Textron Inc. — 2024 Q1

No, we didn't. I mean, it's not a huge number, Peter, but it's not that helped the margin rate a little bit in the quarter.

Yes. As you know, that bounces around depending on where the share price is, but kind of we expected, it certainly will not be as volatile or may not be as volatile for the rest of the year. So we'll see. But yes, we're still sticking with the same target for the full year.

Yes. So your competitors, Gulfstream and Embraer basically had higher biz jet deliveries and we're kind of closer to where they expected to be. And yet you guys continue to struggle. Is part of that related to geography that you guys are in Wichita and you have to fight with Spirit to get people because they're trying to ramp to. And that, therefore, this is going to be a longer slog than maybe others are going to see?

Cai, I mean I thought we feel pretty good about our deliveries. We always would like to get another couple of jets here and there, but I think we're doing pretty good and feeling good about where we are. On the labor front, where we expect it to be. So I don't see a problem with our labor situation in which [indiscernible] I think everybody has been challenged by higher turnover rates just in terms of the amount of churn.

Great. And sort of maybe going back to Myles' question. So energy prices are up 525 is clearly targeting that market. You've got an order for 10, do delivery start relatively early next year? So could we start to see some pretty good build on that program?

Well, we're already ramping up the production side of the program to start to meet deliveries, but I suspect those deliveries will be in the late '25 sort of time frame. I think we're in a very good place in terms of the cycle, as you alluded to. Obviously, Equinor is an energy company, and those are for oil and gas offshore applications, and we have several other customers who were in, I'd say, positive latter stage negotiations that are primarily aimed at the oil and gas market right now. So it's certainly a favorable time to be getting these things through certification. And I think it fits a nice place in that end market.

Thanks very much. Good morning, everyone. I guess, Scott, you called out the contribution to EBIT growth from pricing at Aviation, and we'll see more about the other components in the queue. It looks like the compares for pricing get somewhat tougher from here, should we think about I know you probably have some visibility into the backlog here. Should we think about the $14 million of year-on-year pricing being a relatively high level compared to what we're likely to see for the rest of the year given that those compares get harder?

Yes. I think it kind of is pretty stable through the course of the year. I mean we do have obviously very good visibility to the pricing side of things because they're all in the backlog. Obviously, what's important to us is to maintain that spread of net pricing over inflation. And so that's really most of the work as we go through the course of the year is just managing the inflation numbers around supply base and things like that. So -- but I would expect to see positive price over inflation through the course of the year.

Okay. Okay. And then just a follow-up, I think you talked earlier about potentially some upside at Bell. I talked about being in good shape at Aviation. I mean when we think about where industrial came in, in the first quarter and where the guidance is, it looks like they're going to probably have a tough time getting to that guidance and then maintaining the overall guidance for the company of Aviation and Bell to fill in those gaps? Or that...

I think that -- yes, I think look, the industrial business, we would anticipate the revenue being a little bit lower than probably our original guide. I think we'll probably hold in the margin range. But I think we have sufficient upside in terms of the performance and how we're doing on the aviation and the Bell front that -- which is why we're comfortable holding our guide for the overall company.

Scott, Frank. Just staying on the Aviation margin, I mean, it's a pretty good incremental in the quarter. I think it was a little bit of an easier compare. We kind of a sense what units and price are doing. I think you've had cost input inflation, but you've also cited just kind of supply chain and some internal operating performance, maybe that's been a hurdle. Is that behind you now? Is that no longer an issue as you move through 2024? And is that a tailwind year-over-year?

I think you'll still see some pressure in second quarter. No. Remember, a lot of these aircraft are inventories, a lot of that cost is inventory. So it usually takes the first half of the year to bleed out in the performance levels and productivity levels that we saw in the back half of the previous year in 2023 in this case. So I still think we see some pressure for that.

Okay. That makes sense. And then I guess just a follow-up on the Bell margin. I know the FLRAA is still ramping and it will kind of exit the year at a different revenue run rate than it achieved in the first quarter. But it's also ramped a decent amount. And I think this year, you'll get pretty close to what the run rate is in the sort of medium term. And this Bell margin just keeps outperforming. I mean the amount of margin compression that was discussed out there in the market, I guess, in the medium term? Is that kind of off the table? Or I guess, how do you see this dollar margin hanging in '24, '25 or '26, just in the medium term as you continue to ramp FLRAA?

Well, look, I mean, I think again, the team is performing well. We're doing everything we can on the cost front to deal with the lower production levels, things like the Nigerian order, the additional 5 V-22, these things are all helpful. I guess I would also note and you may have seen, if you look at the FY '25 budget request, one of the allocations of sort of the elimination of FARA and where that money in the out years goes, there is over $200 million of FY '25 money on FLRAA above what was originally in the [ FIDAE ]. So I do think that we're going to -- we're ramping quite nicely on FLRAA.

Okay. And Frank, I guess, a decent amount or a lot of the items below segment manufacturing segment EBIT were pretty different in the quarter compared to what the full year implied on a quarterly run rate. If I look at what Aviation did finance did tax rate, corporate interest, even. Is it worth updating those on a full year basis? Or are they all just kind of still looking like the land in the range of what you had originally embedded in the earnings guidance?

Well, I think that finance will be in the range of what we had thought. We talked about corporate expense was kind of significantly higher this first quarter due to share price performance. But we'll kind of stick with that type of range. I think interest expense relative to, I don't know what -- we didn't really guide interest expense, but our -- I guess, we're probably a little better on interest expense, excuse me, relative to the $90 million depending on what interest rates do for the year.

Jeez, I don't know. I mean, obviously, I would say at a macro level, generally speaking, over very long periods of time, price inflation probably end up pretty close. I think we certainly went through a number of years in this industry where the prices were where the products were way under price. I mean it just doesn't make sense.

Well, I mean, I think that -- as you described, that's kind of what you would nominally expect for any of these large defense contract programs, FLRAA is a very big program, right? So the EMD phase of this thing goes out through into 2030. Now you'll start to see, I would suspect initial production lots. We have LRIP deliveries that happen out in 2028, but you'll start to see some of the follow-on production lots be negotiated out in that time frame. But certainly, the next several years is very much dominated by the EMD program.

Yes. Correct.

Good morning, everybody. I was wondering if you could spend a little bit time on eAviation. Maybe provide us a little bit of an update on how things are going in that business and the development that you've got going on there? And kind of what the -- the next couple of years look like for you all on product development revenue and how EBIT is going to trend for us here over the next few years given that backdrop?

Sure. So look, I think there's obviously a couple of pieces that are in here, right? There's the Pivotal business, which I think is doing well. We're seeing -- we saw a significant increase in the number of deliveries here in Q1. I think demand for those products is strong. So we feel pretty good about where that is.

And as you think about the size of the market that you're going after, you're putting investment dollars against what you expect to be volumes. And so I'm just kind of curious, when do you expect the payback period to start on these investments that you're making?

Okay. So I think this is very much an unknown. I mean, there's plenty of studies out there and a lot of other noise in this industry that when you look at the eVTOL side of things, that it's a mega market. The exact timing of that, I think, is still a little bit to be determined. There's still plenty of work to do on the technical front from our perspective, technical work, regulatory work to make sure that there's viable products to meet that mission. So again, I think there's plenty of independent third-party data out there that has perspectives about how huge that market could be.

Scott, the incremental margin in Aviation, as people were talking about was, I mean, like 46%. And I recognize that revenue differences are small, so the numbers can get somewhat distorted. But given that you said inflation will probably pretty much be somewhat similar to the price benefit that you got this quarter. Why won't those incrementals for the rest of the year run somewhat higher than kind of your objective of 20%?

Well, George, look, I mean I think when we look at the cost and what's going to come out of inventory and what the margin rates are going to look like, it's, I do think you're right. We did have a higher conversion on Q1, but that's certainly, I think, certainly higher than we would expect for the course of the year. So I think at this point, as we look at it, our expectations in terms of what inflation is going to look like, what plant performance is going to look like, which, as I said, is for sure improving through the course of the year as we get towards the high side of guide there, it's that 20% kind of range, which is generally what we've guided as a long-term measurement for the business. And I think that's where we'll be.

Okay. And one quick one for you, Frank. You bought a lot of stock in the first quarter, like 1.8% of the outstanding I guess it was pretty opportunistic? Or do we expect that you might buy more than 5% for this year?

Well, we talked about kind of 5% was in our guidance, but we also talked about the fact that we have a strong liquidity position, and we're going to return excess capital. So I think that kind of -- we did a fair amount in the first quarter. We'll continue to buy from here. We'll probably be on the higher side of that 5% for the year.

Just maybe circling back on the defense business in the supplemental that just got passed yesterday. Is there stuff in there for you guys? I mean have you looked -- obviously you've look at it, but can you give us a sense of potentially what's in there for Systems or Bell?

No, there's not. I mean we really haven't been in the in the guns and bullet business. So most of that stuff is not replenishments of things that we have. I do think there's opportunities in Ukraine over time when you look at things that are possibilities for Bell on some other things and systems, but not something that's directly tied to these supplementals.

Got it. Got it. And then kind of back to aviation. Broadly, how is this supply chain doing in that? One of the things I've heard oddly enough is like window screens, windshields for airplanes or there's a shortage of those. I mean is there other stuff like that, that's just kind of random stuff to just kind of short in supply.

Well, look, Ron, as we said, it's the randomness is part of what drives us crazy, right? It's -- and they change over time. But you're absolutely right. Windshields have been a problem now for several years. And it's, I'd say, probably getting better, but it's been a big problem. It's been a problem for us in terms of production builds. And frankly, it's been a big problem for us in terms of our customers.

Yes. When I heard that I was astonished, but yes, I guess the current suppliers shut down the other supplier, whatever.

Scott, earlier you mentioned on industrial, how you're seeing incremental weakness in the high-end consumer. Can you talk about the customer profile of those buyers? And if there are similarities to the customer profile for products like M2 or pistons or Couriers in aviation?

So I don't know exactly in terms of categorization of that customer per se. But I think that if you look at demand for all the way down to piston. The system 172, demand remains very strong, and we expect to have strong deliveries even over last year, but availability, the demand environment is very strong for that kind of stuff.

I just want to confirm if I heard the restructuring savings are expected at $185 million, given I think the initial plan was $75 million. And just what's driving the better number there?

Yes. That's a full kind of run rate when we get through it all. And it's really driven by the addition of head count reductions. The unanticipated Shadow, FARA and then the additional actions at Industrial are really focused on head count where the original restructuring had some asset impairment in it. And so we're getting a much bigger run rate savings as a result of those reductions to kind of rightsize those activities.

Got it. Okay. What is the transition from shadow to FTUAS look like in terms of kind of revenue and margins over what time frame?

Well, look, I think that's still a little bit to be determined when the Army canceled the Shadow program. They did say they wanted to move more aggressively on FTUAS, we have seen that in the awards now of option 3 and 4, which is good. There aren't, I don't think, formally published dates, but the dates that we hear about in terms of when they'll put an RFP out on The Street for the ultimate EMD production decisions, sounds like they're probably pulling that forward to where that RFP could come out as early as even late this year, which would lead to an early '25 calendar year award, which should be great. So the exact size and scope and therefore, the revenue and the margin is -- we just don't have visibility to that at this point.