Textron Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 27, 2023

There are 14 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Q2 2023 Textron Earnings Release. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. You will hear an acknowledgment that you have been placed into queue and you can remove yourself from that queue at any time by repeating the 10 command.

Operator

As a reminder, today's conference is being recorded. And I would now like to turn the conference over to our host, Vice President of Investor Relations, Eric Salander. Please go ahead.

Speaker 1

Thanks, Keely, 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 $3,400,000,000 up $270,000,000 from last year's Q2. Segment profit in the quarter was $352,000,000 up $71,000,000 from the Q2 of 2022. During this year's Q2, we reported income from continuing operations of $1.30 per share. Adjusted income from continuing operations, a non GAAP measure, was $1.46 per share compared to $1.11 per share in last year's Q2. Manufacturing cash flow before pension contributions, A non GAAP measure totaled $242,000,000 in the quarter compared to $309,000,000 in the Q2 of 2022.

Speaker 1

With that, I'll turn the call over to Scott.

Speaker 2

Thanks, Eric, and good morning, everyone. The 2nd quarter was a strong quarter with revenue up across all our businesses and solid Generating a segment profit margin of 10.3%, up 140 basis points from the Q2 of 2022. At Aviation, in the quarter, we delivered 44 jets, down from 48 last year and 37 commercial turboprops, up from 35 in last year's Q2. Aviation continues to see solid demand across jet and turboprop products. Backlog grew $315,000,000 ending the 2nd quarter at $6,800,000,000 In the quarter, Aviation received an order for 11 Special Mission King Air 360s expected to deliver in 2024 2025.

Speaker 2

Also during the quarter, Aviation delivered the 1st passenger configured Cessna Sky carrier to the Lanai Air for its Hawaiian inter island routes. On the new product front, Aviation announced the Cessna Citation Ascend at Ebase in May. Ascend will feature the latest Garmin 5,000 avionics suite, Four passenger range of 1900 nautical miles, comfortable cabin experience with large windows and a flat floor and the new Pratt 545D engine that features improved thrust and increased time between overhauls and enhanced fuel efficiency. The aircraft is expected to enter into service in 2025. Moving to Bell, revenues were slightly higher in the quarter.

Speaker 2

Bell began ramping activity on the flower program, including onboarding engineers, contracting with major suppliers and ordering long lead materials. Bell also added $1,200,000,000 of backlog related to the flower contract during the quarter. Also in the quarter, Bell received an initial contract authorization for 4 additional V-twenty 2 aircraft. On the commercial side of Bell, we delivered 35 From 34 in last year's Q2. At Textron Systems, we saw continued solid margin performance on slightly higher revenues.

Speaker 2

In June, Systems delivered Craft 107 to the U. S. Navy Ship to Shore Connector Program, the 8th craft delivered to the Navy. Also during the quarter, Systems' Aeroson Hybrid Quad UAS was among 4 competing unmanned aerial systems This is also advanced as part of TeamLink's led by American Ryan Yatol in the next phase of the U. S.

Speaker 2

Army's XM30 program. Textron Systems is a designated manufacturer of TeamLink's. The Army down selected 2 competitors for the next phase of the program, which includes detailed design and prototype builds. Moving to industrial, we saw higher revenues in the quarter driven by higher volume at both Kaltex and Specializ Vehicles. At Specialized Vehicles, we announced the new Liberty LSV, a street legal vehicle powered by our Elite battery system with 4 forward facing seats.

Speaker 2

Within Kaltex, we saw increased volumes year over year across all our geographic end markets. Moving to e aviation, we began wind tunnel testing on the NEXUS These tests represent a significant step in the aircraft development process and supporting design validation activities. Additionally, we continue the prototype assembly and systems integration of the Nuva, our hybrid electric unmanned cargo VTOL aircraft at our facilities in Slovenia. 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 at Textron of $1,400,000,000 or up $78,000,000 from the Q2 of 2022, reflecting higher pricing of $95,000,000 partially offset by lower volume and mix. Segment profit was $171,000,000 in the second quarter, up $22,000,000 from a year ago, largely due to favorable pricing, net of inflation of $52,000,000 partially offset by an unfavorable impact from performance of 23,000,000 Performance included unfavorable manufacturing performance largely related to supply chain and labor inefficiencies. Backlog in the segment ended the quarter at 6,800,000,000 Moving to Bell, revenues were $701,000,000 up $14,000,000 from last year due to higher pricing of $21,000,000 partially offset by lower military revenue of $7,000,000 Segment profit of $65,000,000 was up $11,000,000 from last year's Q2 due to a favorable impact from performance of $13,000,000 largely reflecting lower research and development costs and a favorable impact Pricing net of inflation of $9,000,000 partially offset by lower volume and mix.

Speaker 3

Backlog in the segment ended the quarter at 5,600,000,000 At Textron Systems, revenues were $306,000,000 up $13,000,000 from last year's Q2, largely reflecting higher volume. Segment profit of $37,000,000 was down $1,000,000 from a year ago. Backlog in the segment ended the quarter at 1,900,000,000 Industrial revenues were $1,000,000,000 up $155,000,000 from last year's Q2, largely due to higher volume and mix at both Kautex and Textron Specialized Vehicles of $121,000,000 and a favorable impact from pricing of 37,000,000 Segment profit of $79,000,000 was up $42,000,000 from the Q2 of 2022, primarily due to higher volume and mix of $32,000,000 and a favorable impact from pricing net of inflation of $17,000,000 principally at Kautex, partially set by an unfavorable impact of $10,000,000 from performance. Textron E Aviation segment revenues were $11,000,000 and segment loss was $12,000,000 in the quarter, primarily reflecting research and development costs. Finance segment revenues were $18,000,000 and profit was 12,000,000 Moving below segment profit, corporate expenses were $21,000,000 net interest expense was $16,000,000 LIFO inventory provision was $35,000,000 intangible asset amortization was $10,000,000 and the non service components Pension and post retirement income were $59,000,000 In the quarter, we repurchased approximately 4,200,000 shares, returning $273,000,000 in cash to shareholders.

Speaker 3

Year to date, we have repurchased approximately 9,400,000 shares, returning $650,000,000 in cash to shareholders. Earlier this week, Textron's Board of Directors approved a new authorization for the repurchase of up to 35,000,000 shares, under which the company intends to repurchase shares to offset the impact of dilution from stock based compensation and benefit plans and for opportunistic capital management purposes. To wrap up with guidance, we are increasing our expected full year adjusted earnings per share to be in a range of $5.20 to 5 point and $0.30 per share, up from our prior range of $5 to $5.20 per share. We also continue to expect full year manufacturing cash flow before pension contributions of $900,000,000 to $1,000,000,000 That concludes our remarks. So operator, we can open the line for questions.

Operator

Thank you. Our first question will come from the line of Peter Arment with Baird.

Speaker 4

Yes. Good morning, Scott, Frank.

Speaker 2

Good morning.

Speaker 4

Hey, Scott, I guess, start with Aviation, really strong performance On margins and top line, do you still kind of tracking, I mean, I guess, with the supply chain, the way There's been so much volatility. How are you thinking about just kind of your delivery targets and just managing your skyline? I know you're probably sold out now Much farther out, just given your backlog, maybe just some overall comments. Thanks.

Speaker 2

Sure, Peter. Look, I think on the order activity, the market is still quite strong. So I think we posted a strong book to bill again in the quarter. It's both jets and turboprops. So I think we continue to be Really happy with how the market is behaving in terms of demand and pricing.

Speaker 2

So that's all good. Okay. As I think you're hearing from everybody, the biggest challenge still remains on the supply chain side of things. I'd say it's not getting worse. It's probably Modestly getting better, but as you know, the challenge is every part is important, right?

Speaker 2

So you may not have as many problems, but still are kind of hit by that weakest link. And If you look at our numbers, we're probably a few jets lighter in each quarter than we would like to be. That's obviously creating a little bit of inventory, but these things ultimately We'll sell, but I think when we think about the guide and what's going forward, we're still very happy with the margins and the execution performance despite Inefficiencies and dealing with some of those supply chain issues. But I think for the year, it will be a little light on the revenue side versus where we would like to be. But those things will push into 2024 obviously.

Speaker 2

So net of everything, it's still a good strong demand environment and we'll continue to fight our way through some of the supply chain challenges through the course of the year.

Speaker 4

Appreciate that. And just one quick follow-up. Frank, did you Disclose

Speaker 5

what the aftermarket growth was in the quarter for Aviation at all?

Speaker 3

So aftermarket for the quarter was about 3% growth and 32% of total revenue.

Speaker 4

Appreciate it. Thanks again.

Operator

Thank you. We'll go next The line of Sheila Kahyaoglu with Jefferies.

Speaker 6

Good morning, guys, and thank you. Maybe just to start off a Specific one on Bell, how do we think about the B-twenty two here? The House Appropriations Bill included about 700,000,000 for potentially 5 B-22s. How do we think about how that could add legs to this program and transition to FLORA?

Speaker 2

Well, so what's going on there, Sheila, is the Navy, of course, has now had a good while of Deploying the CMV-22s into the Navy applications. As you know, that program was originally awarded and the program record was based on Replacing the C2 Cod. And so the number of aircraft was really sort of designed just to replace that mission. What we're hearing from the Navy, and they've been fairly public about this, there's been some nice articles out there, is that as they're getting the CMV-twenty 2 into the fleet, They're realizing there's a lot of things you can do with the V-twenty 2 that you couldn't do with a cod, which was restricted to big deck carriers and airports onshore. So the versatility and the performance of the V-twenty 2 is leading the Navy Look, we've got other applications that would cause us to like to have more of these aircraft.

Speaker 2

That hasn't been Formalized yet on the Navy side of things. I mean, there's a lot of dialogue around that. But what you're seeing in the House Appropriations is those five CMV 22s, which would be above program of record is because of the versatility and the desire ultimately of the Navy to have more of these crafts. We'll see how this plays out over time, but we're obviously we're very happy with the performance of the aircraft and Navy is very happy with the performance of the aircraft. And so hopefully, we'll see No, some continuing level of production now that we're sort of beyond the program record.

Speaker 6

That's great. Thank you for that color. And then maybe a bigger picture one. Frank, if you could start and I know you'll be verbose, so give Scott some time on this too. You announced a pretty large repurchase program in the quarter.

Speaker 6

How are you About capital allocation and then Scott obviously with Ascend, capital allocation for repo versus new product.

Speaker 3

So, capital allocation, it really remains the same, Sheila. We've obviously continued to generate very good free cash flow. We've talked about, obviously, we invest significant capital back into the business in R and D and CapEx. That's going to continue. But beyond that, we're generating a lot of free cash flow that we've been returning through share repurchase activity.

Speaker 3

We talked about kind of baseline of 5% to 6 Percent or so of our share base a year from a repurchase standpoint. We came out of the pandemic more liquid than we usually are and need to be. And you've seen in the first half of the year, we've repurchased a lot of stock and We expect to continue to be in the market opportunistically and the $35,000,000 reflects kind of the need to have the shares available, Authorization available to do that. We were down to 2,700,000 shares on the last repurchase and we're rolling through it pretty quickly.

Speaker 2

That's what

Operator

I thought.

Speaker 2

As Frank said, Sheila, I mean, I certainly don't see it as a trade with R and D. As you know, we're a fairly high R and D company. We think investing in new products is the Year to growth, I think we're seeing that play out right now. You look at Aviation with the investments in Latitudes and Longitudes, the A lot of our current products, both on the jet and the turboprop side, SkyCourier now driving nice growth for us, the Ascend that we just announced. So if you look at Bell, obviously, we've made Investment over the years in the flower program and the flower program that's obviously now turning into a great growth driver for us.

Speaker 2

Across all the businesses, we're not going to change our strategy here in terms of R and D. We'll keep making the investments that we think we need to make in the product side. But Despite all that, we're obviously making strong profits and strong cash flow, and that gives us a great full flexibility to allocate and drive some of that back through the share repurchase program And do what's right we think for the shareholders.

Operator

Great. Thank you. Thanks. We'll go next to the line of Jason Gerske with Citi.

Speaker 7

Hey, good morning everybody. Good morning. Scott, I was wondering if you could provide kind of a general update on the General aviation marketing. There was a show here recently up in Oshkosh. I was wondering if you had any general learnings from either that show or your general view of The general aviation market and then second one would be just kind of an update from your perspective on The market for pilots, both for as they come in through the general aviation market and make their way maybe up into The biz jets and other aircraft that are more important to you.

Speaker 2

Sure. Look, Jason, I think one of the nice parts about the market right now is this, As much as we talk about the jets and the turboprops, and obviously, that's the bulk of our business. But when you look at an Oshkosh, which is really a show that's Aimed around the propeller marketplace and Cessna 172s and industrial electric aircraft and all that kind of good stuff. The demand is strong from top to bottom. I mean, we have a great book to bill and our 172s, 182s, 20 So you see really, really strong demand from that GA customer that we've always had.

Speaker 2

There's very strong demand from trading schools. So if we kind of Shifting to your pilot discussion, there's no doubt people have talked for many, many years about the shortages of pilots is coming up and we're seeing Right. So the training schools are putting a lot of orders in. They're increasing the size of their fleet, so they can get more pilots There's a lot of activity with frankly some of the airlines buying a lot of aircraft, so that they can get pilots, not just pilots that come into the industry, but pilots that need to get the hours in order to be eligible to fly for the actual airlines. And so those hours are best built by using less expensive per hour No sorts of aircraft.

Speaker 2

We have a lot of demand on that side as well. So the nice part here is it's a robust market, everything from Assessment 172 or a small pipistral velus all the way up through Longitude. So it's the demand is very, very broad.

Speaker 7

Great. Thank you.

Operator

Thank you. We'll go next to the line of David Strauss with Barclays.

Speaker 8

Hey, good morning, Scott and Frank. This is Brad Barn on for David.

Speaker 2

Good morning, Brad.

Speaker 8

Just quickly starting off on Bell. It looks like quarter might have been a little light. Can you just talk about how much FLARA added in the quarter and How Bell is going to ramp from here and hitting the $3,300,000,000

Speaker 2

Sure. Look, I think Bell's Pretty in line with where we expect them to be. The FLAR program is certainly ramping. We've added a lot of engineering resource And we were able to ramp reasonably quickly because we still had a lot of engineering talent that had been going through the floor design, You'll see the RR risk reduction programs that we've retained through that period. So I'd say the team is ramping really well.

Speaker 2

The Army has been great about Working to quickly get authorizations out there for us to award contracts to our major subcontractors, which is a huge part of the program, obviously, as it goes out through the industrial base. They've authorized critical long lead materials that we need to support the initial flight aircraft. The program is probably ramping about as fast as I can imagine ramping such a large program. So I think we still feel very With the guide that we provided in terms of where we're going to end up the year on revenue as that program drives a lot of the growth frankly that's ramping up. And look, as the way to think about this program is that it certainly is ramping here as we go through 2023, but the J docs are out there, right?

Speaker 2

In the next Few years, this is sort of a $1,000,000,000 a year program. Obviously, part of that is retained by the government to run their program offices and things like that. But I think we'll very rapidly ramp up and be how far exactly where we expected to be, which is in that probably $800,000,000 $900,000,000 a year of revenue.

Speaker 8

Okay. And then just a follow-up on, there has been some reports in the press about Potential interest in some properties out there. Just wondering if you could talk a little bit how you see the portfolio shaping up?

Speaker 2

We probably won't provide any commentary on various rumors that are out there in terms of M and A activity at this point.

Speaker 8

All right. Thanks for your time. Sure.

Operator

Thank you. We'll go next to the line of Noah Poponak with Goldman Sachs.

Speaker 9

Hey, good morning, everyone.

Speaker 2

Good morning, Noah.

Speaker 9

The aviation margin is

Speaker 2

That's one of

Speaker 9

the highest levels in a while. And the incremental, I think, is a little higher than your Kind of long term framework. And I guess that's despite the performance number you cited. If I add that back, I'm more in the mid teens. And so I guess as I think about where that margin goes over time, obviously the labor and supply chain inefficiencies you're citing won't be solved immediately, But also won't last forever.

Speaker 9

So is it reasonable to think about the margin adjusted for that in the quarter as kind of a baseline plus an incremental for where you can go late next year into the middle of the decade.

Speaker 2

Well, I'm probably not ready to guide into the middle of the decade just yet, Noah.

Speaker 9

But look. Well, you have a pretty big backlog in that business now.

Speaker 2

Well, Look, there's look, I think the margins are very good. The guys, you're right, are working through challenges, which we would certainly hope will abate Somewhat over time, I mean, obviously, there's inflation that's baked into the numbers at this stage of the game. But I think we'll probably avoid doing too much in terms of guiding out to the future other than that look these are good gross margin products. I mean, The way to long term think about this is going to be around that 20%, 25% conversion. And we're sort of looking at Certainly, growth as we look into 2024 and beyond.

Speaker 2

But again, it's going to be in some part constrained by Supply and also are just looking and making sure that we're tracking to where the demand is in the marketplace. Again, we've talked before about the health of This industry should be running with a substantial backlog and we are now running with a substantial backlog and that's a good place for the whole industry to be.

Speaker 9

In the near term, is it reasonable to expect that price net of inflation number to grow because I think your I think the pricing in your backlog is still better than what's hitting the P and L now, Although correct me if that's wrong. And then if inflation is decelerating, it would seem like both the top and bottom Bottom top and bottom end of that number would be widening.

Speaker 2

Well, look, I think we do feel good about the pricing that's going into the backlog, but we are still seeing inflationary Pressures, the rate of inflation is certainly coming down, but there is still inflationary pressure out there.

Speaker 3

Yes, remember, we have So longer term supply contracts, so we did a nice job of responding to a demand in the market and Created a more appropriate pricing environment, but there is some lag effect associated with our contracts and just the flowing in of inflation. But we still Feel very good about where we are price net of inflation, but there is a lagging impact on some of those cost inputs.

Speaker 9

Okay. And just last piece on it. Is your price your rate of change in price Decelerating, with maybe some normalization in the market? Or did Not increase it so fast that it needs to slow and the rate of change is just kind of holding at this point.

Speaker 2

I don't know. I have not run a first derivative on our price at this point, But I don't know. I would probably won't go into that level quite that level of detail, but suffice to say, we're still getting price and feel good about how that price demand is working in the market.

Speaker 9

All right. I appreciate it. Thank you.

Operator

We'll go next to the line of Robert Stallard with Vertical Research.

Speaker 10

Thanks so much. Good morning.

Speaker 2

Good morning, Quinn.

Speaker 10

Scott, on Industrials, a good quarter there, both on the top line and the margin. How sustainable do you think this is going forward? And do you see this as a sign that the U. S. Consumer is still holding in there pretty resilient?

Speaker 2

Well, look, I do think it's a good sign for sure, Robert. I mean, the automotive guys recovery as Kind of every geography is encouraging to see those volumes going up in there. And I think the Caltex guys did a nice job of Converting on that, we still continue to see strong demand across golf and turf and consumer products. I mean, so, yes, I mean, It's they're hanging in there, right? I mean, I think we all still worry a little bit about the high end consumer, but things have been pretty reasonable.

Speaker 2

Now, As you know, there is a certain seasonality of these businesses. In auto, we do a lot of summer shutdowns and things like that. So, 2nd quarter is usually a stronger Quarter 3rd quarter is usually a little bit lighter in terms of the revenue on those businesses. But look, net of the whole thing, I think that the demand environment Has been improving and our teams are doing a nice job of executing on that.

Speaker 10

Yes. And then Frank, a technical question for you. You raised the EPS guide by $0.10 Can you give us some idea of where that's coming from within the operations?

Speaker 3

Yes. I mean, it's, it reflects Kind of strong first half and the earnings obviously that we just reported. So there's a little bit in there for kind of share And some other things, but it reflects a solid first half of the year and just continuing good execution in the second half of the year. As Scott said, I think kind of There's a little bit of volume at aviation that is kind of probably be like relative to our guide, but industrial is probably coming in stronger Then we had first thought from a top line standpoint and overall solid execution across the businesses.

Speaker 10

That's great. Thanks so much.

Operator

Thank you. We'll go next to the line of George Shapiro with Shapiro Research.

Speaker 11

Good morning and good numbers. Scott, do you think we still do 200 deliveries or we should not go and maybe call that 190 or Something given that we seem to be missing a couple each quarter?

Speaker 2

Yes. I think the number is going to be a little bit lighter than we originally You don't have in there, George. So I don't think it's going to be 200. As I said, I think their execution is strong. I think the margins and Contribution to earnings are going to be where we expected them to be, but it's going to be with a little bit lighter top line, just driven by trying to get the aircraft out.

Speaker 2

And obviously, those are aircraft that will move into 2024, sales that are still going to happen, but I do think we'll be a little bit lighter on the year than what we Got it. On the top line.

Speaker 11

And at Bell, is the margin guide still good assuming that this quarter was particularly strong because Laura hasn't fully built yet, so margins will weaken in subsequent quarters?

Speaker 2

No, I think Bell is tracking right on where we expected from a guide standpoint. So we're still seeing good execution on a lot of the production side of things. Obviously, FLORA Coming in is nice in terms of driving the top line. Clearly, it absorbs a lot of overhead in the business, which helps maintain the level of profitability in some of the other product But as we talked about, the absolute number is we don't have as much V-twenty two H1 production as we had. But we're going to still, I think, post a number that's very much in line with what we guided.

Speaker 11

And then just one follow-up on industrial. I mean, It was particularly strong. I mean, I went back and looked, it was the best quarter since like Q2 of 2018 and the business wasn't even the same At that point, although Kautex is obviously there. So you comment anymore, I mean, it would seem like the sales you could We beat $3,600,000,000 guide here for the year and the margin certainly would look like it could be based on what The margin was this course. If you comment a little bit more on that?

Speaker 2

Yes. Look, I think we do have, as I said, look, aviation is A little bit light on the revenue line. I think industrial will be a little bit stronger on the revenue line to offset that as we go through the year. I do think that the margins there's Probably a little bit of upside to the margin, but certainly just conversion on that revenue will give us a little bit of upside on the year. And again, that's part of what's factored into The raise on our guidance at the EPS level.

Speaker 2

So I think we're happy with how that's going on, on the industrial side. And again, it's strong demand, Recovering in the auto side, you don't see as much drag on automotive manufacturing, and that's good for us at Kaltex. And golf and turf and these markets are staying pretty robust. So I do think that's kind of the way we think about mostly offset here. We'll see some nice upside on the revenue there and that will bring with it some increase in OP, that's certainly incorporated in part of Our raise for the year.

Speaker 11

Okay. Thanks very much.

Operator

We'll go next to the line of Myles Walton with Wolfe Research.

Speaker 5

Hey, you have Lou Raffetto on for Miles. How are you?

Speaker 9

Good morning.

Speaker 5

So I think you kind of covered this a little bit with the ongoing disruption, I guess, within Aviation. But At what point do you think that the pricing benefit will sort of overcome or more than overcome the sort of the negative on the performance side?

Speaker 2

Well, I mean, it is, right? I mean, so our when you look at our pricing right now is even net of inflation is still enough to overcome Some of the challenges in terms of inefficiencies driven by some of the ongoing supply stuff. So I think that's a trend that We've had here for a while and I expect we'll continue to see that as we go into the future.

Speaker 5

Okay. And then, I think you mentioned, so Is 190 the right number to think about? Or would it be maybe a little bit higher than that for the year?

Speaker 2

We're not going to guide a specific number. But I mean, I don't think it's Being light by a couple of $100,000,000 is probably the right way to think about the top line. But again, I think from a performance standpoint, margin standpoint, No, we should be more or less in where we guided.

Speaker 5

Okay. Thank you very much. Sure.

Operator

Thank you. We'll go next to the line of Cai von Rumohr with TD Cowen.

Speaker 12

Yes. Thanks so much. So Scott, a strategic question. Obviously, your A and D business is growing with FLRAA, some opportunity at O and F B, Number of other programs and yet when you look at your business, you're not really a niche player and you're also not up With the GED, Alaki, those guys. Strategically, I think you said you'd like to increase A and D.

Speaker 12

How big would you like to get and what sorts of things would you consider buying to bolster your A and D business?

Speaker 2

Well, it's a good question, Kyla. Obviously, we'd like to be bigger. And I think that the approach we're taking here is Investments that we've made in our existing businesses is driving a lot of that growth. So I think if you look at Aviation, all the investments that we've made and continue to make in those new platforms. You referenced a couple of other names.

Speaker 2

Look, I think obviously, we've made a huge investment in FAR over the years. That's Going to drive a ton of growth and shows that we can go head to head on a program by program basis and win and drive a lot of organic growth. When you look at systems, some of the things that we talked around, OMFV or what's now referred to as XM30 and ARV with the Marine Corps, there's things out there that are Potentially significant growth drivers, we're going head to head with some of the guys that are the biggest You know names in the business and I think we can win against them. So our focus continues to be making sure that we're making the right investments so we can drive the organic growth. And will we do acquisitions if there's the right opportunity that comes along?

Speaker 2

Absolutely. But we've got to I've always felt You want to do you don't want to have to do a deal, right? So I think that our strategy is continue to make the right investments on the organic side, so that we can drive really good growth. And if something comes along that makes sense from an accident standpoint, we're happy to look at that.

Speaker 12

So when you look at things, Do you look at it sort of from a holding company perspective, this would be a good business? Or, you know, are there specific Skill sets that you think would be complementary to what you currently do that would make you a stronger player in helicopters and whatever?

Speaker 2

Well, look, I think, Cai, right now, it's primarily looking in the A and D space, things that would help Diversify us in terms of our strength in A and D. I don't think it's likely that you see something that's specifically in, The helicopter space. I just don't know that there's targets out there where you do that. And from a government standpoint and On a trust standpoint, I don't think you would probably see much activity in that space. I'd be kind of surprised.

Speaker 2

But I think you look at complementary A and D Capability certainly where we bring technological capability, where the target we bring technological capability that's some synergistic. But I think in large part, providing a more well rounded, more diversified A and D company.

Speaker 12

Great. Thank you very much.

Operator

Thank you. And our last question will come from the line of Christine Leewig with Morgan Stanley. Great.

Speaker 13

Thanks. Scott, with macroeconomic uncertainty and increasing interest rates, I mean, ultimately, the demand in Pricing for business jets and general aviation continue to be robust, a surprise for the bears pretty much. So what do you think is driving this sustained demand? And how undersupplied do you think the market continues to be?

Speaker 2

Look, I think the demand environment is driven by the fact that Particularly people who've come into this market and started using aircraft and experienced what private aviation was all about, have had a great experience. I mean, they're time machines, right? It allows you to do things that you just can't do if you're using commercial transportation. So The productivity, the efficiency, the ability to get from anywhere to anywhere on your time in an expeditious way It is something that the more and more people and I think again this is you feel by doing the COVID, a lot of people got exposed to this market that had not in the past and They're turning out to be a great tool. And so I think that's what continues to fuel a lot of the demand in this marketplace.

Speaker 2

So It's obviously, we offer a lot of products across a broad range of price points and performance. And I think that's why we're seeing just a fundamentally very strong demand environment. And as you know, it's not just our company and our products, but across the very, very broad range of general aviation.

Operator

Yes. And I guess when

Speaker 13

you look at the portfolio, light, medium and large cabin, The large cabin end of the market continues to also be robust. At this point, when you look at this, the Cessna portfolio, what's your appetite to go bigger? I mean, we had the Columbus The hemisphere that didn't come about, but is there a right moment to reintroduce an airplane of that size or even larger and move up The portfolio to the larger cabin jets?

Speaker 2

No, I don't think there is. Look, we did look at one point, as you know, would we stretch the top end of our Platform, we did have programs at the time and for technical reasons and We ended up not doing those programs. I think that part of the market now, particularly as you go larger in that market, which is kind of the choice we were faced with, It is a very well served market. So I think we're better off focusing all of our R and D and our energy and our investments in So we're up to that super midsize on the longitude. We've been doing, as you know, a lot of great upgrades to a lot of those programs or Platforms all across our portfolio and we continue to make the right investments.

Speaker 2

Denali is still in development and that's going to be a home run for us. Yes, and which we just announced, I mean, that's right in the sweet spot of our market. That's the segment of the market that we've had a great track record in the past with previous aircraft. And I This will be really well received and drive a ton of growth for us. So this is I think that and we're very focused Making those investments across everything from our little Cessna 172s and now of course in the electric space with Pipistrel in the aviation up through longitude, but I think that's a pretty good place for us to be and that's where we're going to focus our R and D efforts.

Speaker 13

Great. Thanks, Scott.

Operator

Thank you. And ladies and gentlemen, today's conference will be available today, 10 am Eastern Time, running through July 27, 2024 at midnight. You may access the AT and T replay system by dialing 1-eight 66-two zero seven 1041 and entering the access code of 8,467,989. International dialers may call 402-nine seven zero zero eight four seven. Those numbers again are 1-866 207-1041or402-9700-0847 with the access code of 8,467,989.

Operator

That does conclude your conference for today. Thank you for your participation and for using AT and T event conferencing. You may now disconnect.

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Key Takeaways

  • In Q2, Textron reported revenues of $3.4 billion (up $270 million YoY) and segment profit of $352 million (up $71 million), with adjusted EPS of $1.46 versus $1.11 last year and manufacturing cash flow of $242 million.
  • Textron Aviation achieved a 10.3% segment margin (up 140 bps), delivered 44 jets and 37 turboprops, and boosted backlog by $315 million to $6.8 billion, highlighting sustained demand.
  • At EBACE, Textron unveiled the new Cessna Citation Ascend, featuring Garmin G5000 avionics and the Pratt & Whitney PW545D engine, targeting 2025 service entry.
  • Bell is ramping the FLRAA program—onboarding engineers, securing long-lead contracts and adding $1.2 billion to backlog—while also receiving authorization for four more V-22 Ospreys.
  • Textron repurchased 4.2 million shares for $273 million in Q2, raised its buyback authorization to 35 million shares, and lifted full-year adjusted EPS guidance to $5.20–$5.30.
AI Generated. May Contain Errors.
Earnings Conference Call
Textron Q2 2023
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