Noah Poponak: Good. Recognizing that there’s multiple top line inputs that are out of your control at the moment, which of the 2025 segment margin targets hold and which do not at this point? Because in the two aerospace segments, the 2024, 2025 incrementals required to get there are a lot better than 2023. And then obviously, on the defense side, it requires a pretty big step up. So help me with that math? And I guess, just what’s the latest medium-term outlook for each of the segment margins?
Neil Mitchill: Yes. Noah, let me take a stab at that one for you because as you look out to 2025, clearly, we’ve had in 2022, some supply chain and labor impacts that have kind of caused us to come in a little lower than our initial expectations. However, when you think about that backlog that we’ve been talking about, it’s $175 billion at the company level, $69 billion, $70 billion within the defense. We have a lot to deliver ahead of us. And so I think there’s going to be some puts and takes as we look at the segments on an individual basis as you get out to 2025. But as I step back and look at the totality of RTX and where we projected to be and where we’re aiming to go and with that backlog, we feel confident that we can get there.
We can get the sales growth, get the earnings growth and Greg already hit on the cash flow pieces there. So some things have changed since we’ve talked in 2021. We’re certainly dealing with a lot more inflation, but we’ve also got the situation in Ukraine that has given R&D some tailwinds. So when we get to June, we’ll be able to lay out that in more detail. It also be aligned with the format of our new operating segments at that time. But I think there’s going to be some puts and takes, but we’re all focused on driving margin improvements and making the right investments to drive that automation in the factory and digitization. I should add to Greg’s comments earlier about the free cash flow walk. We’ll probably see about $0.5 billion of capital headwind between 2022 and 2023.
So making the right investments. I’m really focused on earnings growth and conversion to cash and so we’ll see where the margins land, but I do think we’re going to get that earnings growth.
Noah Poponak: Is it your anticipation that you’ll have a few hundred basis points of defense segment margin expansion over the next few years? And is that all cost or is that mix? Or is it not dealing with supply chain? Or how do you do that?
Greg Hayes: It’s €“ I would tell you, it is a combination of all of those things. It’s supply chain getting better, which allows us to see productivity in our factories. It’s also €“ as we move from these LRIP contracts, initial rates of production on LTAMDS and SPY-6 and others to full rate production to see an improvement in margin on the production side as well as the mix of DoD versus international sales. Today, we’re actually at a low point of about 30% at RMD of international versus DoD sales that actually transitions back towards a more historical level 40%, 45% as we do more exports, especially around LTAMDS and some of these new systems.
Noah Poponak: Okay. Thank you.
Operator: Thank you. Our next question comes from the line of Peter Arment of Baird. Your question please, Peter.
Peter Arment: Hey, good morning, Greg.
Greg Hayes: Good morning, Peter.
