The company, a contributor to my think tank, reported fourth-quarter sales of $18.1 billion and full-year sales of $67.1, with backlog rising to $175 billion on the strength of a 1.28 book-to-bill ratio.
Sales for the full year were up 6% from the prior year, while earnings per share rose 12%. Free cashflow in 2022 totaled $4.9 billion, significantly better than forecast in October. The company projects further sales gains in 2023 due primarily to recovery in commercial aircraft markets. Revenues are expected to reach $72-73 billion, representing 7-9% organic sales growth over 2022.
With business lines spread across military and commercial, domestic and foreign, production and aftermarket segments, the company looks well on its way to becoming the world’s biggest aerospace and defense enterprise.
However, scale is just one element in the plan of Chairman & CEO Greg Hayes to make Raytheon Technologies the global leader in its industry. The company has previously stated that its top priorities going forward include spurring innovation, delivering synergies and driving structural cost reduction.
With all that in mind, Hayes early last year directed newly-minted Chief Operating Officer Chris Calio to develop options for further streamlining and integrating the company, which was formed in 2020 by combining the aerospace and defense operations of Connecticut-based United Technologies
The enterprise has already undergone extensive rationalization, for example by shrinking the number of major business units in the legacy Raytheon defense business from four to two while offloading some lines that were not a good fit with long-term plans.
Tuesday’s earnings call signaled that the rationalization is not done. The company now intends to merge the two remaining Raytheon business units into a single entity in order to achieve financial and functional synergies, while also expanding the roles of some lines in the sprawling Collins Aerospace portfolio.
Longtime observers of Raytheon will have little difficulty grasping the logic of these moves. One of the peculiar characteristics of the legacy Raytheon defense business was that similar competencies were spread across multiple business units.
The reorganization that occurred after merging with United Technologies eliminated the most obvious redundancies in that arrangement, but Calio found further room for integrating the enterprise to reduce costs and bolster synergies, which CEO Hayes is now moving to address.
Here are five segments of the military market, among others, where the realignment is seeking gains in efficiency:
- Air dominance. The realignment will combine an array of orbital, airborne and surface-based sensors made by the company with diverse “effectors”—kinetic and non-kinetic— to generate integrated solutions for U.S. warfighters and allies.
- Networked battlespace. The realignment will leverage technologies developed by the company’s space and intelligence business with commercial technologies provided by Collins to fashion open-architecture solutions to the challenge of connecting all warfighters in a robust, resilient network.
- Space operations. The realignment will combine in one business unit all of the company’s space-related lines—sensors, satellites, ground stations—to provide end-to-end solutions at a time when orbital opportunities for defense companies are expanding rapidly.
- Hypersonic weapons. The realignment will bring together the company’s ongoing work on offensive systems with technologies relevant to tracking and intercepting hostile hypersonic weapons launched by Russia or China.
- Counter-drone technology. The realignment will assemble in one business unit all of the technologies related to defeating hostile unmanned aerial systems, ranging from electronic warfare to directed energy to kinetic interceptors.
The company believes that, correctly executed, the combination of the two pre-existing defense units into a single entity called simply “Raytheon” will reduce costs through economies of scale and decreased duplication while making the overall enterprise more responsive to government customers.
Going forward, the enterprise will have three overarching business units: the Raytheon business that is oriented primarily to military customers; the Pratt & Whitney engine business that is a leading supplier to civil, commercial and military markets; and the Collins Aerospace business that provides commercial and military customers with aerostructures, avionics, mechanical systems, aircraft controls and related products.
The latter business alone contains over 150 major product lines installed on 100,000 aircraft, and holds tens of thousands of patents.
The integration of former Raytheon product lines under a single business unit is probably not the last time the company will rethink how it is organized. Both of the companies that Hayes merged three years ago trace their origins to the 1920s, and have undergone numerous transformations during a hundred-year history—including for a while becoming multi-industry conglomerates.
Raytheon Technologies as it exists today, though, is focused almost entirely on aerospace and defense markets (Hayes called it a “pure-play aerospace and defense company” on Tuesday’s earnings call). The challenge he faces in seeking industry leadership is how to be both very big and very nimble.
COO Calio, who previously ran the Pratt & Whitney unit, has spent his year-long tenure as number-two executive analyzing how these twin goals might be reconciled in an enterprise that regularly out-performs the low-double-digit margins typical of first-tier defense contractors.
Hayes announced on Tuesday that Calio will assume the additional title of corporate President effective March 1.
Time will tell whether this latest refinement in company plans accomplishes its intended aims, but one thing is already clear: for CEO Hayes, simply being the biggest isn’t enough. He also wants to be the best, and he has a list of demanding criteria against which to judge whether he is achieving that goal.
As noted above, Raytheon Technologies is a contributor to my think tank.