Textron Q4 2023 Earnings Results & Report

Textron EPS Results

• Actual EPS: $1.60
• Consensus EPS: $1.53
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: $1.07
• EPS Beat Rate: 7 of last 8 quarters

Textron Revenue Results

• Actual Revenue: $3.89 billion
• Expected Revenue: $3.97 billion
• Beat/Miss: Missed by -$73.67 million
• YoY Revenue Growth: +7.00%

Textron (NYSE:TXT) is a diversified industrial and aerospace company whose businesses design, manufacture and support products for commercial, government and consumer markets. Its operations include aviation, defense and industrial products, with customers in the United States and internationally.

Through Textron Aviation, the company produces Cessna and Beechcraft aircraft, including business jets, turboprops and piston-engine aircraft, and provides related maintenance and support services. Its Bell business makes military and commercial helicopters and tiltrotor aircraft, while Textron Systems develops defense and aerospace products such as unmanned aircraft and other mission systems.

Textron’s industrial businesses make products that include specialty vehicles, golf cars, outdoor power equipment and components. The company traces its origins to 1923, when it was founded as a textile business, and adopted the Textron name in 1943.

Textron Q4 2023 Earnings Call Transcript

Key Takeaways

• Textron reported Q4 revenue of $3.9 B (up from $3.6 B) and segment profit of $384 M (up $78 M), with adjusted EPS of $1.60 vs. $1.23 a year ago, while full-year 2023 revenue rose to $13.7 B and adjusted EPS to $5.59 from $4.45.
• Textron Aviation ended the quarter with a $7.2 B backlog (up $782 M), is targeting a 1:1 book-to-bill ratio in 2024, and is seeing supply-chain and productivity gains that should support higher unit deliveries.
• Bell delivered 91 helicopters in Q4 (vs. 71 last year) and ramped military FLRAA work to generate an expected ~$900 M in program revenue in 2024, while restructuring actions aim to sustain margins in the 9.5–10.5% range.
• Textron Systems maintained flat Q4 revenue and margins, advanced to two finalists in the Future Tactical UAS competition, progressed on the Army’s XM30 program, and secured a role in building RCV light prototypes.
• For 2024, Textron guided to $14.6 B in revenue (up 7%), adjusted EPS of $6.20–$6.40, and manufacturing cash flow of $900 M–$1 B, alongside an annualized $75 M in savings from its restructuring plan.

Presentation

[Operator]

Thank you for standing by. Welcome to the Textron Fourth Quarter 2023 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you would like to ask a question, please press 1, then 0 on your phone keypad. Should you require assistance, please press star then 0. This conference is being recorded for digital replay and will be available after 10 A.M. Eastern Time today through January 24, 2025, at midnight. You may access the replay service by dialing 866-207-1041 and enter the access code 4065507. I would now like to turn the conference over to David Rosenberg, Vice President of Investor Relations. Please go ahead.

[David Rosenberg, VP of Investor Relations at Textron]

Thanks, Aaliyah, 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. Revenues in the quarter were $3.9 billion, up $3.6 billion in last year's fourth quarter. Segment profit in the quarter was $384 million, up $78 million from the fourth quarter of 2022.

[David Rosenberg, VP of Investor Relations at Textron]

During this year's fourth quarter, adjusted income from continuing operations was $1.60 per share, compared to $1.23 per share in last year's fourth quarter. Manufacturing cash flow before pension contributions totaled $380 million in the quarter, up $12 million from last year's fourth quarter. For the full year, revenues were $13.7 billion, up $814 million from last year. In 2023, segment profit was $1.3 billion, up $191 million from 2022. Adjusted income from continuing operations was $5.59 per share, as compared to $4.45 per share in 2022. Manufacturing cash flow before pension contributions was $931 million, down $247 million from 2022. With that, I'll turn the call over to Scott.

[Scott Donnelly, Chairman and CEO at Textron]

Thanks, David, and good morning, everyone. Our businesses closed out the year with another solid quarter with strong margin performance and cash generation. Throughout the year, our teams worked to mitigate supply chain challenges to deliver products to our customers. At Aviation, while we entered the year with an expectation of a book-to-bill one-to-one, solid order flow and customer demand across our product portfolio resulted in year-end backlog of $7.2 billion, an increase of $782 million. Textron Aviation Defense delivered 13 T-6 aircraft for the year, up 10 from a year ago. During 2023, solid aircraft utilization within the Textron Aviation product portfolio resulted in a 6.5% growth in aftermarket revenues. At Bell, revenues in the quarter were up, driven by higher commercial and military revenues.

[Scott Donnelly, Chairman and CEO at Textron]

On the commercial side of Bell, we delivered 91 helicopters in the fourth quarter, up from 71 in last year's fourth quarter. For the full year, we delivered 171 helicopters in 2023, down from 179 in 2022. The higher military revenues reflected the continued ramp on our FLRAA program. On the FLRAA program, Bell completed the installation of the ITEP engine on the 360 Invictus. The team continues to conduct integration activities and prepare the aircraft for initial ground runs in 2024. Moving to Textron Systems, revenue and margin were flat with last year's fourth quarter. During the quarter, Systems delivered the last detailed design and construction craft on the Ship-to-Shore Connector program, following its successful completion of acceptance trials.

[Scott Donnelly, Chairman and CEO at Textron]

Moving to Industrial, we saw higher revenues in the quarter, driven by higher volume at Kautex and favorable pricing in specialized vehicles. Moving to Aviation, Pipistrel delivered 135 aircraft during the year, up from 61 in 2022. Also at Aviation, during the quarter, the Pipistrel Velis Electro was selected to participate for a trial period to explore operational and training uses for this all-electric aircraft as part of Agility Prime, the Air Force's vertical lift program. Summary: in 2023, the year—we had a strong year across all of our businesses. We continued to execute on our growth strategy of ongoing investments in new products and programs to drive organic growth and margin expansion. During the year, Aviation announced the new Cessna Citation Ascend at EBACE and the Cessna Citation CJ3 Gen2 at NBAA.

[Scott Donnelly, Chairman and CEO at Textron]

In May, Aviation delivered the first passenger variant of the Cessna SkyCourier to Lanai Air, servicing the Hawaiian Islands. In the third quarter, Aviation announced a new fleet agreement with NetJets for up to 1,500 aircraft over 15 years, including Longitude, Latitude, and the newly announced Ascend, extending our 40-plus year relationship. In October, Aviation delivered the 100th Cessna Citation Longitude. At Bell, we began work on the FLRAA program in April. The team continues to increase activity on the program, ramping up engineering resources, contracting with key suppliers, and ordering long-lead materials. At Textron Systems, we advanced to the Future Tactical Unmanned Aircraft System competition and are now one of 2 remaining competitors, down from the initial 5.

[Scott Donnelly, Chairman and CEO at Textron]

Systems also continued to win on land vehicle programs, advancing to the next phase of the Army's XM30 program as part of Team Lynx, and was selected as one of four competitors to build RCV-Light prototypes for the Army. At Textron Specialized Vehicles, we introduced the new street-legal E-Z-GO Liberty LSV, powered by our ELiTE lithium-ion battery system. At Kautex in 2023, we announced the first Pentatonic order from an automotive OEM for a thermoplastic composite underbody battery protection skid plate, establishing Kautex as a supplier to the expanding battery electric vehicle market. At Aviation, during the year, we began system-level integration of the first Nuuva prototype, our hybrid electric unmanned cargo VTOL aircraft, in preparation for first flight in 2024....As we closed out 2023, manufacturing performance was trending positively, with improvements in labor productivity and supplier deliveries.

[Scott Donnelly, Chairman and CEO at Textron]

Looking to 2024 at Aviation, we're projecting growth driven by increased deliveries across all product lines and higher aftermarket volume. At Bell, we're projecting revenue growth in 2024 on higher military revenues from the FLRAA program and higher commercial revenues from increased deliveries. At Textron Systems, we're expecting slightly higher revenue as new programs continue to ramp. At Industrial, we're expecting flat revenues as growth in specialized vehicles is offset by lower than expected volume at Kautex. At Textron eAviation, we plan to continue investments in the development of technologies and products supporting sustainable flight solutions for unmanned cargo, next-generation electric trainers, eVTOL, and general aviation. We also expect higher aircraft deliveries at Pipistrel. With this overall backdrop, we're projecting revenues of about $14.6 billion, up 7% from 2023 for Textron's 2024 fiscal year.

[Scott Donnelly, Chairman and CEO at Textron]

We're projecting adjusted EPS in the range of $6.20-$6.40. Manufacturing cash flow before pension contributions is expected to be in the range of $900 million-$1 billion. With that, I'll turn the call over to Frank.

[Frank Connor, EVP and CFO at Textron]

Thanks, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.5 billion were down $58 million from the fourth quarter of 2022, reflecting lower volume and mix of $158 million, partially offset by higher pricing of $100 million. Segment profit was $193 million in the fourth quarter, up $23 million from a year ago, reflecting a favorable impact from pricing, net of inflation, of $51 million, partially offset by lower volume and mix of $22 million. Backlog in the segment ended the quarter at $7.2 billion.

[Frank Connor, EVP and CFO at Textron]

Moving to Bell, revenues were $1.1 billion, up $255 million from last year's fourth quarter, reflecting higher commercial revenues of $171 million, largely driven by increased deliveries and higher military revenues of $84 million related to the FLRAA program. Segment profit of $118 million was up $55 million from a year ago, primarily driven by higher volume and mix of $39 million. Backlog in this segment ended the quarter at $4.8 billion. At Textron Systems, revenues were $314 million, flat with last year's fourth quarter. Segment profit of $35 million was equal to last year's fourth quarter. Backlog in the segment ended the quarter at $2 billion.

[Frank Connor, EVP and CFO at Textron]

Industrial revenues were $961 million, up $54 million from last year's fourth quarter, largely reflecting higher volume and mix at Kautex and a favorable impact from pricing at Textron Specialized Vehicles. Segment profit of $57 million was up $14 million from the fourth quarter of 2022, primarily due to higher pricing net of inflation of $18 million. Textron eAviation segment revenues were $10 million, and the segment loss was $23 million in the fourth quarter of 2023, which reflected the research and development costs for the initiatives related to the development of sustainable aviation solutions. Finance segment revenues were $12 million, and profit was $4 million. Moving below segment profit, corporate expenses were $45 million. Net interest expense was $13 million. LIFO inventory provision was $21 million. Intangible asset amortization was $9 million, and the non-service components of pension and post-retirement income was $60 million.

[Frank Connor, EVP and CFO at Textron]

In November, we announced a restructuring plan that resulted in pre-tax special charges of $126 million in the fourth quarter. We anticipate the restructuring plan will be substantially completed in the first half of 2024, resulting in annualized cost savings of approximately $75 million. Our manufacturing cash flow before pension contributions was $380 million in the quarter. For the year, manufacturing cash flow before pension contributions totaled $931 million, down $247 million from the prior year. In the quarter, we repurchased approximately 3.7 million shares, returning $283 million in cash to shareholders. For the full year, we repurchased approximately 16.2 million shares, returning $1.2 billion in cash to shareholders.

[Frank Connor, EVP and CFO at Textron]

Turning now to our 2024 outlook on Slide 7, we're expecting adjusted earnings per share to be in the range of $6.20-$6.40 per share. We're also expecting manufacturing cash flow before pension contributions to be about $900 million-$1 billion. Moving to segment outlook on Slide 8, and beginning with Textron Aviation, we're expecting revenues of about $6 billion. Segment margin is expected to be in the range of approximately 12%-13%. Looking to Bell, we expect revenues of about $3.5 billion. We're forecasting a margin in the range of 9.5%-10.5%. At Systems, we're estimating revenues of about $1.25 billion, with a margin in a range of about 11%-12%.

[Frank Connor, EVP and CFO at Textron]

At Industrial, we're expecting segment revenues of about $3.8 billion and a margin in a range of 6%-7%. At eAviation, we're expecting revenues of $50 million and a segment loss of $25 million, reflecting our continued investment in sustainable aviation solutions. At Finance, we're forecasting segment profit of about $30 million. Looking to Slide 8, we're projecting about $160 million of corporate expense. We're also projecting about $90 million of net interest expense, $110 million of LIFO inventory provision, $35 million of intangible asset amortization, and $265 million of non-service pension income. We expect a full-year effective tax rate of approximately 17.5%. Turning to Slide 10, R&D is expected to be about $550 million, down from $570 million last year.

[Frank Connor, EVP and CFO at Textron]

We're estimating CapEx will be about $425 million, up from $402 million in 2023.

[Scott Donnelly, Chairman and CEO at Textron]

...Our outlook assumes an average share count of about 191 million shares in 2024. That concludes our prepared remarks. Aaliyah, we can open the line for questions.

[Operator]

Thank you. As a reminder, for those asking questions, we ask that you please take yourself off speakerphone for the best sound quality. I would now like to start with Sheila Kahyaoglu with Jefferies. Please go ahead.

[Sheila Kahyaoglu, Managing Director of Equity Research at Jefferies]

Good morning, Scott, Frank, and welcome, David. Scott, maybe first one for you. How do we think about 2024 Aviation deliveries and just book-to-bill in the context of your guidance?

[Scott Donnelly, Chairman and CEO at Textron]

Sure, Sheila. Look, I think we'll continue to see a ramp on the production side. As I, as I noted, I think we did, you know, in the fourth quarter, start to see some improved productivity in the line. There are still some supplier issues, but, you know, a number of parts coming into PO are improving somewhat. So I think that will help us continue to increase volume here as we go through into 2024. So I certainly see unit deliveries being up, you know, on a year-over-year basis. The market is still strong. I mean, obviously, our book-to-bill, you know, covers, you know, 2024 deliveries quite well. But I, I think, you know, our expectation, as we said, coming into the year, was kind of targeting a one-to-one book-to-bill.

[Scott Donnelly, Chairman and CEO at Textron]

We did better than that, obviously, in 2023, but our assumption as we go into 2024 is that we'll see a 1-to-1 book-to-bill. So, the market is still good. I think we're seeing nice stimulation and, you know, some of the new products coming out, like the Citation CJ3 Gen2, has been really well received. Ascend, I think, will start to also drive strong demand, and overall, the product lineup is in good shape. So I think, you know, market-wise, we're good, and we will see. You know, obviously, to get to the guide of around $6 billion on the Aviation side, we will see continued, you know, volume on both aircraft production as well as aftermarket growth.

[Sheila Kahyaoglu, Managing Director of Equity Research at Jefferies]

Can we get to about 200 deliveries in 2024? Do you think that's reasonable?

[Scott Donnelly, Chairman and CEO at Textron]

We're, as you know, we don't put a number out there, but it will be increased from 2023.

[Sheila Kahyaoglu, Managing Director of Equity Research at Jefferies]

Got it. And if I could ask one on FLRAA. Just, you know, good progress on the program with ITEP, but I think revenues were about $175 million in 2023, fell short of our expectations. And how do we think about 2024? We have about $850 million of FLRAA according to the budget. So how's that?

[Scott Donnelly, Chairman and CEO at Textron]

Yeah, I think, for sure, Sheila, I think our revenues were higher than that on FLRAA, probably for the year. We won't break out all the details, but it was, you know, it was certainly just south of a few hundred million dollars. But we do expect, you know, as we go into 2024, the program is ramping very nicely. You know, as you know, like, the number was lighter than we originally expected just because of the delay, you know, with the protest and, you know, in the early part of the year. But the ramp, as, you know, as we've ramped after the contract award, is going really well. So I would expect a number, you know, closer to the $900 million range in 2024 on the FLRAA program.

[Sheila Kahyaoglu, Managing Director of Equity Research at Jefferies]

Thank you.

[Scott Donnelly, Chairman and CEO at Textron]

Sure.

[Operator]

Next, we go to a question from Peter Arment with Baird. Please go ahead.

[Peter Arment, Senior Research Analyst at Baird]

Yeah. Good morning, Scott, Frank, David.

[Scott Donnelly, Chairman and CEO at Textron]

Hi.

[Peter Arment, Senior Research Analyst at Baird]

Just maybe just circle back just on how you're thinking about, you know, kind of the margin leverage in Aviation, Scott. When you think about just—'cause you called out some of the pricing that you continued to get, how are we thinking about just kind of that flowing through? I mean, just given the margin outlook at 12%-13%, kind of at the low end of the range, it's flat, but at the upper end, obviously 100 basis points. Just how are you thinking about that?

[Scott Donnelly, Chairman and CEO at Textron]

Well, look, Peter, I think we definitely expect to continue to see price, you know, net of inflation as, as a positive for us. It won't be as significant it was, as it was in 2023, but we still have good pricing, you know, in the backlog, and I, I think it will be a tailwind for us. So if you look at the guide and the numbers, Peter, you're right. Look, I mean, we're as I said, I think we saw some improved performance in Q4 on the, on the manufacturing, you know, conversion side. So, you know, we're bringing we're certainly baking some of that in as we go into, into 2024.

[Scott Donnelly, Chairman and CEO at Textron]

You know, as you move towards the high side of the guidance, you know, you get up into that 20%+ conversion, which is where we historically like the business to be. So it's, you know, it's something we've got to work on, obviously. We still have some of those headwinds that we faced all this year on the operating side. But the combination of improved performance and continued price over inflation as a positive, while it's not as big a positive, I think will help us get towards that 20%+ range.

[Peter Arment, Senior Research Analyst at Baird]

Got it. That's helpful. And then just Frank, quickly, the interest expense increase, just maybe what's going on there specifically? Thanks.

[Scott Donnelly, Chairman and CEO at Textron]

Well, yeah, go ahead.

[Frank Connor, CFO at Textron]

Yeah, little, we've got slightly higher borrowing costs from the bond deal that we did last year, so that's a little bit of the rollover on the financing. It assumes slightly lower cash balances, and, you know, a little bit of conservatism around the interest rate that we earn on that excess cash.

[Peter Arment, Senior Research Analyst at Baird]

Thanks again. Thanks, Frank.

[Operator]

Next, we go to David Strauss with Barclays. Please go ahead.

[David Strauss, Managing Director at Barclays]

Thanks. Good morning, everyone.

[Scott Donnelly, Chairman and CEO at Textron]

Good morning, David. Good morning.

[David Strauss, Managing Director at Barclays]

Scott, wanted to ask about the V-22 grounding. Does that impact Bell at all? I know you have a pretty big aftermarket business on the V-22.

[Scott Donnelly, Chairman and CEO at Textron]

No, David, I don't think it's a material impact. You know, the services, you know, frankly, are using the opportunity of the grounding to continue to do their maintenance activities and, you know, get aircraft ready to fly. So, we probably can't say much more about that situation than that, but no, I don't expect it to be a material impact.

[David Strauss, Managing Director at Barclays]

Okay. And, Frank, free cash flow, the guidance for flat, you know, I know you had a pretty big inventory build in 2023, but you also had positive advances. What are you assuming for working capital? And, in terms of the adjusted EPS guide, what are you baking in as far as share count and share repo in 2024? Thanks.

[Frank Connor, CFO at Textron]

Yeah, from a cash standpoint, you know, we obviously are anticipating volume growth in the year. So, that's gonna put a little continued pressure on inventory levels, as we look, you know, kind of to 2024 and 2025, volume growth. Not a lot. There is a little bit of working capital pressure with the timing of some customer payment activity, particularly on the military side. Bell, in particular, had a very good year in 2023 in terms of the timing of payment activity. That puts a little bit of headwind on cash flow, and then, as you heard, a little higher CapEx guidance, you know, kind of, in terms of the spend there. So it's not any one item.

[Scott Donnelly, Chairman and CEO at Textron]

It's, you know, kind of a little bit of headwinds on working capital associated with the things I mentioned and a little bit higher levels of investment. But we still think we're, you know, very solid cash flow performance for the year. In terms of the share count, we talked about 191 million average shares. So, you know, kind of roughly 5% or so, reduction in average share count for the year.

[David Strauss, Managing Director at Barclays]

Thank you.

[Operator]

Next, we go to Jason Gursky with Citi. Please go ahead.

[Jason Gursky, Managing Director at Citi]

Yeah. Good morning, everybody.

[Scott Donnelly, Chairman and CEO at Textron]

Morning.

[Jason Gursky, Managing Director at Citi]

Scott- Scott, I was wondering if you could just spend a few more minutes on systems and talk about the pipeline of opportunities there and the timing?

[Scott Donnelly, Chairman and CEO at Textron]

Yeah

[Jason Gursky, Managing Director at Citi]

... of potential awards, kind of with, you know, the backdrop of what's going on with the budget in mind, and whether, you know, things like continuing resolutions to go out half a year have any impact on kind of your expectations around this?

[Scott Donnelly, Chairman and CEO at Textron]

So the CR situation right now doesn't really worry me very much on the system side of things. As we indicated, Jason, we're going to be relatively flattish, you know, on the revenue in 2024. I'd say the pipeline is very strong. You know, you look at some of these down selects on FTUAS, the ARV program, what used to be the OMFV program, XM30 program. You know, a lot of these things are, you know, significant opportunities for us. They're really important down selects that we achieved last year. We'll execute on those, and they're not big growth programs, so they don't really have a CR, you know, impact that I'm too concerned about, and they're virtually all programs that will have their next significant contractual award down select in 2025.

[Scott Donnelly, Chairman and CEO at Textron]

So that's why you see us kind of flattish. You know, we had—I think 2023 was a hugely important year for the down selects on those really important programs. Execute this year, and you start to see the, the revenue growth driven by, you know, ultimately, you know, being the final selection awards, EMD programs that award in 2025.

[Jason Gursky, Managing Director at Citi]

Okay, great. Thank you. And then just quickly on eAviation. We've got, you know, widening profitability losses that are projected for 2024 on higher revenue. I was wondering if you could just kind of give us a broad brushstroke update on, the plans for that business, and at what point does, you know, the revenue potentially pick up here, and we begin to, to see those, those profitability losses begin to, to contract? And just kind of your overall vision for that business over the next, I don't know, three to five years.

[Scott Donnelly, Chairman and CEO at Textron]

Sure. Absolutely. Look, you know, keep in mind, there's two things going on in that eAviation segment, right? There's Pipistrel, which is, you know, our current. You know, it's a real business, real sales, you know, roughly doubling the volume of aircraft sales from 2022 to 2023, you know, roughly doubling 2023 to 2024. So I think, you know, the product lineup at Pipistrel is doing quite well. We're expanding distribution channels. You know, look, it's a relatively small business, but it's doing well. What's driving the losses is these investments in R&D, particularly around the Nexus program. You know, that's something that won't generate revenue, probably for several years. And, you know, investment on, say, the Nuuva V300, which is our, you know, hybrid unmanned cargo, and which, again, this is a few years from revenue.

[Scott Donnelly, Chairman and CEO at Textron]

And so that's, you know, part of why, Jason, we broke this thing out, right? So you guys see these investments, you know, which are, you know, frankly, not dependent or tied to the revenue within that segment. So the two big moving pieces in there in terms of the investment side are the Nuuva on the unmanned cargo and the Nexus on the sort of the eVTOL side, which, again, I don't think that has to be necessarily dependent to urban air mobility, but just GA, you know, in general. That—both those teams are in great shape. I think we'll see first flight of the Nuuva in 2024.

[Scott Donnelly, Chairman and CEO at Textron]

We've also begun the assembly and, you know, wings and fuselage build on the Nexus program, in which to also both, both programs are making, you know, very good progress, but they're both technology investment programs.

[Jason Gursky, Managing Director at Citi]

Okay, great. Thanks.

[Scott Donnelly, Chairman and CEO at Textron]

Sure.

[Operator]

Next, we go to the line of Noah Poponak with Goldman Sachs. Please go ahead.

[Noah Poponak, Managing Director at Goldman Sachs]

Hey, good morning, everyone.

[Scott Donnelly, Chairman and CEO at Textron]

Good morning, Noah.

[Noah Poponak, Managing Director at Goldman Sachs]

Scott, we've heard some discussion in the business jet end market that, even though 2023 was a, was a decent order year, that there's actually maybe some pent-up demand because it was so consensus that there was going to be a recession or something like it. And, you know, that in 2024, if, if we're having an inflation decel and, and rate cuts and some version of a soft landing, that you could have your normal underlying demand plus anybody that deferred from 2023. And so I'm, I'm curious if you hear that from your customers or your sales force, and, there's an upside case for bookings, or, or is that too aggressive and just stick with book-to-bill of 1?

[Scott Donnelly, Chairman and CEO at Textron]

... Well, look, no, I think as I said, as I said at the beginning, we feel good about the end market. Customer dialogues are robust, you know. You know, frankly, the only headwind that I see we run into is just on availability, right? People would like to get aircraft, you know, sooner. So, you know, we're. I think our sales folks are out there working hard. There's no doubt there's, there's demand. I think that's, as I said earlier, helped by the fact that we've got some new models that are coming out that are gonna be really well received in the market. So, look, all in all, as we talked about, you know, the book-to-bill number can change a little bit quarter to quarter, but I think we feel, we feel very good about the end market.

[Scott Donnelly, Chairman and CEO at Textron]

I think we'll stick at this point with our kind of 1:1 in our base assumption, as we did in 2023, and if the market remains, you know, that robust, we can exceed that number, which would be great. So look, I think the market, you know, remains strong. It's. We feel good about it.

[Noah Poponak, Managing Director at Goldman Sachs]

Okay. And I wondered if you could just maybe discuss a little more, just how much better is supply chain, labor, your ability to get airplanes out the door? You know, the delivery number was down in 2023, despite all the demand, kind of to your point there on availability, that whatever the 2024 delivery plan is, it's got to be up a lot to get to that revenue guidance. Do you feel like you really have that hitting the ground running in January here? And then, as that pertains to the margin, why would price net of inflation not be better if that... You know, if pricing is still good, I know the rate of change matters, but if the cost inflation and disruption piece settles down significantly for you?

[Scott Donnelly, Chairman and CEO at Textron]

Well, look, I'd say I don't know how to quantify the exact number for you know, but there's a couple dynamics here that make us feel good about it. Again, we saw better labor productivity, you know, all of the metrics we track in terms of, you know, training hours, direct, you know, charging to indirect, all those sorts of things, applied hours. We're positive in the quarter, you know, we do track, you know, number of parts that are late to PO. You know, these numbers are getting better. Plus, I think as you look at the 2023 to 2024, you know, we have net less hiring we need to do to hit the ramp. You know, last year was a big year in terms of onboarding new people. As you can imagine, that's very disruptive.

[Scott Donnelly, Chairman and CEO at Textron]

You know, it's a lot of training. That takes not just the new people, but it takes a lot of our capable people to help train and develop them. We made a lot of investments in 2023 around new training facilities. So, but the absolute number, you know, we still need to onboard new people for sure, but on a, you know, the number of them is less than what it was in 2023, and that should be helpful. The supply chain thing, as I said, look, it is getting better, but it's still susceptible to the wrong part not being available, right? I mean, I think it's gonna help us do less out-of-station work, but we still have suppliers we're keeping a close eye on because a lack of delivery on their part, you know, could hold up an aircraft.

[Scott Donnelly, Chairman and CEO at Textron]

So, you know, we're still being, you know, cautious about how we work through that, but it, but it is improving. Like I said, there is less hiring. I think most of our lines are flowing better as a result of all the things I just talked about. So, you know, that we do factor that into our ability to hit that, that larger number of aircraft deliveries in 2024, and I think we'll get there.

[Noah Poponak, Managing Director at Goldman Sachs]

Okay, that's good. I'm just gonna, just gonna ask one more. The Bell margin, you know, pretty strong in the quarter, closed 2023, well ahead of the initial plan. This 2024 guide, 9.5%-10.5%, you know, kind of flat year-over-year. You know, there was a view that this was going to 7-8% as you ramped FLRAA. You're ramping FLRAA, that—it's not happening. Can you talk about how you're outperforming there and absorbing the FLRAA ramp? Is 2024 the trough, or does that still need to go down some number of hundreds of basis points before then going back up?

[Scott Donnelly, Chairman and CEO at Textron]

I think the team is doing everything they can to manage costs, you know, control, you know, again, do the right cost actions here as we see the ramp down on some of these military production programs, and we continue to do that. Those were certainly better mix than, you know, a big cost plus, you know, EMD program. So we still, you know, we'll have some pressure around the margin rate, but as we talked about that, you know, the growth benefit of seeing this program ramp up, you know, we believe will still generate accretive, you know, not dollars. So even if we see some pressure on the margin rate, the business will still be contributing, you know, positively to the overall dollars and therefore, EPS for the business.

[Noah Poponak, Managing Director at Goldman Sachs]

Okay. All right, thanks.

[Scott Donnelly, Chairman and CEO at Textron]

Sure.

[Operator]

Next, we go to the line of Myles Walton with Wolfe Research. Please go ahead.

[Myles Walton, Managing Director at Wolfe Research]

Thanks. Good morning. I was hoping to circle around Aviation. In the last few quarters, there's been more discussion of this performance as a negative variance to the profit walk. That wasn't part of the conversation. It was clearly price offset by a little bit of volume. So is it fair to think that bucket of performance that you all cite has materially, you know, become non-material?

[Scott Donnelly, Chairman and CEO at Textron]

Well, I wouldn't say non-material, but I would say, Myles, and look, in 2023, we had, you know, pretty significant price overinflation, you know, benefits. And I think we did talk, you know, through the course of the year, that that did help, you know, to offset, you know, some of the performance issues that were driven by these labor inefficiencies and supplier impacts and stuff like that. So I think as you look at 2024, we're expecting improved margins. You know, we're absolutely expecting significantly improved revenue, and therefore, operating profit in the business....

[Scott Donnelly, Chairman and CEO at Textron]

But the, you know, the trade you're gonna see is there's probably still positive price over inflation, but not as big a number, but you're gonna have less performance issue to have to cover, you know, with that number, because we do expect to see better efficiencies in the factories and lesser impact from the supply. So, you know, so, you know, net of all this stuff, I mean, there's a different dynamic, I believe, in 2024. That's how we're gonna get there than 2023. But, you know, the bottom line is you're gonna see significant, you know, revenue growth and, and significant operating profit, including expanding margin in 2024.

[Myles Walton, Managing Director at Wolfe Research]

Okay. And then on the restructuring program you executed, I think about 60% maybe was directed at Bell. Of the $75 gross savings you talk about, how much net savings is Bell getting in 2024? And also, is Bell getting most of the lower R&D benefit?

[Scott Donnelly, Chairman and CEO at Textron]

Oh, well, look, I mean, we don't—we're probably not gonna break that all the way down, but certainly part of why, you know, the discussion I just had with Noah around, you know, why are we seeing some, you know, better margins and, you know, holding in there on the margin rates at Bell, is this is part of why we took that restructuring action to control cost and, and manage our way as we reduce the volume in some of these, you know, historic military production programs. And so that's part of what's helping to, to sustain, you know, a better margin rate, even as we see those programs ramp out. We just have to take the cost out of the business in the areas that we're largely supporting, you know, these big, you know, military production programs.

[Scott Donnelly, Chairman and CEO at Textron]

I won't put the exact number in there, but that's the dynamic that's helping to improve that, you know, improve that margin.

[Myles Walton, Managing Director at Wolfe Research]

Is R&D drop there mostly in Bell?

[Scott Donnelly, Chairman and CEO at Textron]

Yeah, it is. I mean, as you know, we don't break that all the way out, but look, we still had, as you recall, you know, the delay of the FLRAA program in 2023. We had more of our own costs, you know, still sustaining and supporting that program in the earlier part of the year. Obviously, as that has ramped, you know, and become a full-blown contract, you know, that's helping to reduce that number. The overall gross R&D, the business is still growing significantly as FLRAA ramps, but the net number in terms of the IRAD side is certainly shifted from that IRAD into the contract program.

[Myles Walton, Managing Director at Wolfe Research]

Makes sense. Thank you.

[Operator]

The next question we have is from Kristine Liwag with Morgan Stanley. Please go ahead.

[Scott Donnelly, Chairman and CEO at Textron]

Kristine, you there?

[Operator]

She has disconnected. We will move on to the next line of Robert Stallard with Vertical Research. Please go ahead.

[Robert Stallard, Partner at Vertical Research Partners]

Thanks so much. Good morning.

[Scott Donnelly, Chairman and CEO at Textron]

Hi, Robert.

[Robert Stallard, Partner at Vertical Research Partners]

Scott, I'd just like to follow up on Noah's question about the supply chain and the parts that are, you know, behind at the moment. Are there any specific areas where you're seeing any problems, like interiors, that are holding things up?

[Scott Donnelly, Chairman and CEO at Textron]

Nothing that I would comment on, on a call. There's, we all have our problem children, Rob.

[Robert Stallard, Partner at Vertical Research Partners]

Yeah, understood. And then secondly, there's been some press reports that Textron has been looking at some M&A acquisitions in recent months. I don't expect you to comment on that, but I was wondering if you could maybe reiterate your priorities for capital deployment as we start 2024.

[Scott Donnelly, Chairman and CEO at Textron]

Sure. Nope, we definitely would not comment on that. Look, I think what we've talked about and, you know, Frank's indication on the share count at 191 million, you know, obviously indicates that our priority continues to be share buyback. That makes, we think at this point, a pretty significant, you know, benefit for our shareholders, and that's what we expect to continue to do in 2024.

[Robert Stallard, Partner at Vertical Research Partners]

Okay. That's great. Thanks, Scott.

[Operator]

Our next question is from Seth Seifman with J.P. Morgan. Please go ahead.

[Seth Seifman, Vice President at J.P. Morgan]

Okay, thanks very much, and good morning, everyone. I guess just asking about the performance at Aviation and kind of the improvement in productivity and parts availability that you started to see in the fourth quarter. Does that mean that in the first quarter, you know, we can expect to see kind of a nice increase in deliveries and something that would kind of, you know, affirm the notion of being on track for the revenue guide for the year?

[Scott Donnelly, Chairman and CEO at Textron]

Well, we're not gonna get into quarterly guidance for sure, Seth, but I mean, you, you certainly should expect to see a, you know, a nice progression in terms of the revenue, you know, on a quarter-to-quarter basis over 2023, consistent with, you know, the guide of $6 billion of revenue for the total year.

[Seth Seifman, Vice President at J.P. Morgan]

Okay. Okay, great. And then, maybe, just following up, a little bit different twist on Rob's question. I know you probably won't comment on specific M&A reports, but the reports that we have read tend to deal mainly with the space end market. I wonder if you'd comment on, you know, do you view that as an important and/or attractive end market into which to expand?

[Scott Donnelly, Chairman and CEO at Textron]

I wouldn't comment.

[Seth Seifman, Vice President at J.P. Morgan]

Fair enough. All right. I'll stick to the-

[Scott Donnelly, Chairman and CEO at Textron]

That's great.

[Seth Seifman, Vice President at J.P. Morgan]

Thank you very much.

[Scott Donnelly, Chairman and CEO at Textron]

Thanks. Thank you.

[Operator]

Next, we go to the line of Kristine Liwag, Liwag, excuse me, with Morgan Stanley. Please go ahead.

[Kristine Liwag, Executive Director at Morgan Stanley]

Hey, guys, can you hear me okay?

[Scott Donnelly, Chairman and CEO at Textron]

Yep, we can hear you fine.

[Kristine Liwag, Executive Director at Morgan Stanley]

Okay, great.

[Scott Donnelly, Chairman and CEO at Textron]

Welcome back.

[Kristine Liwag, Executive Director at Morgan Stanley]

Hey, Scott, Frank, Dave. Thanks. On your restructuring actions, can you provide more details on what you're doing and what your expectations are for the timing and the size of the payback from your investments?

[Scott Donnelly, Chairman and CEO at Textron]

Well, Christine, I mean, you know, as we kind of put out there, there's a sizable piece that's going into Bell, and that's, you know, really aligning our cost structure with the lower production rates on some of the historic military programs like H-1 and V-22. You know, that's a very, in terms of cost and the mix of people within the business, you know, the ramp obviously is net positive, but it's largely in the engineering, you know, program side of the FLRAA program. So it's a necessary action to align costs with the old historic production programs.

[Scott Donnelly, Chairman and CEO at Textron]

As we also indicated, you know, we're aligning, you know, some of our plants on the auto side to understand where's demand around the world, and rationalizing where we think it's appropriate to keep that business healthy with a high return and strong cash flow. So, you know, it's just, you know, there's bits in a number of other places, but, you know, we believe on a run rate basis, it's gonna be about a $75 million a year positive impact to the business. And so that's, I think, a good return and why we decided to proceed with the program.

[Kristine Liwag, Executive Director at Morgan Stanley]

Great. Thanks for the color. And maybe on Aviation, if I could do a follow-up. You know, $100 million in pricing power for new aircraft is very healthy. And so if we're seeing if you're continuing to see bottlenecks in new aircraft production, can you talk about the demand environment for aircraft services then? And what's the pricing power in services, especially with the lack of, you know, new airplanes coming into the market?

[Scott Donnelly, Chairman and CEO at Textron]

Look, I think you know what, what we saw this year, which was, you know, strong growth, 6.5% on the, on the services side, obviously, that's a, you know, a mixture between volume and, and pricing. I expect we'll continue to see, good demand on that side. We certainly have that baked into our forecast. Aircraft are flying, our customers are running the aircraft, they're doing the necessary maintenance. So, you know, I think it'll continue to be a healthy part. Certainly, what we've incorporated in the guide for next year is, is good growth in the, in the service business, both the, you know, our, our service centers as well as the parts.

[Scott Donnelly, Chairman and CEO at Textron]

As always, that's gonna be a, you know, function of both, you know, volume increases as well as, you know, annual expected pricing in the aftermarket side.

[Kristine Liwag, Executive Director at Morgan Stanley]

Great. Thanks, Scott.

[Operator]

Next, we go to the line of George Shapiro with Shapiro Research. Please go ahead.

[George Shapiro, Managing Director at Shapiro Research]

Yes, good morning.

[Scott Donnelly, Chairman and CEO at Textron]

George.

[George Shapiro, Managing Director at Shapiro Research]

Scott, I was just curious. You were saying that the supply chain seems better, yet the deliveries in the fourth quarter were a lot lighter than what most of us were looking for. So if you could kinda just connect the two dots there.

[Scott Donnelly, Chairman and CEO at Textron]

Oh, look, George, as you know, it takes many months to build an aircraft. So you know, the improvements in both the labor side and the, and the parts side takes a while to, to push through the system. So the higher cost and a lot of the impacts that we kinda saw through the course of the year, you know, are, you know, were full year impacts. So but I do feel like, you know, as we look at the numbers, you know, and what we experience on a, you know, on a day-to-day basis, we did see improvements. And I think that's, as a result, you'll start to see that improvement, you know, as you get into 2024.

[George Shapiro, Managing Director at Shapiro Research]

Then one other one. The book-to-bill in the quarter was, you know, 0.9, and the orders were, like, only $1.4 billion. That was really down a lot from last year, as well as from the third quarter. Now, I guess you're just looking at as timing or have anything to do with Noah's comment that people concerned about a recession in the fourth quarter, and we'd get a pickup, this year? If you could just comment on that as well.

[Scott Donnelly, Chairman and CEO at Textron]

George, I think it's largely timing. You know, we always have a little bit of lumpiness in, you know, in terms of when deposits are coming in on, you know, some of our larger customers, but there is. I don't think there's anything concerning there. We've said all along, we expect there's gonna be some quarters where it's gonna be, you know, below 1-to-1. Probably be some quarters where it's above 1-to-1. But again, our assumption, you know, full year, going all the way back to 2023 was 1-to-1. We did better than that. Our assumption in 2024 is it's gonna be 1-to-1.

[Scott Donnelly, Chairman and CEO at Textron]

You know, obviously, we'll see how the market plays out, but I still think we feel good about the end market, we feel good about demand, and I think it's healthy.

[George Shapiro, Managing Director at Shapiro Research]

And one last one. The strong Bell margin in the quarter, I mean, does that just really reflect the commercial delivery strength, which has much higher margins, more than offsetting the drag from the lower margin FLRAA program? And, if that would continue next year, the margins would probably be somewhat higher than what you've guided to?

[Scott Donnelly, Chairman and CEO at Textron]

So George, I think we're—look, we're continuing to see good margins, you know, on our military business. Obviously, you know, outside of the FLRAA side, it certainly helps to have, you know, higher commercial deliveries. We—I think we'll get some benefit of higher commercial deliveries as we, as we talked about in 2024. But look, there's gonna continue to be some pressure on the margin, just because we're seeing significant growth in the FLRAA program. The reason we did the cost actions and did the restructuring was to try to shore up the profitability of the business on the, on the legacy, you know, production programs. And so, you know, part of the guide is obviously we continue to see, you know, some benefit of that.

[Scott Donnelly, Chairman and CEO at Textron]

But again, there will be, you know, overall margin rate pressure going into the future. But I think as we talked about the, you know, even with that and the growth of the FLRAA program, we're gonna see significant revenue growth, and we're going to see absolute profit increases, and accretion EPS of the business. So I think, you know, as we work through a transition from legacy production to a new EMD program, I think we can manage our way through that well, and obviously, long term, you know, it's, it's gonna be a great story for Bell.

[George Shapiro, Managing Director at Shapiro Research]

Okay, thanks very much.

[Scott Donnelly, Chairman and CEO at Textron]

Sure.

[Operator]

Next, we move to Pete Skibitski with Alembic Global Advisors. Please go ahead.

[Pete Skibitski, Managing Director at Alembic Global Advisors]

Yeah, hi. Good morning, guys. Scott, can you expand on your opening comments, regarding Kautex and your, your expectations there in 2024? It sounds like you think you're, you might be a little bit weak there. Just was wondering what the, the drivers were.

[Scott Donnelly, Chairman and CEO at Textron]

Sure, Pete. Look, you know, then you know that's one business where we really, you know, depend on sort of industry customer forecasts, you know? So, our guide reflects that, you know, we don't really apply a whole lot of our own judgment to that. We really go with where the industry tells us they're going, and, you know, we'll we got to see how the year plays out. I think we feel good about the business. Again, some of the restructuring we did was reflective of where the volume growth is and where the volume growth isn't.

[Scott Donnelly, Chairman and CEO at Textron]

But the business is in a healthy place, and the margins have been doing better as we've come out of all the sort of the post-COVID world, and the volumes will be, you know, obviously consistent with global auto OEM numbers.

[Pete Skibitski, Managing Director at Alembic Global Advisors]

Okay. Got it. And then I had a couple questions on Aviation. Are you expecting Caravan sales deliveries to be up in 2024? I know you deliver a lot of them to Asia, and we're seeing some softness in China. So just wondering what you're seeing there.

[Scott Donnelly, Chairman and CEO at Textron]

Well, look, Pete, I mean, we're not going to get into model by model, but I would say, you know, net of everything, the turboprop market is doing really, really well. As you know, that, that does tend to be a little bit more international. I think we usually give the numbers, you know, roughly 60%, you know, international versus the jet side is 80%. But I think our turboprop business is in a really good place. I think Caravans will do well. I think King Airs are going to be strong. We continue the ramp on the SkyCourier.

[Scott Donnelly, Chairman and CEO at Textron]

So, you know, we tend to get mostly questions around jet, but look, I think the turboprop business is in a very good place, and we certainly expect to see that business continue to grow in 2024.

[Pete Skibitski, Managing Director at Alembic Global Advisors]

Okay, great. Thank you.

[Operator]

Next, we go to a question from Cai von Rumohr with TD Cowen. Please go ahead.

[Cai von Rumohr, Managing Director and Senior Aerospace & Defense Analyst at TD Cowen]

Yes, thanks so much. So, Scott, at Bell, are you looking for... You know, is part of the profit strength this year, 2024, coming from closeouts on the V-22 and the H-1? And secondly, is there any risk to FLRAA volume from an extended CR?

[Scott Donnelly, Chairman and CEO at Textron]

So, Cai, you know, look, I think the 2024, you know, we'll, we obviously will see some contracts come to an end, and there will be some MR release when you do that. But look, I think we can, you know, execute well on that performance. I mean, I think Q4 is a good example, Cai. We had about $8 million total in the company of EACs. That not a particularly material number, and it's flat on a year-over-year basis. So, do I think we'll have some, you know, some reserve release next year? Sure, we will. I mean, we normally do as we perform through these programs.

[Scott Donnelly, Chairman and CEO at Textron]

But I think the cost out activity that we've been driving, you know, the absorption and growth on both the commercial revenue side as well as the FLRAA, you know, revenue side, will all, you know, help to contribute to preserving and getting a good margin rate for 2024.

[Cai von Rumohr, Managing Director and Senior Aerospace & Defense Analyst at TD Cowen]

And, uh-

[Scott Donnelly, Chairman and CEO at Textron]

In terms of the... Yeah. I'm sorry. In terms of the CR-

[Cai von Rumohr, Managing Director and Senior Aerospace & Defense Analyst at TD Cowen]

Yeah.

[Scott Donnelly, Chairman and CEO at Textron]

Okay, I think we're okay. You know, I mean, as we talked about before, if the CR goes all the way through a full year, you know, that could put some pressure for sure. I think the Army probably has, you know, backup plans they're trying to work in terms of how they would move money around. Obviously, FLRAA is a very high priority, very important program, you know, to them as well. So this whole thing would be a heck of a lot easier if Congress would just pass a budget, for sure. But right now, I think we're okay, and unless it really goes to a full year, I think we'll, you know, collectively, between ourselves and the Army, be able to manage through it.

[Cai von Rumohr, Managing Director and Senior Aerospace & Defense Analyst at TD Cowen]

Got it. Last one, at Aviation, can you give us some color in terms of where the order strength is, in terms of fractionals versus high net worth versus corporate?

[Scott Donnelly, Chairman and CEO at Textron]

It's pretty stable, Cai. We aren't really seeing a change, you know, from where we were. We don't break all that out, obviously, but it's... The demand has been, you know, pretty strong in terms of mix, as you know. You know, the jet stuff tends to be more, you know, domestic, roughly 80/20. The turboprop is more like 60/40 international. We haven't seen big changes in that. We haven't seen big changes in the mix, you know, between what goes through the fractional world and what goes through the, you know, whole aircraft side. It's, you know, and demand continues to be, you know, we think, pretty strong across the board.

[Cai von Rumohr, Managing Director and Senior Aerospace & Defense Analyst at TD Cowen]

Thank you very much.

[Operator]

Next, we go to a question from Doug Harned with Bernstein. Please go ahead.

[Doug Harned, Managing Director and Senior Analyst at Bernstein]

Good morning. Thank you. Scott, in the past, you'd commented on the supply chain that you'd actually seen more challenges at Bell than you had in Aviation. And given the strong margins at Bell, I mean, can you comment on where that stands today?

[Scott Donnelly, Chairman and CEO at Textron]

Well, look, this is the challenge of the world we're living in, right? I mean, we had some pretty significant impacts at Bell in the earlier part of the year, around a very small number of suppliers. A couple of those suppliers, you know, either got healthier, or in some cases, we brought stuff inside and exited those suppliers. So, you know, when you do that, you know, we had a situation at Bell with a couple of the aircraft models, where we had very specific supply issues that we were able to resolve. As a result, Q4, you know, had a pretty strong delivery number on a year-over-year basis. So, you know, again, this is the challenge.

[Scott Donnelly, Chairman and CEO at Textron]

So while the absolute number of parts might be, you know, getting less, you can still have a part problem that has a significant impact. So that's just the nature of the beast and what our guys work through every day. So I think we did resolve a couple critical issues in the latter part of the year at Bell that enabled those higher deliveries, and obviously, we got to keep working it.

[Doug Harned, Managing Director and Senior Analyst at Bernstein]

Well, and then if I go back to the Aviation side and the end market, you know, one of the things we've seen is more pre-owned airplanes out there for sale, a higher percentage. We're still not back at kind of historical norms, but... You know, you were commenting that you're seeing a little bit less pricing benefit relative to inflation. I mean, are you seeing any potential pressure here from pre-owned as you look at your market?

[Scott Donnelly, Chairman and CEO at Textron]

No, we're not. Look, I think it's a. You know, look, first of all, as you, as you noted, it's, it's up versus where it was, which was at, at ridiculously low levels. It's still at historically, you know, lower levels than, than normal. You know, if we keep a very close eye on this, they're, they're mostly much older aircraft, right? So the, the phenomenon that people kind of refer back to is, as jeez, you know, do you have aircraft competing with new aircraft sales? Obviously, there was a time, going back a number of years ago now, where you had relatively new aircraft that were, you know, coming onto the market, and we're just, we're not seeing that dynamic.

[Scott Donnelly, Chairman and CEO at Textron]

You know, when we look at what's out there, what's available for sale in the used market, the number is increasing, but they are considerably older and in large part, you know, out of production, you know, aircraft. So no, we're not really seeing an impact of used aircraft out there that are competing with new aircraft sales.

[Doug Harned, Managing Director and Senior Analyst at Bernstein]

Okay, very good. Thank you.

[Operator]

Next, we go to Gavin Parsons with UBS. Please go ahead.

[Gavin Parsons, Aerospace & Defense Analyst at UBS]

Thank you. Good morning.

[Scott Donnelly, Chairman and CEO at Textron]

Good morning.

[Gavin Parsons, Aerospace & Defense Analyst at UBS]

I just wanted to circle back to Industrial margins and just get a better sense for what's driving that, given I think Kautex had been the segment underperforming, and then just thoughts on what seems like in TSV some of your recreational vehicle competitors are having headwinds. So what's driving the margins and growth there?

[Scott Donnelly, Chairman and CEO at Textron]

Well, look, I mean, we look at those end markets, you know, be it in the auto side or in the vehicle side. And our view is, as I said, I think overall, the Industrial will be pretty flat, but with improved margins, and that's largely, again, based on just industry forecasts. We think Kautex volumes will be down somewhat, although we think margins, you know, will continue to improve in that business. On the vehicle side, I think we'll see, you know, modest growth, and that is because we do factor in, you know, some of these, you know, higher dollar, you know, discretionary items.

[Scott Donnelly, Chairman and CEO at Textron]

We don't expect to see growth in that area, but net of all of that, the business probably still see some, some modest growth and again, continue to improve performance on the margin line. So, you know, those things that you guys might aggregate and look at in terms of other, you know, guys in that market are completely consistent with what we're seeing. But again, that is absolutely factored into our guide.

[Gavin Parsons, Aerospace & Defense Analyst at UBS]

That's helpful. Maybe just circling back to the NetJets, 1,500 over 15 years. I think typically they firm up about a year out, but on average, that would be 100 deliveries a year. Is that something you'd need more visibility from them on over that decade of orders or?

[Scott Donnelly, Chairman and CEO at Textron]

Well, we don't, and you're right. So we, you know, the way we treat the backlog is when those firm up, and that is roughly 12 months, where they actually put deposits down, at that—that's the point at which we move those aircraft into actual backlog. In terms of, you know, looking out beyond that, we do absolutely work closely with them on forecasting what that demand is going to look like, even outside of that one year, you know, firm up period. So, you know, we certainly have very, very good dialogue and working with them to, you know, collectively anticipate what that demand is gonna be on the, on the fractional side. But then we don't firm up and put into that actual backlog number until roughly, as you said, that one-year window.

[Gavin Parsons, Aerospace & Defense Analyst at UBS]

That's helpful. That makes sense. Thank you.

[Scott Donnelly, Chairman and CEO at Textron]

Sure.

[Operator]

Ladies and gentlemen, as a reminder, this conference is available for digitized replay and will be available after 10 A.M. Eastern time today through January 24, 2025. You may access the replay by dialing 866-207-1041 and enter the access code of 4065507. That does conclude your conference for today. Thank you for your participation. You may now disconnect.

Participants

Executives

• David Rosenberg, VP of Investor Relations
• Scott Donnelly, Chairman and CEO
• Frank Connor, EVP and CFO
• Frank Connor, CFO

Analysts

• Sheila Kahyaoglu, Managing Director of Equity Research at Jefferies
• Peter Arment, Senior Research Analyst at Baird
• David Strauss, Managing Director at Barclays
• Jason Gursky, Managing Director at Citi
• Noah Poponak, Managing Director at Goldman Sachs
• Myles Walton, Managing Director at Wolfe Research
• Robert Stallard, Partner at Vertical Research Partners
• Seth Seifman, Vice President at J.P. Morgan
• Kristine Liwag, Executive Director at Morgan Stanley
• George Shapiro, Managing Director at Shapiro Research
• Pete Skibitski, Managing Director at Alembic Global Advisors
• Cai von Rumohr, Managing Director and Senior Aerospace & Defense Analyst at TD Cowen
• Doug Harned, Managing Director and Senior Analyst at Bernstein
• Gavin Parsons, Aerospace & Defense Analyst at UBS