costs. The two one-offs roughly cancel in operating profit, which is why the 13.4% operating margin is a fairer read than either its components.

On pricing, the 10-Q offers a quiet tell: among its tariff mitigations, RTX lists "where feasible, increasing the prices of our goods and services." That is pricing power asserted carefully — feasible where contracts allow it, which in practice means commercial aftermarket and new defense awards, not the fixed-price backlog already on the books. The margin expansion so far is mostly volume and mix, not price.

The One Big Question: How Much of the Beat Is Repeatable?​

Start with the bridge the release provides, from GAAP to adjusted results:

Adjusted EPS of $2.26 beat consensus by $0.48 — and $0.25 of the print, more than half the beat, is IEEPA tariff recovery the company itself presents as a cost refund, not operating performance. The arithmetic of what remains is now bounded: RTX has paid roughly $0.5 billion of IEEPA tariffs since their inception and has recognized about $0.4 billion of approved refunds, of which $0.3 billion has been received. There is perhaps $0.1 billion left to recognize, and the government has appealed the refund order while imposing replacement tariffs under other regimes. This tailwind is nearly exhausted, and next year's comparisons must clear it.

The offsetting item cuts the other way. The $363 million bankruptcy charge ($0.20 of EPS after tax) depressed reported profit but was excluded from adjusted results — so adjusted earnings are clean of it, while GAAP earnings carry a genuine credit loss on contract assets. An investor valuing the company on adjusted multiples should ask the mirror question: the allowance for expected credit losses rose $0.3 billion in nine months on this bankruptcy. Contract assets now stand at $18.7 billion against a customer base that includes financially stressed airlines. One bankruptcy is an anecdote; the exposure it points to is not.

The tiebreaker is the backlog. At $340 billion — roughly 3.5 times the raised full-year sales guide — RTX has the order coverage to grow through a refund-free 2027, with defense backlog nearly doubling in nine months ($107 billion to $164 billion). Repeatability of the growth looks well supported; repeatability of the beat does not.

What Wall Street Thinks​

Analysts expected $1.78 of adjusted EPS across 19 estimates, per AlphaStreet, so the $2.26 print beat by 27% — with revenue of $24.97 billion also ahead of the roughly $24.1 billion consensus. Management paired the beat with its second upward revision posture of the year: full-year adjusted sales of $97.0–$97.5 billion (from $95.0–$96.0 billion), organic growth of 10–11% (from 8–9%), adjusted EPS of $7.65–$7.75 (from $7.10–$7.25), and free cash flow of $9.0–$9.2 billion (from $8.50–$8.75 billion).

Tracking a $177 Billion Company in Plain Text​

Double-entry bookkeeping forces every dollar to reconcile, which makes it an unforgiving way to read an earnings report: model the statements line by line and any figure that does not tie announces itself. That discipline is how we model every company. Here is RTX's third quarter as the ledger records it — income negative (credit), expenses positive (debit), summing to zero:

; FY2026Q3 Income Statement — three months ended September 30, 2026
; Check: −24,965 + 19,160 + 711 + 1,555 + 363 − 161 − 345 + 381 + 593 + 125 + 2,583 = 0 ✓
 
2026-09-30 * "RTX Corporation" "FY2026Q3 Income Statement"
  Income:Revenue                         -24965 MUSD
  Expenses:CostOfRevenue                   19160 MUSD
  Expenses:ResearchAndDevelopment            711 MUSD
  Expenses:SellingGeneralAdministrative     1555 MUSD
  Expenses:SellingGeneralAdministrative      363 MUSD
  Income:OtherNet                            -161 MUSD
  Income:OtherNet                            -345 MUSD
  Expenses:Interest                           381 MUSD
  Expenses:IncomeTax                          593 MUSD
  Expenses:OtherNet                           125 MUSD
  Equity:Adjustments                         2583 MUSD

Note the two SG&A postings: $1,555 million of ordinary selling, general and administrative expense plus the $363 million customer-bankruptcy charge, isolated on its own line rather than buried in the total. The one balance-sheet number that tells the narrative is contract liabilities — customer advances on long-cycle work — which have climbed from $13.7 billion at the end of 2021 to $21.6 billion today, the balance-sheet shadow of the $340 billion backlog. Flip the mirror over and the risk shows too: contract assets, the unbilled twin, at $18.7 billion.

The Multi-Year Arc​

Five years, one story: revenue compounding at 8% annually while the backlog nearly doubles. The FY2023 dent — operating margin collapsing to 5.2% — is the Powder Metal Matter, the $2.2 billion net-of-tax charge for accelerated GTF fleet inspections that pushed Pratt & Whitney to a $1,455 million segment operating loss. RTX has spent the two years since climbing out of that hole: operating profit nearly tripled from $3.6 billion to $9.3 billion, net income more than doubled, and the Q3 print shows all three segments expanding margins simultaneously for the first time in this series. The merger-era balance sheet still shows — goodwill plus intangibles are $83.6 billion, nearly half of total assets — but the earnings engine underneath it is now visibly a different machine than the one that stumbled in 2023.

The Verdict: Bull vs. Bear​

Bull Case

• The $340 billion backlog covers 3.5 years of sales, with defense orders accelerating into multi-year production contracts that de-risk 2027–2028 revenue.
• All three segments expanded adjusted margins simultaneously, and the expansion survives removing the tariff refund (gross margin ex-refund still up year over year).
• Commercial aftermarket — the highest-margin revenue in aerospace — is compounding at double digits (P&W +21%, Collins +9%) on GTF volume and upgrades.
• Management keeps raising the guide (sales, EPS, and cash flow all lifted), signaling the pipeline behind the backlog is still building.
• The 2023 powder-metal hole is fully lapped: operating profit has nearly tripled in two years with the GTF fleet issue now a managed program, not a crisis.

Bear Case

• More than half the EPS beat ($0.25 of $0.48) is a one-time tariff refund with perhaps $0.1 billion left to recognize — 2027 faces a hard comparison.
• Free cash flow fell 47% while earnings rose 35%; contract assets at $18.7 billion show RTX is booking profit faster than it bills, and conversion must prove itself.
• The $363 million bankruptcy charge spotlights credit exposure inside those contract assets; financially stressed airline customers are a recurring-hazard, not a one-off.
• Replacement tariffs under non-IEEPA regimes are already being imposed — the refund giveth while new tariff costs taketh away from future cost of sales.
• Management claims "robust" demand but never "demand exceeding supply," while warning supply disruptions will continue — output, not orders, caps the upside.

Our Take: Buy the backlog, discount the beat. RTX's $340 billion order book and triple-segment margin expansion describe a genuinely strengthening franchise, but the quarter's headline number is flattered by a tariff refund that will not repeat and shadowed by cash conversion that went the wrong way. The stock deserves credit for the pipeline; it should not get credit for the $0.25 twice — once in the multiple and again in next year's growth rate.