RTX Corporation (RTX) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the RDX Second Quarter 2026 Earnings Conference Call. My name is Olivia, and I'll be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Chris Calio, Chairman and Chief Executive Officer; Neil Mitchell, Chief Financial Officer; and Nathan Ware, Vice President of Investor Relations. This call is being webcast live on the Internet, and there is a presentation available for download for RTX website at www.rtx.com. Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding acquisition accounting adjustments and net nonrecurring and/or significant items often referred to by management as other significant items. The company also reminds listeners that the earnings and cash flow expectations and any other forward-looking statements provided and discussed subject to risks and uncertainties. RTX SEC filings including its forms 8-K, 10-Q and 10-K, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. [Operator Instructions] With that, I will turn the call over to Mr. Calio.

Thank you, and good morning, everyone. We delivered another strong quarter of performance and financial results across RTX driven by our continued focus on execution. Starting with the top line. Adjusted sales were $24.7 billion, up 16% organically, including double-digit commercial aftermarket and defense growth. Adjusted EPS of $1.89 was up 21% year-over-year driven by 18% growth in segment operating profit and free cash flow was strong at $2.9 billion. Across RTX, we continue to see exceptional demand for our products and services. Our backlog stands at yet another record of $289 billion, up 22% year-over-year and 6% sequentially. Raytheon booked nearly $20 billion of awards resulting in a book-to-bill in Q2 of 2.4%. These bookings included over $5 billion of GMT Patriot effectors driven by international customers and our first domestic GMT production order in over 30 years, Raytheon's bookings also included over $4 billion of classified and confidential awards as well as $1.8 billion for AMRAM. On the commercial side of the business, demand also remains strong as evidenced by our continued growth. In Q2, we received over $20 billion of OE and aftermarket orders. Notably, at Pratt, Air Asia placed an order for 150 A220 aircraft which are exclusively powered by GTF engines, adding a new GTF operator in further expanding our installed base in a key growth region. And Colin signed a new 5-year agreement with Air New Zealand to provide MRO services for engine to cells on their full fleet of 787 aircraft. So overall, a very strong quarter that builds on our momentum from Q1. Let me turn to the current operating environment as we look ahead to the back half of the year. Across commercial aerospace, aftermarket continues to be strong and passenger air travel remains resilient. For the year, global RPKs are expected to grow in all regions outside of the Middle East, and engine retirements have remained relatively low, both factors that support our outlook for strong commercial aftermarket growth this year. airframers also continue to cite strong demand with further rate growth expected in the second half of the year, driving the need for our OE products across narrow-body, wide-body and business jet platforms. On the defense side, our significant awards in the quarter reinforce the global needs for our proven capabilities. Domestically, we're encouraged to see bipartisan support for a significant increase in 2027 defense spending. The base budget request of $1.1 trillion represents a roughly 25% increase year-over-year, along with meaningful increases in funding for RTX priority programs, including Tomahawk, LTAMDS and standard missile. And of course, we continue to work closely with the Department of War to advance the framework agreements we signed earlier this year into contracts to increase critical munitions output for our customers. On the international front, the need for integrated air and missile defense systems remains very strong. In the first half of the year, Raytheon booked over $10 billion of international awards, which is up more than 2x year-over-year including over $7 billion from our European customers. So based on our first half execution and the demand strength we're seeing across our commercial and defense markets, we're raising our full year outlook for adjusted sales, EPS and free cash flow. Neil will take you through the details of the second quarter and our updated outlook in a few minutes. But first, let me provide an update on our strategic priorities across RTX on Slide 4. The first is operational execution. We continue to use our core operating system in digital solutions to increase output and deliver our backlog. On the GTF fleet management plan, our financial and technical outlook remains on track. P100 AOGs are down again sequentially and down 25% year-to-date, and we expect AOGs to keep trending lower throughout the second half of the year. The improvement is driven by MRO output which was up over 40% year-over-year, supported by a 23% reduction in turnaround time. At Raytheon, we've more than doubled year-over-year output across our critical munitions through the first half of the year. Additionally, our Coyote counter UAS effector, which has been deployed by both the U.S. Army and Navy has been incredibly effective in the field and is in high demand. As a result, we have more than doubled output on this important program. And across RTX, our connected factory network now includes over 30 million annual manufacturing hours and our proprietary data and AI platform, up 30% since the end of 2025. This platform is strengthening our operational performance by enabling faster cycle times, better quality and improved decision-making. Next is innovation for future growth. We continue to make focused investments to meet long-term global demand faster, including increasing capacity across RTX. For example, Raytheon is investing an additional $100 million domestically to increase GEM-T component production and accelerate LTAMDS' test capabilities to meet the growing global need for this 360-degree sensor. We're also coordinating with the U.S. and our allies to expand global production capacity. Just this month, Raytheon announced a collaboration with multiple NATO nations to identify additional European suppliers for AMRAM components to accelerate deliveries of this critical munition. On the commercial side, Pratt announced additional investments of more than $100 million in the U.S. to expand GTF MRO capacity across multiple sites in Texas, Florida and Arkansas. These investments will support new automation and repair capabilities to increase shop throughput. And at Collins, we continue to expand our footprint in growth regions. In the quarter, we completed a commercial MRO expansion in Malaysia that will significantly expand capacity and bring more advanced and automated MRO capabilities. On the technology front, we achieved several key milestones in the quarter. Collins was down selected to deliver their mission autonomy software for the U.S. Air Force's collaborative combat aircraft program. This type of autonomy will be critical in next-generation fighter development to maximize manned and unmanned teaming. Pratt received aircraft certification for the GTF Advantage engine and started its deliveries to Airbus. As a reminder, the advantage will double the time on wing performance, and it's fully interchangeable with the current GTF fleet. We expect entry into service later this year and full production cutover in 2028. And at Raytheon, the team is utilizing a modified TJ 150 engine from Pratt to develop a new longer-range variant of our precision-guided air-launched storm breaker effector. This cross-company initiative has moved from concept to an upcoming flight test in less than 12 months to support delivering this new capability. So overall, we continue to make good progress across our strategic priorities as we execute and innovate for our customers. With that, let me turn it over to Neil to take you through the second quarter results and our updated outlook in more detail. Neil?

All right. Thank you. I'm on Slide 5. In the second quarter, adjusted sales of $24.7 billion were up 14% on an adjusted basis and 16% organically year-over-year. This strong organic growth was driven by all 3 channels with commercial OE up 9%, commercial aftermarket up 18% and defense up 16%. Adjusted segment operating profit of $3.2 billion was up 18% year-over-year, primarily driven by the drop-through on higher volume. And segment margins expanded 40 basis points in the quarter with contributions from all 3 segments. Adjusted earnings per share of $1.89 was up 21% from the prior year, driven by the strong segment operating profit growth I just mentioned. On a GAAP basis, earnings per share from continuing operations was $1.57 and included $0.27 of acquisition accounting adjustments, and $0.05 of restructuring and all other nonrecurring items. We generated $2.9 billion of free cash flow in the quarter, driven by segment profit growth, increased engine deliveries at Pratt and advanced payments from international customers at Raytheon and powder metal related compensation was approximately $150 million. Lastly, we entered into an agreement to sell Raytheon's Blue Canyon Technologies business for $620 million as we continue to focus on our core capabilities. So overall, I'm pleased with our strong financial performance through the first half of the year and our continued execution across the business. Let's turn to Slide 6, and I'll take you through our updated outlook for the full year. As Chris said upfront, we are updating our full year outlook based on our first half performance and our strong backlog position. On the top line, we're raising our full year adjusted sales outlook by $2.5 billion to a new range of $95 billion to $96 billion, up from our prior range of $92.5 million to $93.5 billion. The majority of the sales increase is driven by the performance we're seeing in our defense channel across the company, primarily at Raytheon as well as higher GTF aftermarket volume at Pratt. Additionally, we're seeing strength in commercial OE at Collins, which is also reflected in this increased top line outlook. This translates to full year RTX organic sales growth of between 8% and 9%, up from our prior range of between 5% and 6%. Breaking this down further, we now expect commercial OE sales to grow mid- to high single digits, up from the prior expectation of mid-single digits primarily attributable to the production ramp at Collins. Within commercial aftermarket, we now expect sales to grow low double digits across the company this year, up from our prior expectation of high single digits driven by the strength of Pratt that I mentioned earlier. And with respect to defense sales, we now see growth of high single digits, which is at the higher end of our prior range of mid- to high single digits. This improvement is principally driven by the first half performance and continued execution at Raytheon. On the bottom line, we're increasing our outlook for adjusted earnings per share by $0.40 on the low end and $0.35 on the high end. We now see adjusted EPS of between $7.10 and $7.25, up for the full year up from our prior range of $6.70 to $6.90. At the midpoint of our updated outlook, this increase is driven by approximately $0.26 of higher segment operating profit principally from the net drop-through on the higher volume across the segments as well as favorable defense mix and improved productivity, primarily at Raytheon. We're also seeing improvement in some below-the-line items and we've provided an updated outlook for these items in the appendix of our webcast. Finally, we now expect free cash flow to be between $8.5 billion and $8.75 billion for the full year, up from our prior range of $8.25 billion to $8.75 billion, primarily driven by higher segment operating profit. With that, I'll hand it over to Nathan to take you through the segments in more detail. Nathan?

Thanks, Neil. Starting with Collins on Slide 7. Sales were $8.2 billion in the quarter, up 8% on an adjusted basis and 13% organically driven by strength across all channels. Adjusting for divestitures, by channel, commercial OE sales were up 26%, driven by higher volume on narrow-body and wide-body platforms. Commercial aftermarket sales were up 10%, driven by an 11% increase in parts and repair, and 11% increase in mods and upgrades and a 7% increase in provisioning. Defense sales were up 7% versus the prior year, driven by higher volume across multiple programs. Adjusted operating profit of $1.4 billion was up $121 million versus the prior year, driven by drop-through on higher commercial and defense volume. This was partially offset by defense mix, higher SG&A expense and the impact of divestitures completed in 2025. In the quarter, Collins expanded margins by 30 basis points year-over-year. Turning to Collin's full year outlook. Based on the continued commercial OE production ramp and defense strength, we now expect sales to grow mid- to high single digits on an adjusted basis, up from our prior range of mid-single digit. And organically, we now expect high single-digit to low double digits growth, up from our prior range of high single digit. With respect to operating profit, we now expect growth between $550 million and $625 million versus 2025, up from our prior expectation of between $425 million and $525 million, driven by drop-through on increased sales volume and ongoing cost reduction initiatives. Shifting to Pratt & Whitney on Slide 8. Sales of $8.9 billion were up 16% on an adjusted basis and 17% organically, driven by strength in commercial aftermarket and military. Recall that Q2 2025 was impacted by a 4-week work stoppage. Commercial OE sales were down 8% as increased engine deliveries were more than offset by large commercial engine mix, and commercial aftermarket sales were up 25%, driven by higher MRO volume. In military engines, sales were up 23%, driven by higher F135 volume. This year-over-year increase benefited from the timing of the F135 Lot 18 contract award, which was received in Q3 of last year. Adjusted operating profit of $740 million was up $132 million versus the prior year, driven by drop-through on higher commercial aftermarket and military volume as well as military mix. This was partially offset by increased engine deliveries large commercial engine mix and higher SG&A expense. In the quarter, Pratt expanded margins by 30 basis points year-over-year. Turning to Pratt's full year outlook. We now expect sales to grow high single digit on both an adjusted and organic basis, up from our prior range of mid-single digit due to the strength in commercial aftermarket, partially offset by commercial OE mix. With respect to operating profit, we now expect growth between $275 million and $350 million versus 2025, up from our prior expectation of between $225 million and $325 million, primarily driven by drop-through on increased sales volume. Turning to Raytheon on Slide 9. Sales of $8.3 billion in the quarter were up 18% on both an adjusted and organic basis, driven by higher volume on land and air defense systems, naval programs, and air and space defense systems including Patriot, Standard Missile and AMRAM. Adjusted operating profit of $1 billion was up $234 million versus the prior year, driven by higher volume, favorable mix, including Patriot programs and improved productivity. In the quarter, Raytheon expanded margins by 100 basis points year-over-year. Bookings in the quarter were $19.9 billion, resulting in a book-to-bill of 2.42 and a backlog of $86 billion. On a rolling 12-month basis, Raytheon's book-to-bill is 1.77, and Raytheon's backlog is now 48% international, up 4 points year-over-year. In addition to the awards Chris mentioned earlier, Other key awards in the quarter included $1.1 billion for AIM 9X and approximately $800 million for LTAMDS. Turning to Raytheon's full year outlook. We now expect sales to grow high single digits to low double digits on an adjusted and organic basis. This is up from our prior range of high single digit due to the strength Neil mentioned. And we now expect operating profit to grow between $575 million and $650 million versus 2025, up from our prior expectation of between $275 million and $375 million, driven by the drop-through on increased sales volume, favorable program mix and improved productivity. With that, I'll hand it back over to Chris for some closing remarks.

Okay. Thanks, Nathan. We drove very strong financial performance in the first half of the year and are confident in our updated full year outlook. And I want to thank the entire RTX team for their commitment to our mission. We have strong conviction in the long-term demand across our commercial and defense markets, and we believe that RTX is exceptionally well positioned with leading franchises, a growing installed base, a record backlog and the scale to invest in capacity and technology. Our focus will remain on executing and innovating for our customers to drive continued organic sales growth, margin expansion and robust free cash flow this year and well into the future. With that, let's open it up for questions.

[Operator Instructions] And the first question will come from the line of Peter Arment from Baird.

Chris, maybe if you could just give us an update on the latest status with all your framework agreements or the progress that you're making there? And if you could just tie it into how you think kind of with the budget environment, I think everyone's expectations are we start the year with a CR and how that would affect things and just latest status on both.

Yes. Thanks, Peter. Maybe I'll start with the defense budget first because that's obviously a key piece of the framework agreements. I think like many of us, we're pleased to see that the U.S. base budget request crossing the $1 trillion mark. That's significant. And this plus the multiyear requests that are in there show the continued demand, I think, for years to come, a really strong demand signal. And I know there's lots of discussions on budget amounts and mechanics. But what I can tell you, as we engage with Congress, is there's a bipartisan support for increased munitions and ramping in those areas, which are pretty core to our capabilities. I know people talk a lot about being aligned with the Department of War and budget priorities. But we've got pretty strong conviction that we have among the strongest claims in that regard. If you just think about it in terms of the global events that have reinforced the need for our systems, we've seen effective intercepts on things like Patriot, Coyote, AMRAM, AIM-9X and the standard missile family, so again, some of the most capable and effective in the world and continuing to do their job in some of the most contested environments. And then secondly, the 5 framework agreements that we signed that you referenced. Those will have significant demand over the next 10 years to the extent that the budget in the multiyear come home. Those aren't even in our backlog today. So on the framework agreements themselves, Peter, we continue to engage with the department on turning our framework agreements into definitive agreements. And that process is ongoing. I won't get too into the weeds on that, but they've been very, very productive and constructive conversations. And then behind the scenes, we're continuing to work all the things that we'll need to do in order to execute on those framework agreements once they get signed. So significant engagement with the supply chain, making sure they understand what they're going to need to do what our volumes are going to look like, what capacity we're going to need, what investments we and they are going to need to make, and we're making some of those investments today. Also engaging with second and third potential suppliers where we have sole-source positions where, frankly, we need to increase the competition and increase the capacity. Some of those are in the defense industrial base today. And some of those are outside the defense industrial base that we're engaging with, who are interested in coming in as long as we can get the right volumes. So again, pretty productive conversations. We'll see how the budget ultimately shakes out. But as I said, feel really good that our products, no matter how it gets pieced together will be a priority. And maybe I'll just end, Peter, with don't forget about the international demand. still hugely significant, $10 billion of awards in the first half with 48% of Raytheon's backlog being international. So strong domestically and strong internationally.

The next question in the queue will come from the line of Robert Stallard from Vertical Research.

Neil, just a couple of quick questions on the 2026 guidance. Firstly, on the free cash flow, you didn't raise the top end of the free cash flow guide. I was wondering if timing was anything to do with that very strong performance in Q2. And then secondly, on the revenue guidance, you have raised it, but you are factoring in a slowdown in revenue growth in the second half versus the first half. I was wondering what the key drivers are there.

Thanks, Rob. Let me start with the free cash flow. Obviously, really pleased with the first half performance of cash flow. To your point, there was some timing. There always is with the free cash flow in the quarter, but I'll point to a couple of things. The first is you'll recall last year, in the second quarter, Pratt was undergoing a 4-week work stoppage that delayed some engine deliveries that, therefore, delayed cash collections. We've been able to, if you will, catch up on that. And so that's benefiting the second quarter. And the other thing to a lesser extent, that's helping the second quarter is international advances on all those awards that we got most particularly within the Raytheon segment. So as I think about the rest of the year, clearly, we're about at the halfway mark of our full year outlook. So we feel good about the second half. But a little bit of timing there between what we had penciled in for Q3 versus Q2. As far as the outlook, we took the bottom end of the range up $250 million to reflect the higher segment operating profit that we're putting through in our guidance updates today. That's offset a little bit by some working capital headwinds. So when we started the year, we thought we'd see a slight tailwind from working capital as we sit here today given we've added 3 points of organic growth to our outlook for the year. We're going to be building a little bit of inventory to make sure that we're prepared to deliver the continued ramp not only in the second half of the year, but the growth that we see coming through in early 2027. So those things kind of offset a little bit, again, feel good where we are, and we'll continue to monitor this as we go through the rest of the year. As far as the revenue second half, let me kind of share a few thoughts here. I mean I think it comes down, particularly to some comparisons, and I'll walk you through those pieces. For the full year, our organic sales are going to be up 8% to 9%. So very strong growth, like I just said, up 3 points from where we were in the first half. We saw a 13% organic growth. And in the second half, you'll see in our outlook, it implies somewhere in the 5% range at the midpoint of our outlook. So still growing, still really strong, but again, some unique comparisons. Let me start with Pratt because I think that's the most pronounced. I just talked about the 4-week work stoppage. And so that happened last year in the second quarter. We caught up in the second half of '25. So you've got that comparison to deal with here in the third and fourth quarter. And also last year in the third quarter, we reached an agreement on the Lot 18 F135 engine production contract. And that brought with it some higher sales that we've been having closed on the balance sheet in the second quarter last year. And so again, that won't repeat. And so you'll have that comparison to deal with in the third quarter in particular. And then another point I would make about the second half for Pratt on the large commercial engine side, our install engines will continue to grow, but there'll be some lower revenue as the mix shifts more towards installs and away from spares. And in fact, we now think our OE sales for Pratt will be down in the low single-digit range as we continue to support that really strong material growth on the MRO side, and you saw that in the second quarter numbers. On the Raytheon side, also some difficult compares in the first half of last year, sales were up about 4%. So obviously, we had a really strong 14% first half this year. We had 9% growth in the second half of last year. So we're starting to see the material receipts normalize throughout this year. And so that's really good for getting product out the door, but it does put a little bit of pressure on the growth rate which is still fairly robust in the mid-single-digit range in the second half. Collins is a little bit more normalized. So 12% growth in the first half, seeing in that 8%, 9% range in the second half. Again, we're continuing to ramp with our airframers on the OE side in particular. And so -- and we're also staying fairly prudent on the commercial aftermarket side. So we haven't changed our outlook there as we continue to monitor the macro situation. But again, all indications are from the orders that we saw in the second quarter for Collins that the aftermarket remains strong and our customer behaviors remain unchanged.

Next question in queue will come from the line Sheila Kahyaoglu from Jefferies.

Great quarter. Neil, you just covered a ton. Maybe if we could just tease out the puts and takes in Pratt sales growth for the quarter, aftermarket up 25%; military up 23%. OE down 8%, how are you thinking about just the contribution of each going into the full year? And on the Pratt OE down low single digits now, what's driving that? Is it more allocation to Airbus pricing, something else driving that headwind?

Sheila, it's Chris. Let me start with the Pratt piece and the OE. As Neil noted, the large commercial engine deliveries were up in Q2 of 15%, so pleased with that on a unit level. The sales decrease was due to mix as again, we continue to ensure that we have strong material flow into our MRO shops. As we mentioned, we saw a good decline in GTF AOGs down 25% in the first half of the year. And that was really driven by very solid MRO performance. We had 1,100 output up 43% year-over-year, and that was enabled by a 23% reduction in year-over-year turnaround time. And that was with much heavier work scope of 14 points year-over-year. So really, really strong MRO performance. And we've got to continue to keep our MRO network in a very, very strong material position. We need them to be able to continue to sustain higher rates and turnaround time reduction. We've got about 15 PW1100 shops in our MRO network and our goal here, our objective is to continue to drive this network to consistently achieve that 90-day or below turnaround time. And we need material flow in order to do that, right? And so we need all 15 of those shops hitting that mark at that standard, so that we can continue to make this a well-oiled machine in our aftermarket network. So that was really the thought process there, making sure that they have the material that they need in order to do what they need to do and to have the performance that we need. Now I will say we're also going to continue to drive deliveries to Airbus will be up in the second half of the year there, and we'll deliver a record number of GTF engines this year.

Yes. Thanks, Chris. I would just add a couple of things there, or reinforce a couple of points. One is the work scope. And so as we think about the rest of the year and the total outlook for Pratt, we're taking up the top line by about $900 million at the midpoint. The vast majority of that is aftermarket, and it's really on the back of that higher work scope. So we're seeing good material flow, which is driving those heavy shop visits. And it's not just the PW1100, though, that is the predominance of it. The V2500 shop visits remain right on track at the midpoint of the year to our full year induction expectations. The content there continues to be strong, too. So I think what's important here, even as we see OE sales down a little bit, is that it's really about the material allocation, and we're taking up the profit for Pratt. So we still see the margin expansion, not just this year, but we expect that to continue in years thereafter. As this aftermarket continues to gain further traction and the profitability continues to accrue to those contracts. So feeling good about where we are, and I think just a few tweaks around the edges in terms of our allocation of material between the different channels.

The next question comes from the line of Gautam Khanna from TD Cowen.

I was wondering if you could talk a little bit about Raytheon Defense's margin opportunity over several years. It's done very well in recent years in terms of rate of improvement and in the past, you've commented on productivity, mix, mix foreign versus domestic, mature programs versus newer programs. If you could just talk about the evolution there and what do you see as sort of the art of the possible over the next couple of years?

Yes. Thanks, Gautam. I would say we're really pleased with the Raytheon performance this year. I mean, the 18% organic sales growth and the 12.6% margin. Again, we laid out a while ago where we thought the full potential of this business could be, and it is -- it continues to be really right on track. And that really comes down to the demand and the performance in the supply chain. The demand obviously continues to be strong, $20 billion of awards in Q2 and an $86 billion backlog. And the mix of that demand continues to be pretty favorable. These are mature programs. Those things that we've been -- we've made historically. We know how to go drive productivity and it's also been the performance of the supply chain on these mature programs, which has continued to be strong. We've seen at least over 2 years of quarter-over-quarter material receipts going up. We've given very, very clear demand signals very helpful in terms of what the government has done there as well. We've given very clear demand signals to our suppliers and they continue to step up and deliver. So that helps drive this productivity. The other piece of the mix, and you mentioned it, is the international component. Again, 48% of Raytheon's backlog is international right now on these mature programs, and that also helps drive little bit better pricing and productivity. So all of those things go into what we consider to be Raytheon being on track to continuing to drive margin expansion in its business and getting to that, we'll call it, full potential area that we talked about previously.

Gautam, the thing I would add too, around productivity, I agree with everything that Chris said, is we saw about $20 million of favorability from productivity in the second quarter. So cumulatively, year-to-date, we're about 40, which frankly isn't that significant, which tells me that we've got a good solid base margin in the business in the backlog. And that's what the Raytheon team has been focused on for the last couple of years as we've onboarded a lot of new work. It will, of course, ebb and flow a little bit based on the mix of the timing of deliveries. But again, having achieved the 12-plus percent margin here, and then as you look at the outlook for the rest of the year seeing it's still in the mid-12% range, we feel really good about the trajectory that we're on. And all the while, we're able to make investments that we need to do to not just support the new capacity for additional current products, but to invest in new products that as well. So feeling good where we are, still a lot more to do.

Maybe the last thing I would say on this one is, we've mentioned this before, the framework agreements that we've talked about. They're not even in this backlog today. To the extent that they get into the backlog and that we get the multiyear treatment we really believe those are really, really good pieces of business. And so I'll just say, we're not going to stop in terms of kind of where we are from a margin perspective. We're still going to continue to push. We think those framework agreements could be a significant tailwind there.

The next question comes from the line of Ron Epstein from Bank of America.

Can you talk maybe a bit about capital deployment? So in the quarter, you divested Canyon. You're generating a mix of cash. There is a complicated narrative around share buybacks and dividends. So how are you thinking about deploying capital? How are you looking at the portfolio and how should we just broadly think about it?

Yes. Thanks, Ron. I think our priorities on the capital allocation front continue to be consistent. And that's investing in the business. You've heard us talk a lot today in our prepared remarks about the demand and the demand. We've talked a lot on the defense side continues to be strong on both the commercial and defense sides of the house. So continuing to invest in the business to make sure that we've got the right capacity in a healthy supply chain will continue to be a priority, a commitment to the dividend, for sure. Obviously, we've raised the dividend again here recently. And then continuing to reduce the debt to strengthen the balance sheet. In the M&A front, I wouldn't say that anything that's swirling around out there is going to change our thoughts on that. We've got a pretty robust set of criteria about things that we think fit in the portfolio may not fit in the portfolio. We're going to continue to be disciplined around those types of opportunities. And for us, when we kind of look at the portfolio, there's nothing that we think we really need. We think the portfolio is exceptionally strong. We've got a lot of conviction around the growth trajectory in the portfolio in the way things fit and how we can continue to leverage both scale in terms of supply chain and cost structure but also technology. So really no change in our mind about how we think about capital allocation. And so for us, it's just about driving execution, investing and making sure that we're delivering for our customers and the rest will take care of itself.

The next question comes from the line of Scott Deuschie from Deutsche Bank.