Textron Q3 2022 Earnings Call Transcript

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Provided by Quartr
October 27, 2022

Key Takeaways

  • Strong Q3 results: Revenues reached $3.1 billion (up $88 million YoY), segment profit was $299 million (up $20 million) and EPS from continuing operations grew to $1.60 from $0.85, while manufacturing cash flow before pensions rose to $290 million.
  • In Textron Aviation, margins improved to 11.9% (from 8.3%), backlog grew by $524 million to $6.4 billion despite supply chain challenges, and new fleet orders were secured with FlyXclusive and FlyAlliance.
  • At Bell, lower military revenues were offset by commercial strength, with 49 helicopters delivered (vs. 33 last year) and solid demand across models, as the company awaits the FLRAA contract award.
  • The Industrial segment saw revenues up $119 million thanks to higher volumes and favorable pricing—particularly in Specialized Vehicles—although Kaltex continued to face auto OEM supply disruptions.
  • Full-year guidance was tightened, raising manufacturing cash flow before pensions to $1.1–$1.2 billion, setting EPS at $3.94, capital expenditures near $375 million and a tax rate around 16%.
AI Generated. May Contain Errors.
Earnings Conference Call
Textron Q3 2022
00:00 / 00:00

There are 17 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2022 Textron Earnings Release Conference Call. At this time, all participants are in listen only mode. Later, we will conduct a question and answer session. As a reminder, today's call is being recorded. I would now like to turn the conference over to the Vice President of Investor Relations, Eric Salander.

Operator

Please go ahead, sir.

Speaker 1

Thanks, Brad, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website.

Speaker 1

Revenues in the quarter were $3,100,000,000 up $88,000,000 from last year's Q3. Segment profit in the quarter was $299,000,000 up $20,000,000 from the Q3 of 2021. Income from continuing operations for the quarter was 1 point $6 per share compared to $0.85 per share on an adjusted basis in last year's Q3. Manufacturing cash flow before pension contributions totaled 2.90 $2,000,000 in the quarter, up $21,000,000 from the Q3 of 2021. With that, I'll turn the call over to Scott.

Speaker 2

Thanks, Eric, and good morning, everyone. Overall, we had a solid quarter across our manufacturing businesses with higher net operating profit and cash generation as compared to last year's Q3 despite ongoing supply chain and labor challenges. Aviation generated segment profit margins of 11.9%, up from 8.3% in the Q3 of 2021 on slightly lower revenues, reflecting a favorable revenue mix with higher aftermarket volume and strong pricing, net of inflation. We continue to see solid demand across our jet and turboprop products, resulting in backlog growth of $524,000,000 in the quarter. We delivered strong performance even as we continue to experience supply chain disruptions throughout the year that have impacted production schedules.

Speaker 2

In the quarter, we delivered 39 jets, down from 49 last year and 33 commercial turboprops, down from 35 in last year's Q3. Last week at NBBA, we also announced 2 large fleet orders that included an agreement with FlyXclusive for 8 XLS Gen 2 aircraft with We expect deliveries in 2024 and up to 6 launch aircraft with deliveries expected to begin in 2025. FlyXclusive also exercised its option to purchase an additional 5 CJ3 plus aircraft from its order earlier in the year with deliveries expected to occur in 2024. We also had an agreement with FlyAlliance for 4 XLS Gen 2 aircraft and options for an additional 16 aircraft with deliveries expected to begin in 2023. At Bell, revenues were down in the quarter on lower military revenues, partially offset by higher commercial revenue.

Speaker 2

On the commercial side of Bell, we delivered 49 helicopters, from 33 in last year's Q3, including the 400 Bell 505 aircraft. During the quarter, we continue to see solid commercial demand across all our models. Moving to future vertical lift, we continue to await a FLRAA contract award announcement from the U. S. Army.

Speaker 2

At Textron Systems, revenues were slightly lower in the quarter. During the quarter, ATAC announced a 5 year IDIQ contract with the U. S. Navy to provide chase flight services for the F-thirty 5 program. Systems was also recently awarded a contract to provide Aerosonde operational support on its 4th maritime site with services that are expected to begin in 2023.

Speaker 2

Moving to industrial, we saw higher revenues in the quarter driven by higher volume at both Kaltex and Specialized Vehicles and favorable pricing principally in Specialized Vehicles. Kaltex, while revenues were higher in the quarter as compared to the prior year, we continue to experience order disruptions related to the global auto OEM supply chain shortages. Moving to Aviation, we're seeing increased order activity for our training aircraft like the Alpha Trainer, which is a low cost pilot development platform. In the future, we will look to expand this trading option to include the Vales Electro as we work to achieve an FAA airworthiness search. Also last week at MAA, we unveiled our new NEXUS EV Tall Model Aircraft.

Speaker 2

Our updated design reflects our ongoing investment in the underlying research and development supporting Textron's long term strategy to offer a family of sustainable aircraft for urban air mobility, general aviation, cargo and special mission roles. To wrap up, we continue to see strong demand in our end markets and our teams are executing well in a challenging environment. With that, I'll turn the call over to Frank.

Speaker 3

Thanks, Scott, and good morning, everyone. Let's review how each of the segments contributed starting with Textron Aviation. Revenues of Textron Aviation of 1,200,000,000 were down $14,000,000 from the Q3 of 2021, largely due to lower Citation Jet and pre owned volume, partially offset by favorable pricing and higher aftermarket public. Segment profit was $139,000,000 in the 3rd quarter, up $41,000,000 from a year ago, largely due to favorable pricing, net of inflation of $31,000,000 Backlog in this segment ended the quarter at $6,400,000,000 Moving to Bell, revenues were $754,000,000 down $15,000,000 from last year due to lower military revenues of $112,000,000 primarily in the H1 program due to lower aircraft and spares volume, offset by higher commercial revenues of 97,000,000 Segment profit of $85,000,000 was down $20,000,000 from last year's Q3, primarily reflecting lower volume and mix, partially offset by favorable pricing, net of inflation. Backlog in this segment ended the quarter at 4,900,000,000 At Textron Systems, revenues were $292,000,000 down $7,000,000 from last year's Q3.

Speaker 3

Segment profit of $37,000,000 was down 8,000,000 from a year ago, primarily due to lower volume and mix. Backlog in the segment ended the quarter at $2,000,000,000 Industrial revenues were 849,000,000 up $119,000,000 from last year's Q3, primarily due to higher volume and mix of $95,000,000 and a $58,000,000 favorable impact from pricing, principally of specialized vehicles, partially offset by an unfavorable impact of $34,000,000 from foreign exchange rate fluctuations. Segment profit of $39,000,000 was up $16,000,000 from the Q3 of 2021, primarily due to higher volume and mix. Textron e Aviation segment revenues were $5,000,000 and segment loss was $8,000,000 in the quarter, which reflected the operating results of Pipistrel and costs for initiatives related to the development of sustainable aviation solutions. Finance segment revenues were $11,000,000 and profit was $7,000,000 Moving below segment profit, corporate expenses were $14,000,000 and net interest expense was 21,000,000 Our manufacturing cash flow before pension contributions was $292,000,000 in the quarter, up $21,000,000 from last year's Q3.

Speaker 3

Year to date manufacturing cash flow before pension contributions totaled $810,000,000 In the quarter, we repurchased Approximately 3,100,000 shares returning $200,000,000 in cash to shareholders. Year to date share repurchases totaled 639,000,000 To wrap up, we now expect our full year capital expenditures will be about $375,000,000 and the full year tax rate to be about 16%. For the full year, we are narrowing our earnings per share guidance to a range of $3.94 per share. Also, we are increasing our Full year manufacturing cash flow before pension contribution guidance to be in a range of $1,100,000,000 to $1,200,000,000 up $300,000,000 from our prior outlook. That concludes our prepared remarks.

Speaker 3

So, Brad, we can open the line for questions.

Operator

And our first question today comes from the line of Robert Stallard with Vertical Resources. Please go ahead.

Speaker 4

Thanks so much. Good morning.

Speaker 1

Good morning.

Speaker 4

Couple of questions from me. It may be my numbers are wrong, but it looks like revenues in Aviation and Systems were a bit lower than what we had anticipated in Q3. I was wondering if you could perhaps go into a bit more detail with what you experienced in the quarter, if it was Supply chain issues and whether this has pushed some deliveries to the right?

Speaker 2

Yes, Robert. I think that's safe to say. As you know, we've been We're ramping up our production volumes through the course of the year. We continue to do that, but we have been hit by a number of supply chain challenges that have resulted in aircraft pushing out To the right, our guys are managing through that. We'll continue to work hard to make deliveries and we'll continue to Work on that ramp as we go into 2023 as well.

Speaker 2

So again, look, I see it's a very strong demand environment. Aftermarket has also Been very strong driven by high utilization, but for sure we're continuing to see some difficulties around just getting parts. Labor ramp is, I'd say, picking up and doing reasonably well, but we've had some critical part impacts.

Speaker 4

So Scott, does this impact your division by division guidance expectations for the year?

Speaker 2

Well, as we said before on the last call, Robert, I think we expect Aviation probably is going to come in about $300,000,000 below what we originally guided. I think we're still on track to do that. I think we'll still make strong margin performance as the teams executed well. As I said, it's a tough market, but Tough situation, but they're executing very well. So I think we'll be solid on the margin side, but a little bit light on the top line.

Speaker 2

I think at You also mentioned, but systems are pretty close. I mean, they're kind of flattish. We still had a little bit of impact on that year over year from Afghanistan. But I think as we get into the Q4 here, you'll start to see Some slight growth in that business and obviously we expect that to continue into 2023.

Speaker 4

Okay. And then just a technical one for Frank. On the corporate and other, big decline year on year, what sort of run rate should we expect on that line going forward?

Speaker 5

Yes, I think we

Speaker 3

should probably think about $110,000,000 or so for the year. So a higher level in the Q4 than we've been running at. A lot of some of that depends obviously on share price, but in that zone.

Speaker 4

Okay, that's great. Thank you very much. Thank you.

Operator

And our next question comes from the line of David Strauss with Barclays. Please go ahead.

Speaker 6

Thanks. Good morning, guys.

Speaker 7

Good morning, David.

Speaker 6

Scott, Could you maybe touch on your manufacturing footprint in Europe? How you feel about things there from kind of an energy perspective and also how we should think about obviously in the quarter you had a pretty big FX impact there. How we should think about the FX impact given the euro dollar parity at the moment?

Speaker 2

Yes. The FX has been obviously quite a drag primarily in our Caltex business. And I mean, obviously, we expect that to continue, but we'll manage our way through that. I think on the factory front, most of the impacts We've seen that footprint in Europe have been driven really just by auto OEM issues around hitting their volumes. It hasn't been energy related at this point.

Speaker 2

Most of what I'm reading here lately is actually the energy situation seems to be a bit better than they expected heading into the winter. We haven't had any indications yet that anyone's going to back off on their auto manufacturing based on that energy. It's really more of these other supply chain issues that they're continuing to Just the impacted and look, David, we go kind of by IHS data in terms of how we think about and forecasting Volumes going forward, so clearly the year has been disappointing in terms of what was originally thought the volumes be achieved. But right now, it's looking like IHS is probably forecasting sort of a mid to high single digit growth Next year on top of some growth we saw this year. So that's kind of how we think about the volumes in the business, including the European footprint.

Speaker 6

Got it. Thanks. And Scott, I guess your latest update on FLORA and The timing you're expecting now for a decision and what kind of incremental spending are you looking at for the rest of the year to kind of Continue to carry on your effort. Thanks.

Speaker 2

Sure. So the latest we're hearing is it's probably a November timeframe. Obviously, we continue to work with the Customer and we've got to make sure we've been working on this, as you guys know, for a very long time. We're not going to do anything that's other than supportive and doing the right thing for the program, Making sure we keep the team together and keep making forward progress. Obviously, we still feel good about the program.

Speaker 2

And I think that there's obviously still some uncertainty around this. I mean, we don't know an exact date, but we're doing the right thing by the program, the right thing by the people. And While there is some uncertainty, I would say that we're pretty comfortable that we incorporated any impacts over the total year from where we were on our plan In our guidance, I think that we're comfortable that we'll land inside that guidance despite the impacts we've seen on the forward delay.

Speaker 6

Thanks very much.

Speaker 2

Sure.

Operator

And our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please go ahead.

Speaker 8

Hi. Good morning, guys.

Speaker 9

Good morning.

Speaker 8

Just a follow-up on the last point, Scott. How do you think about Bell without a FLARA win? What would sort of the scenarios look like for Bell without FLARA or potentially FLARA? And maybe can you remind us of the R and D investment impact for FLARA associated with 2022?

Speaker 2

So I don't think about Bell without Florida. Look, guys, I think we're in a good We will let the performance of our product stand and just kind of work through the process. Obviously, the Army is going through a very, very rigorous process here. So We'll bear with them and let this thing play out. But we're pretty bullish on that program and we'll leave it at that, I suppose.

Speaker 2

On 2022, the R and D has actually been down a little bit because we had more Of the cost share activity, both on the FLAR program and the FLAR program. So even with some of the impacts that we've seen on some of the delays, I think we'll be fine there. We're working our way through it. Clearly, the FAR program is going to continue to extend. And like I say, hopefully here compared to all the years we've been working on this, I mean, the far delays up to the short period of time.

Speaker 8

Great. No, that's helpful. And then, I'm glad you don't think about Bell without Flora. But switching gears to Aviation, When we look at year to date deliveries, they're light. You mentioned supply chain.

Speaker 8

How long does that linger? And how do we think about jet deliveries for 2022 in total? And Does it linger into 2023?

Speaker 2

Sure. Look, it's a good question. I think the way we're starting to lay out the year, as you know, we've been planning on ramping production all through the year. We've been achieving that. I mean, we have been increasing the number of hours and the labor and the activity in the factory.

Speaker 2

We're clearly not going to get to The number adjusts that we were originally hoping to be based on some of these delays, but we're going to keep that ramping activity going through 2023. So when you look at the incremental Volumes that we had in 2022, I mean, we're not ready to guide 'twenty three yet, but it's not a reasonable expected we'd see a similar increase in volumes In 2023 from what we saw from the 2021 to 2022 timeframe.

Speaker 8

Great. Thank you.

Speaker 3

Sure.

Operator

And our next question comes from the line of Seth Seifman with JPMorgan. Please go ahead.

Speaker 5

Hey, good morning, everybody.

Speaker 10

Good morning, Scott.

Speaker 5

I guess just to follow-up on that question, Scott. When you think about the strong backlog that you've been able to build here And you think about where deliveries might ultimately go, I mean, I assume the aim would be to be back to kind of the 200 plus level, maybe in 2023, kind of the level that had been anticipated for 2022 before The supply chain issues. And then when you think about moving higher from there, Would it make more sense to kind of focus on keeping that backlog, maybe expanding margins even a little further from this low double digit range and having a more steady delivery pace as we head toward mid decade?

Speaker 2

Well, first of all, Seth, I think your thoughts on volume here in the near term are correct. We obviously would like to have had more In 2022, but it's probably reasonable to think that what we hope to get in 2022 will be there by then in 2023. So we should back to that kind of 200 ish number in the 2023 timeframe. Beyond that, look, we'll continue to watch demand in the marketplace. It continues to be strong.

Speaker 2

As long as we see that kind of growing backlog in a strong environment, then we'll continue that ramp. But it's going to be a slow steady ramp, right? I mean, we certainly Like and we think it's better for I think we've talked about it's better for our company, it's better for our customers, it's better for the whole market to be operating with better visibility here around the backlog that's out there in that 18 month kind of timeframe. Right now, the demand continues to be very robust. We're seeing a lot of order activity that's out in that 18 plus sort of timeline.

Speaker 2

And We'll match production as we can to meet that. If the market starts to ease back or slow down, then obviously, we can taper off on the ramp. But I certainly don't see that being a case going through 2023, considering where the backlog is and where the demand environment is.

Speaker 5

Okay, great. And just a follow-up, very strong cash this year. And when you think about next year, Other than what we might assume on the P and L, are there Anything you'd note about cash flow, either headwinds or tailwinds heading into 'twenty three?

Speaker 3

So I think, no, not really. We've obviously, we've had good working capital management again this year, just like last year. We Certainly benefited again from strong customer activity and deposits. And so, but there's nothing from a kind of working capital or other cash impacts that are kind of out of line with where we've been.

Speaker 5

Okay, great. Thanks very much.

Operator

And our next question comes from the line of Pete Skibitski with Alembic Global. Please go ahead.

Speaker 11

Hey, good morning guys. Good morning. Hey, Scott. I just wanted to beat a dead horse a little bit on aviation. Just because even at a little bit of a lower guidance number there, it still implies a pretty good hockey stick in the 4th quarter.

Speaker 11

So I'm just wondering kind of on the risk assessment front, do you have the engines in house already that you need and the parts and the labor Framed up, or is there still some risk to that number do you think given the ramp?

Speaker 2

Well, look, I'd say there's always some risk to the number, right? But I think we're Obviously, our guys are working the heck out of this every day. They're tracking all the critical components. So I think kind of that number I gave you guys were probably a A few $100,000,000 under our original guide is still holding. Is there some risk to it?

Speaker 2

Yes, I mean, one of the challenges is that we You get supplier issues that pop up every day. I think we're in good shape in terms of labor and the things we can control. Stuff pops up, we get all over it. But I think we've got A pretty good shot at getting to the number that we told you. And if we miss something, it'd be a few aircraft around a particular part that pops up between

Speaker 3

Here and there.

Speaker 2

So you guys are working every day. I think it's a good guide. And could there be some risk in the environment we live in? Sure. But I think we're our

Speaker 3

folks are all over it.

Speaker 11

Okay. No, I appreciate it. Just one follow-up on the same segment. Kind of post NBAA, how How are you guys feeling about kind of the health of your customer base at Aviation? How the conversations go?

Speaker 11

And obviously, I'm sure the macro backdrop was Part of the conversations down there, I'm just wondering kind of what your net assessment is?

Speaker 2

I'd say very positive. I think that we're continuing to see some new people coming into the market. We're seeing some of our Historical corporate customers that are doing fleet refreshes, they're putting aircraft orders in, which obviously are deliveries are ways out, but They're refreshing their fleets. Obviously, the level of flight activity in the industry continues to have Charter and fractional customers very motivated to bring additional assets online. So I would say all in all, It's really strong, Pete.

Speaker 2

And again, I also would put against the backdrop of hardly a bubble, right? I mean, we're talking about jet delivery volumes that are Kind of back even still maybe below historical norms. So I don't think there's this euphoric bubble burst, but people Our refreshing fleets are investing in their aircraft. It's we don't see this big pull in, right. It's just the market Is strong and volume is strong, which is critical.

Speaker 11

I was going to say, your exposure to Europe is still fairly limited like it used to be. I think it was only, I don't know, 20%, 25% of your citation volume, is that still the case?

Speaker 2

Yes, it is. I mean, look, we're seeing kind of relatively normal from what we've seen Historically, jets are probably 80%, roughly U. S, 20% international. The King Air Tour prop lines are typically the other way around and that's what we're seeing. We're seeing maybe like 40% U.

Speaker 2

S, 60% international. So in terms of the the good news here is that Demand across pretty much all the models is strong and we're seeing mix in terms of international versus domestic Fleet operations that are kind of what we've normally seen historically.

Speaker 10

Okay, great. Thank you.

Operator

And our next question comes from the line of Noah Poponak with Goldman Sachs. Please go ahead.

Speaker 12

Hey, good morning, everyone.

Speaker 5

Good morning.

Speaker 12

Sorry, Scott. So what are you now planning for 2022 Sessnagejet units?

Speaker 2

No, we never give a specific number. So I think from the top line, you're looking at probably about $300,000,000 off of our original guide. And virtually All of that is jet deliveries really. So

Speaker 12

Okay. Okay. So we can back into that. And then you're saying do I have it correct that you're saying Think about that growth rate in units that that implies for 2022 repeating in 2023 approximately?

Speaker 10

Yes, that's good.

Speaker 12

Okay. And then how much visibility do you have beyond 2023?

Speaker 2

Well, Pretty good visibility. I mean, it's most of the aircraft, I mean, we have larger aircraft, frankly, are out in 2025 right now and The mix of lighter and midsize are certainly through 'twenty three, well into 'twenty four, towards the end of 'twenty four. So And this backlog is obviously very helpful to us in terms of having the kind of visibility we need to run the operations. And obviously, we'd like to do them a little more efficiently without some of the supply chain challenges, but I think we're in a pretty good place as we've had in a very long time obviously in terms of the visibility of the business.

Speaker 7

Okay.

Speaker 12

So I guess that's all positive and Really kind of major structural change in the business. But where the bookings are running, If they hang around in the zone that they're in now, you'd continue to run the bookings pretty far in excess of the revenue, which would build the backlog even further. So when do you get to the point where That's going too far and customers are going elsewhere, have to wait too long? Or is it just with the macro level supply chain bottlenecks, Everybody is in the same boat and every OEM kind of has to do the same thing and I was on the

Speaker 2

No, I I think you just said everybody's in the same boat, right? I mean, so I don't know where that equilibrium point is, right, when it gets out too far, but this is not a there's not like Some other supplier OEM that says, hey, I've got aircraft sitting around. So I think this is an industry dynamic as opposed to just being Unique to us. I mean, obviously, I feel great about

Speaker 3

how our guys performed from a

Speaker 2

profitability standpoint. I mean, look, this business is in fabulous condition, right? It's Got great backlog, good visibility. It's generating very strong margins. It's generating very strong cash flow.

Speaker 2

I don't think there's a whole lot, not by look, Every day is hard with these supply chain issues and stuff like that, but our guys are fighting through it every day. I mean, I'm not sure we'll be apologetic for These kind of margins and this kind of cash and strong backlog and the guys, I'm not sure what else I would ask them to do. They're driving hard every day

Speaker 12

and performing really, really well. Great. Just lastly on price In the business, are you actually now increasing price more in terms of the year over year rate of change than you were 12 to 18 months ago when the market first strengthened, I get the sense that the price increases early in this strong demand environment weren't That big because you wanted to build the backlog and now that you've done so, you can actually accelerate the pricing. Is that a fair assessment?

Speaker 2

Well, I guess, yes, I'm not sure I would do it. I don't do the first derivative on the pricing every day, but look, I think for sure this Market has changed over the last 18 months or so as it's gotten stronger and it's a competitive market obviously. So Pricing and what competition is doing matters, but I think everybody, I mean, the whole industry has seen Stronger pricing. So again, we look at this kind of on a model by model basis and what's going on with the competitive environment and It's not as I'm not sure I can give you a simple answer on the slope of the curve, but it's Strong and I would say we continue to obviously very much focus on making sure we're getting price in advance of inflation. We think about this a lot when you start thinking about Obviously, we're taking contracts on aircraft that are in 2023 and 2024 and 2025 and so you've got to make appropriate assumptions in terms of Inflation between here and there and make sure you're pricing accordingly, I think that we are.

Speaker 7

Okay. Thank you.

Operator

And our next question comes from the line of Peter Arment with Baird. Please go ahead.

Speaker 13

Yes. Thanks, good morning, Scott, Frank.

Speaker 2

Good morning, Peter. Hey,

Speaker 13

Scott. You've been talking about supply chain disruptions obviously all year. You've had a lot of you've had a ton of Experience in engines, is engines for you still in aviation the biggest shortage or are there other Components like chips or other things that you would call out and just maybe any color you could provide on the engine shortfalls?

Speaker 2

No, period. And I mean, look, engines are strained. And as everybody knows, there's one particular model that's important to us that had an issue that kind of stems back to this Russian Ukrainian Sanctions, but I think that's in recovery mode. So we feel good about that bouncing back. But I think the frustrating part for our folks, Peter, is it's sort of everywhere, right?

Speaker 2

Stuff happens. It's I'd say that overall, our avionics Buyers have done a really nice job. Garmin is critical to us. They've been able to meet deliveries. So they're managing the way That would be the area probably most highly concentrated in terms of semiconductor risks.

Speaker 2

So I think they've done a nice job. But it's This is the problem in this business, right? Every part is important. So it's there are certainly some things like the engine was an issue. I think that will resolve It's all here in the next 6, 9 months or so, but there's just things pop up every week.

Speaker 2

It's just the world we live in and our guys are kind of used to it. They just Keep working and they go manage each thing that pops up.

Speaker 13

That's helpful color. And just Frank, just quickly, could you tell us what the Aftermarket was up in the quarter, any comments on pricing? Thanks.

Speaker 3

Yes, aftermarket remains strong. It It was up 18% year over year, 37% of total volume for the quarter. So really kind of continued, as Scott said, to see strong Flying activity and therefore strong volumes in the business.

Speaker 13

Perfect. Thanks.

Operator

And our next question comes from the line of Cai von Rumohr with Cowen. Please go ahead.

Speaker 14

Yes. Thanks so much. So how much of the goodness and cash flow that $300,000,000 came from deposits On aircraft and thinking about next year, you've had such a big gusher from that source this How should we think about cash flow if book to bill goes back to about 1.0?

Speaker 3

Well, we're not going to kind of break out Separately, the cash items, I mean, offsetting the deposit activity as we have seen a little bit of inventory growth as we've had these Supply chain issues and we've seen some kind of slowdown in our ability to deliver. So there has been some offset, but kind of with a book to bill Above 1 and strong commercial aviation, strong commercial demand at Bell. We benefited from that. Frankly, we benefited also from strong cash performance on the military Programs at Bell. So it hasn't been all that.

Speaker 3

We've talked in the past about kind of generally the business Over time, it wants to be around 1 to 1 cash flow to profitability, right? So we certainly have benefited kind of this year and last From strong cash performance relative to that. And it will depend on lots of factors kind of when we get to A slower kind of booking rate, but it will migrate back towards that 1 to 1 as we do that. Look, I guess

Speaker 2

I would emphasize that we're conscious of this, right? I mean, I think that you enjoy a benefit here with Strong commercial deposits in Aviation and some of you are also in Bell's commercial business, which has had also seen very strong demand here. But you don't change anything else to do in terms of managing the business and making sure that you're fundamentally managing working capital and CapEx and all those things. So I don't for sure you're getting a benefit of this, but I think we're delivering well over 1 to 1 and that's because the businesses are doing a good job of managing They're cash and then enjoying the benefits of customer deposit activity on top of that. So that's kind of the nature of where we are right now.

Speaker 14

Terrific. And given this extra cash goodness, how are you thinking about deploying the cash?

Speaker 3

Well, same as we talked about. As we said, we've been an active repurchaser of stock. We bought about $640,000,000 year to date. That's Up from last year's year to date number, last year we ended up kind of low $900,000,000 of share repurchase. And so We would expect similar types of rates kind of for the year and on a at least As we sit here today on a go forward basis, we've been buying back about 5% of our stock on an annual basis.

Speaker 3

And Kind of that type of rate is a good rate to be thinking about.

Speaker 14

Thank you very much.

Operator

And our next question comes from the line of Rob Spingarn with Melius Research. Please go ahead.

Speaker 9

Hi, good morning. Just wanted to turn to a couple of the other segments for a moment. But in the past, you've talked about Systems being a low double digit margin business, but it's been outperforming that last year and this year. So Can we talk a little bit about the trend there? Is it going to stay more in the mid teens?

Speaker 2

Yes. Look, it's a good question. We're not quite ready to guide for next year, but I think that business performs Really well. I mean, it's always has some components of it. For instance, I think and You'll see this everywhere, right, where there's fixed price government contracts, I wish you can't reprice those, so there'll be some pressure on inflation on that front.

Speaker 2

But there is also a constant flow of new programs. And I think overall strong execution, which has helped us deliver strong double digit margins and I would expect that to continue.

Speaker 9

Okay. And Scott, sticking with these other businesses, industrial was clearly strong and I think you called out specialty vehicles. Could we talk about the forward trends there?

Speaker 2

Sure. I think that the specialized vehicle business is Doing well. There's obviously, there were some segments of that business that took real hits through the COVID periods around support equipment and things like that that are Seeing robust order activity come back into those markets as well. Also achieving strong pricing. Our golf and specialized PTVs and whatnot is very strong.

Speaker 2

I think we have a great product lineup and that Team has done a nice job. Obviously, in that business, we also see supply chain challenges all the time, but the teams Worked through it and I think we'll continue to see that on a steady improvement.

Speaker 9

And you haven't really seen any evidence of this recession of your fear hitting that business. I would imagine that business is somewhat sensitive.

Speaker 2

Some are more sensitive than others. So but Absolutely. I think particularly when you look at the powersports world, we keep a very close eye on that. Inventory levels are still very much lower than they We are in those channels because of supply chain challenges. So I think you need to get those to a healthy level, but absolutely we watch very, very carefully I think that particular piece, which is a relatively small piece for us obviously, is very recession sensitive.

Speaker 2

But I think when you look at a lot of the municipal stuff and Crown support equipment, golf, look, these things have historically been pretty resilient in terms of how they perform even in recessionary period. And I think We're well positioned in those markets, which are a much larger piece of the business for us.

Speaker 15

Of course. Thank you very much.

Operator

And our next question comes from the line of George Shapiro with Shapiro Research. Please go ahead.

Speaker 15

Yes. Good morning. Scott, on the supply chain issues, it seems like it's affecting your business more than, say, like Gulfstream at the high end, is there any differentiation you can say as to why?

Speaker 2

I haven't, George. I have a list of all the parts we're missing right now. I could call Mark, I guess, and see if he has some extra ones. But No, I don't. I mean, again, guys, look, I think this is a world we live in, right?

Speaker 2

We have the challenges. I think our guys have done a nice job Through this, I think we will have a strong Q4. It's not without some risk on a part popping up here and there, but it's I don't know how to explain the difference between the commentary with some of the high end stuff versus where we are, but It's something we're just going to manage our way through. It'll be fine.

Speaker 15

Okay. And Frank, can you Provide some comments on what you see for pension next year given the big changes we're seeing in Doctor and asset returns?

Speaker 3

Yes. We don't expect it to be a headwind. We're obviously, we've got a lot of work to do in 4th quarter and calculating the numbers and everything, but it should not be a headwind for us.

Speaker 15

Okay. And then one last one. Scott, You've been saying that the delay in FLRAA has been a cost to you in terms of carrying all the people. Can you quantify at all how much of a Cost it was to Bell in the quarter because the margin at Bell still looked pretty good this quarter.

Speaker 2

Yes. Well, Bell had a very strong quarter on the commercial side. And I think we'll continue to see strong commercial business and we talked a lot about aviation, obviously, you guys asked, but the commercial helicopter business is also seeing very robust demand And those guys are performing well and it's obviously offsetting the historical military programs, which continue to ramp down a little bit. But look, I think on the floor, George, It's obviously was in our original guide. That's why we're certainly seeing lower absorption.

Speaker 2

We expect it to be kind of Under contract at this stage of the game, but it's something we're managing our way through. And like I said, I think We can't quantify or wouldn't quantify exactly the number, but suffice to say that we can live within our guidance based on, I think, where we are and our expectations for the full announcement towards the latter part of this year.

Speaker 15

Okay. Thanks very much.

Operator

And our next question comes from the line of Christine Liwag with Morgan Stanley. Please go ahead.

Speaker 16

Hey, good morning. Scott, on Aviation, You mentioned pretty strong mentioned that pretty strong orders and incremental interest you're seeing from corporate buyers. And book to bill was pretty solid at 1.5 times. So from your conversations with your customers and potential customers, What's the key impetus for the incremental order? Is it replacement, capacity increase or new customers to Vizjet?

Speaker 16

And how sensitive are they from the financing environment?

Speaker 2

Well, it's a bit of all we've got, Christine. I mean, so I mean, obviously, we have some corporate customers out there that in the quarter Placed orders because they're going to replenish, turn over their fleets of aircraft. As you know, the corporates they're used to sort of looking out on that 18 month, 2 year or so timeframe as they plan their fleet refreshes. So the lead times that are there right now aren't Something that they're not accustomed to and that kind of fits in their plan. So we are seeing that activity.

Speaker 2

We are still seeing Some new activity and again we continue to see a lot of there are certainly new people that are coming in more than normal that are buying the whole aircraft, But we also see just the demand of new people coming into the market that are using either fractional or charter operations. And so we continue to see strong demand from Customers as well. So it really is across the board, which is I think again very healthy for the industry.

Operator

Thank you

Speaker 16

for the color. And maybe switching gears, Scott, in the past, your sensor fuse weapon exposure, albeit only support in the past few years and no longer production. It has limited the European owner of your stock. Now that you're completely out of the sensor fuzed weapon business And it looks like you're completely out of support too. And you have the only electric aircraft certified for passenger use.

Speaker 16

It seems to me like the portfolio is more attractive on an ESG basis. So are you seeing any recognition of the portfolio shift? And are you seeing incremental interest from European asset managers and ESG investors? And how do you think of that evolution?

Speaker 2

Well, it's a good question, Christine. And I don't know specifically those funds that have historically not wanted to invest in the company in Large part because of the SFW exposure. And as you know, that doesn't exist anymore. So I think that's not an issue on the overall ESG front. Without a doubt, you're going to see certain funds out there that are going to be more oriented Companies they think are investing in that future in terms of particularly electric transportation.

Speaker 2

And I think we have a very good story. I mean, obviously, aviation is an area we're investing And frankly, particularly as a result of the Pipistrel deal, our leader in that field. And we're also very strong in the electric side in terms of our vehicle business, Right. I mean, we've pioneered over the years a lot of that electrification and frankly that's spreading out across that business in a big way, including ground support equipment and turf care equipment. It's That trend is going to continue to happen.

Speaker 2

So I can't speak specifically to the European funds, but I absolutely and Consciously, obviously, on our part, we think we're engaging in strategies that will help make us more attractive to funds that have ESG criteria.

Speaker 16

Great. Thank you, Scott.

Operator

And our next question comes from the line of Ron Epstein with Bank of America. Please go ahead.

Speaker 10

Hey, good morning. Good

Speaker 13

morning, Ralph.

Speaker 10

There had been a ton of focus on Florida for obvious reasons, but Could you walk through some of the opportunities beyond Florida? And then the Navy is looking for some helicopters down the road as is the Air Force. And You guys talked about it a bit at AUSA, but not everybody was there. So I was wondering if you could kind of walk through some of those other opportunities that are beyond FLRAA.

Speaker 2

Sure. Absolutely, Ron. Look, I mean, you're right. Everybody asks a lot about FLRAA. We're obviously very interested in the outcome of FLRAA, but Bell is hardly a one trick pony, right?

Speaker 2

I mean, there's a lot of other stuff going on. I think when you look and think about the maritime strike and ORA, there's active AOA activity going on right now in the Department of the Navy thinking about what they do with their future of aircraft replacement programs. Obviously, we think that our offering, which is in that tiltrotor space is very attractive to them. I mean, these are services Obviously, today operate B-22s and they need aircraft and assets that can keep up with B-22s. So it's I think we feel like the tiltrotor solution is a good answer in that space.

Speaker 2

These programs are relatively early on. I say they're doing their analysis Alternatives and that will lead to more acquisition activity here in the next couple of 2, 3 years. So we're very close to those programs, obviously. The Air Force, as has been fairly public, is talking about what they want to do for, Frankly, higher speed VTOL, right? So even beyond the kinds of speeds that we see today in a V-twenty 2 or in a V-two eighty class of aircraft, we're highly engaged With the Air Force on those sorts of programs.

Speaker 2

So I think there's no doubt that what we're seeing with the Army and obviously that's a huge opportunity to Place that sort of the Black Hawk class of aircraft that you will see similar programs in the Navy, Marine Corps and In the Air Force in one form or fashion and our guys are highly engaged in those program opportunities.

Speaker 10

Got it. Got it. And then maybe shifting gears back to Cessna, bigger picture question. When you look at the portfolio of Cessna airplanes, Is there any place that you think you need to do a refresh or not? And how are you thinking about new product development given that Yes.

Speaker 10

The business is in a healthier place than it was just a couple of years ago.

Speaker 2

Yes. Look, I think we have a very robust Set of refresh programs, we've launched a couple of these Gen 2, Gen 1 mod programs. We have more of that in the works. We think it's really, really critical to be rolling those out on a fairly regular frequency. So we have a couple that are in the works right now that we haven't Yet announced, but obviously the work is going on.

Speaker 2

On the clean sheet front, we have the Denali program, which is still under development. So I think if you look at both Jet and Turboprop, there's a robust level of activity. I mean, I love our product lineup right now. I think the Longitude, Latitude obviously have Home runs in the market, the SkyCourier is just getting in kind of getting to rate in production with great demand. I think that's going to be a home run product.

Speaker 2

Denali will similarly, I think, be a great product for us. And the line is be sprinkled with a couple of these Refresh programs here in the coming years.

Speaker 10

Got it. Thank you.

Operator

And our next question comes from the line of David Strauss with Barclays. Please go ahead.

Speaker 6

Thanks for taking the follow-up. Sure. Just wanted to ask about the H1 and how that kind of rolls off from here and What sort of headwind we should be thinking about to Bell as that program runs off? Thanks.

Speaker 2

Sure. Look, H1 is about to wrap up. It's program of record in terms of the U. S. Sales.

Speaker 2

We have some FMS programs that are still under production, but those clearly won't be ramping down here over the next couple of years. Service programs continue to run, But no question, David, that program will continue to ramp down here in the next couple of years.

Speaker 6

And Scott, could you quantify how much in revenue each one currently accounts for?

Speaker 2

No, we don't break out the individual programs, David. But look, obviously, our plan is largely based on the fact that you'll see a ramp up Inflara, program activity that will largely replace what we're seeing in the ramp down on the H1 program.

Operator

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Operator

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