In part 1 of this analysis, I tried to use GDP data to see if I could detect any relationship between aid to Ukraine and GDP growth. Unfortunately, GDP data is not fine-grained enough to answer some questions. My hypothesis was that U.S. aid to Ukraine was recycled as purchases of arms to fight Russia. This is part 2 of my discussion of third quarter GDP. Here I want to use RTX as a case study. (RTX was created in the first quarter of 2020 as a merger of Raytheon and United Technologies. Both are large defense contractors.) I’ll focus on the Raytheon Missiles and Defense division.
(click for larger image)
According to the Department of Defense, the U.S. has sent $18.2 billion in “security assistance” to Ukraine since January, 2021. (Sources: “$725 Million in Additional Security Assistance for Ukraine” and “Ukraine Fact Sheet Oct. 14, 2022.”) That sounds like a lot. But third quarter GDP was $20,021.7 billion (using chain-weighted inflation adjustment). Federal government spending was $1,353,4 billion, with $773.4 billion going to national defense. For those keeping score, defense spending was 3.9 percent of GDP. Let’s face it: $18.2 billion is 2.4% of defense spending. There is no way we can detect that small amount from GDP data.
RTX: A Case Study
I decided to use a well-known defense contractor, Raytheon, to answer my hypothesis. If you want to stop reading now, you have my permission because the results were inconclusive. But you may want to press on, if only to learn some intricacies of corporate accounting and reporting.
I used the official SEC 10Q (quarterly) and 10K (annual) financial statements from RTX. That’s where I found out about the 2020 merger with United Technologies, creating RTX. The merger was accompanied by a reorganization, creating the Raytheon Missiles and Defense division. Data for this segment was only available from the second quarter of 2020 through the third quarter of 2022. There’s the first problem.
The 2022 10K Excel workbook for RTX has 162 worksheets. There is no particular organization. I happened to stumble on a sheet labeled Raytheon Missiles and Defense (RMD). The results reported are very basic: net sales, operating profit, operating profit percentage, and bookings. As far as I could tell there is no breakout of the balance sheet or cash flow statement by segment. But I could be wrong. (Want to be a data detective? Click here to download my Excel workbook of RMD financials. If you don’t believe my data or want to explore, click here to download all the 10Q’s and click here for both 10K’s. The last two are zip files.)
I’m looking for a sharp upturn starting in early 2022. Here’s what the numbers say:
 Raytheon Missiles & Space Operating Profit. Click for larger image. |
 Raytheon Missiles & Space Operating Profit Margin. Click for larger image. |
 Raytheon Missiles & Space Net Sales. Click for larger image. |
 Raytheon Missiles & Space Bookings. Click for larger image. |
Business has steadily improved during 2022. But there is no spike that might be caused by the invasion of Ukraine in 2022Q1. It’s possible that the recent increase in sales and profits is partly caused by that event. But without more detailed information, I hesitate to draw a conclusion. Hence, there will be no conclusion to this article.
