Textron Q4 2024 Earnings Report

Textron EPS Results

• Actual EPS: $1.34
• Consensus EPS: $1.27
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: $1.60

Textron Revenue Results

• Actual Revenue: $3.61 billion
• Expected Revenue: $3.78 billion
• Beat/Miss: Missed by -$165.06 million
• YoY Revenue Growth: -7.20%

Textron Announcement Details

• Quarter: Q4 2024
• Date: 1/22/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, January 22, 2025
• Conference Call Time: 8:00AM ET

Textron (NYSE:TXT) operates in the aircraft, defense, industrial, and finance businesses worldwide. It operates through six segments: Textron Aviation, Bell, Textron Systems, Industrial, Textron eAviation, and Finance. The Textron Aviation segment manufactures, sells, and services business jets, turboprop and piston engine aircraft, and military trainer and defense aircraft; and offers maintenance, inspection, and repair services, as well as sells commercial parts. The Bell segment supplies military and commercial helicopters, tiltrotor aircrafts, and related spare parts and services. The Textron Systems segment offers unmanned aircraft systems, electronic systems and solutions, advanced marine crafts, piston aircraft engines, live military air-to-air and air-to-ship training, weapons and related components, and armored and specialty vehicles. The Industrial segment offers blow-molded solutions, including conventional plastic fuel tanks and pressurized fuel tanks for hybrid vehicle applications, clear-vision systems, plastic tanks for catalytic reduction systems, and battery housing systems for use in electric vehicles primarily to automobile original equipment manufacturers (OEMs); and golf cars, off-road utility vehicles, powersports products, light transportation vehicles, aviation ground support equipment, professional turf-maintenance equipment, and turf-care vehicles to golf courses and resorts, government agencies and municipalities, consumers, outdoor enthusiasts, and commercial and industrial users. The Textron eAviation segment manufactures and sells light aircraft and gliders with electric and combustion engines; and provides other research and development initiatives related to sustainable aviation solutions. The Finance segment offers financing services to purchase new and pre-owned aviation aircraft and Bell helicopters. Textron Inc. was founded in 1923 and is headquartered in Providence, Rhode Island.

Textron Q4 2024 Earnings Call Transcript

Key Takeaways

• Q4 revenues fell to $3.6 billion (from $3.9 billion a year ago) with segment profit down to $283 million and adjusted EPS at $1.34, while full-year 2024 saw slightly higher revenues of $13.7 billion but lower profit and EPS of $5.48.
• Textron Aviation resolved a labor strike with a new five-year contract, improved parts flow for better efficiency, grew its backlog by $676 million to $7.8 billion, and achieved 6.3% aftermarket revenue growth.
• Bell drove 13.7% revenue growth in 2024 thanks to FLRAA program expansion, received follow-on orders for limited user test aircraft, and maintained steady commercial helicopter deliveries.
• Textron Systems delivered a 13.5% segment profit margin, completed FTUS options, secured $960 million for ship-to-shore connectors and $106 million for minesweeping systems, and advanced robotics and vehicle prototype programs.
• For fiscal 2025, Textron forecasts ~$14.7 billion in revenues (+7%), adjusted EPS of $6.00–6.20, manufacturing cash flow of $800–900 million, with expected growth at Aviation, Bell and Systems and margin improvement in Industrial.

Presentation

[Operator]

Good morning, everyone. Welcome to the Textron Q4 2024 Earnings Release Call. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session. Also, today's call is being recorded.

[Operator]

Now at this time, I'll turn things over to Mr. Dave Rosenberg, Vice President, Investor Relations. Please go ahead, sir.

[David Rosenberg, VP-IR at Textron]

Thanks, Beau, 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.

[David Rosenberg, VP-IR at Textron]

Revenues in the quarter were $3,600,000,000 down from $3,900,000,000 in last year's Q4. Segment profit in the quarter was $283,000,000 down $101,000,000 from the Q4 of 2023. During this year's Q4, adjusted income from continuing operations was $1.34 per share compared to $1.60 per share in last year's Q4. Manufacturing cash flow before pension contributions totaled $306,000,000 in the quarter, down $74,000,000 from last year's Q4. For the full year, revenues were $13,700,000,000 up $19,000,000 from last year.

[David Rosenberg, VP-IR at Textron]

In 2024, segment profit was $1,200,000,000 down $127,000,000 from 2023. Adjusted income from continuing operations was $5.48 per share as compared to $5.59 per share in 2023. Manufacturing cash flow before pension contributions was 692,000,000 dollars down $239,000,000 from 2023. With that, I'll turn the call over to Scott.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Thanks, David. Good morning, everyone. 2024 results were impacted by work stoppage at aviation and difficult end markets in our industrial segment. During the quarter, aviation reached an agreement with the I'm on a new 5 year contract. While the strike was unfortunate, we did take this opportunity to significantly improve our parts flow to the production line, which we expect will reduce our outstation work and improve efficiency going forward.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Aviation saw steady customer demand continue in the quarter supported by new product launches and our portfolio resulted in a year end backlog of $7,800,000,000 an increase of $676,000,000 from 2023. In December, Aviation secured an order from Naval Air Systems Command for an additional 26 multi engine training system Beechcraft King Air 260s. Also in the quarter, Aviation continued to expand the global market for its versatile twin engine large utility turboprop, Sustenance Sky Carrier, achieving type certification by the Transport Canada Civil Aviation. During 2024, steady aircraft utilization within the Textron Aviation product portfolio resulted in a 6.3% growth in aftermarket revenues. At Bell, in 2024, we saw significant growth with the continued expansion of the FLORA program largely driving a 13.7% increase in revenues for the year.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

During the quarter, Bell received follow on award for the FLORA program as the U. S. Army exercised option 2 and option for 2 limited user test aircraft. On the commercial side, Bell continues to see steady order activity in 2024. For the year, Bell delivered 172 commercial helicopters compared to 171 in 2023.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Moving to Systems, the team delivered another strong quarter with a 13.5 percent segment profit margin. During the quarter, Systems completed options 34 of the Future Tactical Uncrude Aircraft System program with the delivery of a production representative system to the U. S. Army in December. Also during the quarter, Systems received an award from the Naval Sea Systems Command for the next production lot of 9 ship to shore connector crafts with a total contract value of $960,000,000 Systems was also awarded a contract value of up to $106,000,000 for minesweeping payload delivery systems from the U.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

S. Navy to support its minesweeping operations. At Industrial, the segment experienced lower revenues and operating profit in the quarter, primarily driven by the ongoing softness in specialized vehicles end markets. We are in the process of conducting a strategic review of our Power Sports product line. At Aviation, Pipisto delivered 42 aircraft during the Q4 and 120 aircraft for the full year, while continuing our investment in electric and hybrid aviation platforms.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Despite the challenges faced in 2024 Aviation and Industrial, the company exited the year well positioned for future growth in the Aerospace and Defense businesses with strong order activity generating total company backlog of $17,900,000,000 up $4,000,000,000 from 2023. On the new product front at MBAA in October, Aviation announced a significant advancement in aviation technology with the Gen 3 platform upgrades to the M2, CJ3 and CJ4 aircraft, adding Garmin emergency auto land along with other avionics and aircraft enhancements. During the year, we continued to make progress on the Citation Ascend and Beechcraft Denali development programs. Denali has logged over 700 hours of flight testing, while Denali finished the year having logged over 2,500 hours of flight testing. At Bell, the U.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

S. Army announced approval of milestone B in August for the FLAR program. Bell is now executing on the engineering and manufacturing development phase of the program and progressing towards the 1st prototype aircraft build. Bell's H1 and V-twenty two military program highlights include an FMS award for the production and delivery of 12 Ah-one Zulu Helicopters to Nigeria and over $1,000,000,000 in sustainment awards on the H1 and V-twenty two programs. On the commercial side, Bell saw steady demand throughout the year, including its first 525 helicopter order for 10 units to Equinor, the Norwegian state energy company.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

In 2024, Textron Systems made significant progress on several key pursuits. On the U. S. Army's robotic command vehicle development program, Systems announced delivery of 2 RIPSOL M3 prototype vehicles to the Army for Phase 1 of the competitive development effort ahead of a down select expected in the first half of twenty twenty five. As part of the XM30 program, TeamLink's advanced to the detailed design phase is expected to conclude with a critical design review in the first half of twenty twenty five.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

On the Advanced Reconnaissance Vehicle program, systems continued its development work as 1 of 2 vendors selected to design, develop and manufacture a 30 millimeter autocannon prototype variant for expected delivery in 2025. Moving to FTUS, Systems has filled its contractual delivery commitments and is waiting decision on a final downside for production award from the competitive program by the U. S. Army in the second half of twenty twenty five. Systems also secured the next production contract award for the ship to shore connector and expanded maritime and maritime operations with the U.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

S. Navy. Moving to industrial throughout the year, we continue to focus on our cost structure to offset challenging end markets. At Aviation, Pipistrel was granted an airworthiness exemption by the FAA for its Velas electric trainer, which allows U. S.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Flight schools to use the aircraft in certified pilot training programs. During the year, Aviation acquired Amazilia Aerospace, developer of digital flight controls, flight guidance and vehicle management systems for both manned and unmanned aircraft. Looking to 2025 at Aviation, we're projecting growth driven by increased deliveries across all product lines and higher aftermarket volumes with improved productivity and manufacturing efficiency. Moving to Bell, we expect revenue growth driven by the flower program and higher commercial volumes. At Systems, we expect low single digit revenue growth with strong margins as we continue to pursue new program opportunities.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Our Industrial segment, we are projecting lower revenues largely driven by the suspension of powersports production at TSV and lower automotive volume at Kaltex and expect cost reductions to drive improvement in segment profit margin for 2025. At Aviation, we plan to continue our investment in the development of new hybrid and electric technologies for manned and unmanned aviation platforms. With this overall backdrop, we're projecting revenues of about $14,700,000,000 up 7% from 2024 for Textron's 2025 fiscal year. We are projecting adjusted EPS in the range of $6 to $6.20 Manufacturing cash flow before pension contributions is expected to be in the range of $800,000,000 to $900,000,000 With that, I'll turn the call over to Frank.

[Frank T. Connor, EVP & CFO at Textron]

Thank you, Scott, and good morning, everyone. Let's review how each of the segments contributed starting with Textron Aviation. Revenues at Textron Aviation of $1,300,000,000 were down $242,000,000 from the Q4 of 2023, reflecting lower volume and mix of 282,000,000 dollars which was principally a result of production disruptions related to the strike. Segment profit was $100,000,000 in the 4th quarter, down $93,000,000 from a year ago, primarily due to lower volume mix and manufacturing inefficiencies, which included idle facility costs and higher costs associated with the labor disruption resulting from the strike. Backlog in the segment ended the quarter at $7,800,000,000 up $219,000,000 from the prior quarter.

[Frank T. Connor, EVP & CFO at Textron]

Moving to Bell, revenues were $1,100,000,000 up $58,000,000 from last year's Q4 reflecting higher military and support program revenues of $67,000,000 primarily due to higher volume on the flower program, partially offset by lower volume on the V-twenty two program. Segment profit of $110,000,000 was down $8,000,000 from a year ago, primarily driven by mix as lower volume on the V-twenty two program offset higher volume on the FLR program. Backlog in this segment ended the quarter at $7,500,000,000 At Textron Systems, revenues were $311,000,000 down $3,000,000 from last year's Q4. Segment profit of $42,000,000 was up $7,000,000 from last year's Q4. Backlog in this segment ended the quarter at $2,600,000,000 Industrial revenues were $869,000,000 down $92,000,000 from last year's 4th quarter, largely reflecting lower volume.

[Frank T. Connor, EVP & CFO at Textron]

Segment profit of $48,000,000 was down $9,000,000 from the Q4 of 2023, reflecting lower volume and mix and inflation, partially offset by manufacturing efficiencies and lower selling and administrative expense, largely due to cost reduction activities. Textron E Aviation segment revenues were $11,000,000 in the Q4 of 2024 with a segment loss of $22,000,000 largely associated with research and development expense on new products. Finance segment revenues were $11,000,000 and the profit was $5,000,000 in the Q4 of 2024. Moving below segment profit, corporate expenses were $17,000,000 net interest expense for the manufacturing group was 21,000,000 dollars LIFO inventory provision was $80,000,000 intangible asset amortization was $8,000,000 and the non service components of pension and post retirement income were 65,000,000 In December, we announced a strategic review of our powersports product line within the Industrial segment that resulted in additional restructuring actions. With these actions, we recorded total pre tax special charges of CAD53 1,000,000 and an inventory valuation charge of $38,000,000 in the 4th quarter.

[Frank T. Connor, EVP & CFO at Textron]

Our manufacturing cash flow before pension contributions was $306,000,000 in the quarter. For the year, manufacturing cash flow before pension contributions totaled 692,000,000 dollars down $239,000,000 from the prior year. In the quarter, we repurchased approximately 2,800,000 shares returning $232,000,000 in cash to shareholders. For the full year, we repurchased approximately 12,900,000 shares returning $1,100,000,000 in cash to shareholders. With that, I'll turn the call over to David.

[David Rosenberg, VP-IR at Textron]

Thank you, Frank. Turning now to our 2025 outlook on slide 7. We're expecting adjusted earnings per share to be in the range of $6 to $6.20 We're also expecting manufacturing cash flow before pension contributions to be about $800,000,000 to $900,000,000 Moving to segment outlook on Slide 8 and beginning with Textron Aviation. We're expecting revenues of about 6,100,000,000 dollars Segment margin is expected to be in a range of 12% to 13%. Looking to Bell, we expect revenues of about $4,000,000,000 We're forecasting a margin in a range of 8.5% to 9.5%.

[David Rosenberg, VP-IR at Textron]

At Systems, we're estimating revenues of about $1,300,000,000 with a margin in a range of 12% to 13%. At Industrial, we are expecting segment revenues of about $3,200,000,000 and margin to be in a range of about 4.5 percent to 5.5 percent. At e Aviation, we expect revenues of $45,000,000 and a segment loss of $70,000,000 reflecting our continued investment in sustainable aviation solutions. At Finance, we are forecasting segment profit of about $25,000,000 Looking at Slide 9, we're projecting about $160,000,000 of corporate expense. We're also projecting about $130,000,000 of net interest expense for the manufacturing group, dollars 165,000,000 of LIFO inventory provision, dollars 35,000,000 of intangible asset amortization and $265,000,000 of non service pension income.

[David Rosenberg, VP-IR at Textron]

We expect a full year effective tax rate of approximately 18%. Turning to slide 10. R and D is expected to be about $500,000,000 up from $491,000,000 last year. We're estimating CapEx will be about $425,000,000 up from $364,000,000 in 2024. Our outlook assumes an average share count of about 184,000,000 shares in 2025.

[David Rosenberg, VP-IR at Textron]

That concludes our prepared remarks. So operator, we can open the line for questions.

[Operator]

Certainly, Mr. Rosenberg.

[Operator]

And we'll go first this morning to Sheila Kahyaoglu of Jefferies.

[Sheila Kahyaoglu, Managing Director - Equity Research at Jefferies Financial Group]

Good morning, Scott, Frank and David. Maybe Scott, if you could start off with the aviation guidance. Can we talk about the 2025 deliveries? I think it's implied around 190 deliveries versus 151 in 2024. Can you talk about the quarterly cadence of jet deliveries as well as maybe turboprops just given the Q4 delivery number?

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Well, I do think that the numbers obviously will ramp up through the course of the year, Sheila. We're recovering. I'd say the factors are getting back to towards full operation coming out of the strike. We will continue as we have been for some time expanding our production capacity as we go through the year and that's largely driven by parts, which I think we're in fairly good shape and ramping up the workforce. And again, I would say early signs coming out of the contract agreement, we're seeing a little more stability in the workforce, which is good, and that should enable us to see that ramp on the over the course of the year.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

As we talked about in the last call, we're probably going to see also a significant progression in terms of margins as we go through the year. We will have a lot of deliveries here in the Q1 that are that would have been 2024 deliveries. So obviously, they're priced at 2024 levels. So I would expect to see both volume and margin progress through the course of the year.

[Sheila Kahyaoglu, Managing Director - Equity Research at Jefferies Financial Group]

Maybe if I could just follow-up on the margin ramp. Can you talk about that bridge as we think about the 7.8% exit rate for Q4 for aviation, how we think about that progressing and the contributors to that?

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Well, for sure, the 7.8% is an anomaly, right? I mean, we had obviously unusually low volumes with the strike affecting a third or more of the quarter. And certainly, we took an inefficient current period expense with all of our overhead that wasn't burden we couldn't burden on volume. So the 7.8% is certainly an anomaly. I would expect, as you think about us going through the year, it will see progression.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

If you look at the guide, obviously, we're probably 100 to 200 basis points probably below the guide and probably finishing up more like 100 to 200 basis above the guide as you progress through the year to get to that average.

[Sheila Kahyaoglu, Managing Director - Equity Research at Jefferies Financial Group]

Great. Thank you. Sure.

[Operator]

Thank you. We go next now to Peter Arment of Baird.

[Peter J. Arment, Senior Research Analyst at Baird]

Yes. Good morning, Scott, David and Frank. Frank, good luck

[Peter J. Arment, Senior Research Analyst at Baird]

with your retirement. Thanks for all your help over the years. Could you talk a little bit about the Scott, just or David, maybe you want to weigh in on just the your outlook for cash flow for the year, just given the earnings you're projecting, which is obviously a pretty nice snapback. Just some of the moving parts, it seems maybe it was a little lower than we were estimating, but maybe we didn't have all the inputs, but thanks.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Well, again, it'll progress through the year. The cash was obviously in Q4 lighter than we normally have, and that's largely reflective of a lot of inventory that was at Aviation for jets that didn't deliver in Q4. So we'll see our normal relatively light cash in Q1 and that will grow to the over the course of the year. But I think we're pretty confident we'll be in that $900,000,000 $900,000,000 range. But as is normal, it will be more back end loaded.

[Peter J. Arment, Senior Research Analyst at Baird]

Okay. Appreciate that. And then maybe just Scott in general, I know Sheila talked about aviation.

[Peter J. Arment, Senior Research Analyst at Baird]

And maybe you just talk

[Peter J. Arment, Senior Research Analyst at Baird]

about, I mean, you obviously had very strong bookings in refreshed product lines, obviously, drawing a lot of new interest. Maybe just if you want to highlight just what you're seeing on the demand environment, whether it's broad based or any particular markets that are stronger than others? Thanks.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Thanks, Peter. Look, it's been pretty much across the product line. I think we feel like we're in pretty good shape. The demand and order activity across every model has been good. We saw some very strong demand, obviously, in that light jet with the Gen 3 announcements.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

So that was very, very well received by customers. So we in particular had a very strong quarter in sort of that CJ3, CJ4 product line. But again, it's been pretty strong in most of the portfolio. And I think we again, just given where customers are and the level of activity and the level of dialogue, I think we'll continue to see a sustained demand through the course of the year. Again, we're probably looking at a one to one book to bill just because we think that's about where things ought to land given lead times of where most availabilities are for our different products.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

So one to 1 is what we're baking into our basic plan.

[Peter J. Arment, Senior Research Analyst at Baird]

Appreciate all the color. Thanks, Scott.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Thank you.

[Operator]

We go next now to Robert Stallard of Vertical Research.

[Robert Stallard, Analyst at Vertical Research Partners]

Thanks so much. Good morning.

[David Rosenberg, VP-IR at Textron]

Good morning, Robert.

[Robert Stallard, Analyst at Vertical Research Partners]

And Frank, best of luck for your retirement. It's been quite a ride. Let's start off with Bell. I was wondering if you could talk about what the risks and opportunities could be within that 2025 guidance both for revenues and margin?

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Robert, I don't think there's a whole lot. I mean, this is all mostly backlog business. Obviously, the FLOR program, the ramp that we have baked into there is supported by what's in the sort of the pending 25 appropriations, budgets and all the guidance we're receiving from the customer. So I don't think there's risk around that. Most of the commercial businesses is well booked.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Certainly sustainment around V-twenty 2 and H-1 is very predictable business and again largely booked. So I think as we work our way through the course of the year, we're in I don't think there's a lot of risk to the downside of where we are on the Bell numbers.

[Robert Stallard, Analyst at Vertical Research Partners]

Okay. And then as a follow-up, I was wondering if you've seen any sign of demand changing at Aviation or Industrial since we've had the U. S. Election?

[Scott C. Donnelly, Chairman, CEO & President at Textron]

No, no, we really didn't, Robert. It's actually kind of interesting. I mean, normally we see more of a slowdown a little bit before the election just because people don't like a lot of uncertainty. I think probably largely in part as a result of the size of the backlog and the stuff that aircraft that are available well out past that period obviously, that we didn't see quite the drop in pop that we often see around our presidential election. So I would say it was relatively steady and we really haven't seen any change that I'm aware of in the demand environment in terms of the industrial side.

[Robert Stallard, Analyst at Vertical Research Partners]

Okay. That's great. Thank you.

[Operator]

Thank you. We go next now to Noah Poponak at Goldman Sachs.

[Noah Poponak, Analyst at Goldman Sachs]

Hey, good morning, everyone.

[Frank T. Connor, EVP & CFO at Textron]

Good morning, Noah. Good morning.

[Noah Poponak, Analyst at Goldman Sachs]

Just back to the cash flow guidance, I guess, it would be lower than 2023 and the conversion from net income or the free cash margin, I think a little light of where you've talked about being over time and I would have expected you'd be recovering some inventory from 2024 that would help. So is there a net negative working capital assumption still in 2025 or what else are we all missing in that bridge?

[Frank T. Connor, EVP & CFO at Textron]

Yes. There's a on the working capital side, there's a little bit of headwind associated with the timing of some military payments from an inventory standpoint. Obviously, we are we'll be ramping production through the year as we talked about. So even though we had some higher inventory levels going into the end of 2024 than we would have originally anticipated, we do need to have some higher inventory levels at the end of 2025 for anticipated ramp. So you won't see a lot of inventory benefit.

[Frank T. Connor, EVP & CFO at Textron]

There is some military payment timing, as I said, and then we are expecting higher capital expenditures relative to what you saw back in the 2023 timeframe associated with just the growth of the business and in particular kind of floral prep activities at Bell.

[Noah Poponak, Analyst at Goldman Sachs]

Okay. That makes sense. And then I just was hoping to get a little more detail on the Bell margin. That's been quite resilient as you've ramped the early stages of FLRAA rapidly, which we had all anticipated would dilute that margin, but so far it hasn't. So maybe you could just walk us through the pieces that would bring the Bell margin down that much in 2025?

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Well, I think if you look at the Bell through 2024, we were helped by a little bit of improvement on some of the H1 side. Obviously, with the Nigerian deal that allowed us to maintain some more of that H1 volume, which is better volume for us. But you still at a macro level, no, we do have V22 coming down. H1 will start to come down. We did have strong aftermarket in 2024.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

I think we still have strong aftermarket in 2025, but it's going to be flatter from where it was in 2024. So you really see a ton of the growth coming from the flower ramp and commercial OEM deliveries. And as you know, commercial OEM deliveries tend to be dilutive to our margins. They generate a lot of aftermarket, so long term very good for the business. But the 2 real growth drivers in 2025 are that ramp on FLRAA and increased commercial deliveries, both of which are obviously dilutive.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

So as we've said, we've always expected that this margin will come down somewhat based on that mix, but that we're trying to target not having that be a dilution or problem at the EPS level. So I think we're still more or less in that range of holding the operating profit dollars. It's a little pressure year over year just because we sort of outperformed on 2024 and that kind of raises the bar on that 2025 target. But I still think we're going to be in that range of being able to at least hold not dollars even as we grow the revenue on lower margin business.

[Noah Poponak, Analyst at Goldman Sachs]

Okay, great. I'll add my congrats to Frank and Dave on the retirement and the new appointments, and thanks so much for working with us over the years, Frank, and thanks for taking my questions.

[Frank T. Connor, EVP & CFO at Textron]

Thanks, Noah. Thanks, Noah.

[Operator]

Thank you. We go next now to Seth Seifman at JPMorgan.

[Seth Seifman, Executive Director at JP Morgan]

Hey, thanks very much and good morning and congratulations, Frank. Just to maybe come at Bell from the other side, it was strong performance through most of the year and certainly at the high end relative to the initial guide. But I think the guide went up in Q3 to about 10.5% to 11%, I think, and came in slightly lower. Was there something that changed in Q4 at Bell that led to that shortfall?

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Well, we I mean, we had we did have some program adjustments in Q4 that weren't favorable at Bell that largely had to do around FLAR. I mean, we did exercise the limited user test. That is a fixed priced option that was exercised. And as we would expect, the fixed price options are not a great margin. So that did create some dilution, which when you do the program accounting, did put a little bit of a drag in Q4 for us.

[Seth Seifman, Executive Director at JP Morgan]

Okay. Thanks. And maybe to follow-up, just at Aviation, the orders have been quite steady through the year. When we think about the composition of those orders in terms of netchats versus retail, is that a pretty steady composition? Is it a pretty both in terms of how it's been trending versus itself and then how it's been trending versus the level of deliveries that we're seeing?

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Well, in general, it holds about flat, right? Because as you guys know, we put these into the backlog based on sort of a 12 year forward. Net just puts orders in generally speaking every month. It's usually fairly linear, but not always. And so there can be from quarter to quarter some variation based on how many deliveries we have to make in that quarter versus how many new exercises they happen to put.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

So it's not a perfectly linear process, but it generates a little bit of variability from quarter to quarter. But over the course of the year, it's been pretty stable.

[Seth Seifman, Executive Director at JP Morgan]

Okay, great. Thanks very much.

[Operator]

Thank you. We'll go next now to Myles Walton with Wolfe Research.

[Myles Walton, Analyst at Wolfe Research]

Thanks. Good morning. On R and D, I know you started off the year with a $550,000,000 number for R and D, it came in at $490,000,000 I'm curious to the under run there. And this would be a few years in a row of declines on the R and D front. I imagine much of it from Bell.

[Myles Walton, Analyst at Wolfe Research]

It looks like you're looking for a stable outlook for $25,000,000 to $500,000,000 Is that a good number going forward? And also what was the cause of the under run-in 20 24?

[Scott C. Donnelly, Chairman, CEO & President at Textron]

I think it's a good number going forward. Look, I think the Bell dynamic with the end of the FAR program is certainly what drove a significant change in the R and D on a year over year basis as that program was wrapped up. And so I think on a go forward basis, we'll see more normalized R and D spending at Bell as well as across the rest of the businesses. So for sure, part of what drove the lower R and D in the year and drove some of the higher margin, frankly, at Bell was that we did see a step down associated with the funding that we were having to put in net to the FAR program.

[Myles Walton, Analyst at Wolfe Research]

Okay. And then relative to systems, I know the decisions on FTUIS and maybe RCV are kind of sort of dictate how the year goes and maybe how 2026 goes. How sensitive to this year are the outcomes on those programs for your outlook for systems top line of $1,300,000,000

[Scott C. Donnelly, Chairman, CEO & President at Textron]

I don't think there's a huge sensitivity to it. Obviously, the RCV program, we expect to be in the first half of twenty twenty five. FTOAS is probably more of the second half latter of the year. And of course, those programs have to ramp up. So in the early phases, they're not huge numbers.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

And particularly in the case of FTOAS, because it's late in the year, there's not a huge sensitivity to them. They're certainly much more important to us from a standpoint of what growth looks like as we go into 'twenty six and beyond. So I guess I think of them as important milestones for us in the course of 2025, but not having a huge impact on revenue and margin in the year.

[Myles Walton, Analyst at Wolfe Research]

All right. Thank you.

[Operator]

We'll go next now to David Strauss at Barclays.

[David Strauss, Managing Director at Barclays]

Thanks. Good morning, everyone.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Good morning. Good morning.

[David Strauss, Managing Director at Barclays]

Scott, aviation revenues in the Q4, they came in a little bit light. I assume, it looks like maybe you missed relative to what you're thinking 10 to 15 get deliveries. What happened there? Was that supply chain? Or was that more on kind of your own in terms of getting the factory restarted post the strike?

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Well, certainly versus our original guidance for the year, yes, it was probably more in that mid teens aircraft and that was largely driven by the fact that, I mean, we didn't we really didn't get the factory running again until really the beginning of October. So I'm sorry, beginning of November. So we really lost a third of the quarter with having the workforce out. So as I said earlier, I think the good news is the folks are back. It's good to have the contract agreement in place for 5 years.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

And I think the workforce is pleased with the outcome. We're fine with the outcome. Everybody's ramping up. But we're really we did for sure lose onethree of the quarter with not having a production operation in place.

[David Strauss, Managing Director at Barclays]

Yes. I was just looking at it. You took down the revenue forecast of 5.5% and you're a little short of that. I guess just following up there, how do you feel about the aviation supply chain in terms of the ramp you're looking at in terms of deliveries for 2025?

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Look, David, I think we feel good about it. I mean that's where we're guiding where we are. I would say that the 3rd party parts, supply chain pieces coming into the factory are certainly in a much better position than they were throughout the course of 2024. So that feels very good. The other critical part is obviously stability of our workforce and retention.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

And again, since the contract has been signed, we were very happy with the number of people that came back, even folks that had been with us for a very short period of time before the strike, hung in there and came back once the agreement was put in place. And the attrition numbers we're seeing are certainly improved from where they had been through the course of the rest of 2024. So I think the momentum is in the right direction. Now we got a lot of work in front of us here to get deliveries that were supposed to be in 2024 done and ramp it up. But I'd say the early look in terms of aircraft coming out of the production lines, the attack times, which really have to improve over the course of the year, are operating as we would expect.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

And so I think we're, at this point, feeling pretty good that we're going to be able to make that ramp and deliver on the guide at the $6,100,000,000

[David Strauss, Managing Director at Barclays]

Okay. And timing for a SENS certification, what are you looking at? And is the aviation guide sensitive at all to that timing?

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Well, look, I mean, obviously, we're expecting it to be in the course of the year. We got to work this through the FAA. If there's not an issue or a problem, it's going well. But clearly, the actual certification is an FAA action. I think we feel great about the flight testing.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

The program is going very well. We do have a few aircraft in the year. So yes, it's part of our guide, but certainly not material. But we would certainly expect to get the first few aircraft delivered late this year.

[David Strauss, Managing Director at Barclays]

Great. Thanks very much.

[Operator]

Thank you. We go next now to Ron Epstein of Bank of America.

[Ron Epstein, Analyst at Bank of America]

Yes. Hey, good morning, guys.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Good morning, Ron.

[Ron Epstein, Analyst at Bank of America]

Is there anything, Scott, you've seen with maybe the change in administration that could be like an added little tailwind for private aviation? So as an example, have you heard any discussion around some form of accelerated depreciation coming back or something like that, that historically has been a nice catalyst for private aviation?

[Scott C. Donnelly, Chairman, CEO & President at Textron]

I don't know specifically that the accelerated depreciation impact, but I would have to say, Ron, I think in general, as you know, most of our customers are small to midsize businesses, entrepreneurial, high net wealth. I mean, it's a broad range of customers, obviously. But I think that in general, tax policy, regulatory policy is encouraging to them, and therefore, they'd feel good about their businesses. Their businesses are likely to be successful in growing and that certainly is nothing but helpful in terms of how they get their head around CapEx expenditures like new aircraft. So I would say I wouldn't point out one particular item and it's obviously it's quite early here and we don't know how all the tax stuff is going to work its way out.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

But I think in general, just the nature of our kinds of customers, that they think the outlook for business is good and that's good for the prospects of private aviation.

[Ron Epstein, Analyst at Bank of America]

Yes, that makes a ton of sense. And if I can, a follow-up that change in directions just a little bit. A while ago, right, you guys did Scorpion and I always thought that was kind of cool. And the DoD at the time didn't seem to have a big appetite for that. It does seem, however, there does maybe potentially seem to be a change in more maybe a push towards more commercial terms contracting, contractors taking more risk.

[Ron Epstein, Analyst at Bank of America]

Do you see any opportunities for you guys with maybe like a Scorpion 2.0 parenthetically, something like that with maybe the changing environment with potentially more commercial type contracting?

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Well, I don't know about a specific around a Scorpion, Ron. I will I would say that in this administration 4 years ago, 8 years ago to 4 years ago, however you want to think about it, there was certainly a mindset that we have to find ways to go faster, right? And so our acquisition system, this was quoted in the OTAs and the MTAs and the Army's creation of things like Futures Command that frankly helped to accelerate and drive a lot of the things that we're working on today. So again, it's very early obviously. Everybody talks about acquisition reform.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

I wouldn't say I expect huge things in terms of real change to policy, but expectations that what's good for the warfighter, good for the taxpayer is to figure out how to accelerate programs. And so again, it's early. We don't have any data yet, but I'm certainly hopeful that the incoming administration and within the building is interested in figuring out how to accelerate things. Commerciality is certainly a part of that, but just frankly, how do you make the process run faster and get things out of the warfighter quicker. And I think we would clearly be a beneficiary of that.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

We have a bunch of great programs that I think the warfighter side of the military, we'd love to see them get out into the hands in the actual combatant commands. And hopefully, we'll see some of that happen.

[Ron Epstein, Analyst at Bank of America]

Yes. Thanks. Thanks a lot, Scott. Thank you.

[Operator]

Thank you. We go next now to Gavin Parsons of UBS.

[Gavin Parsons, Analyst at UBS Group]

Thanks. Good morning.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Good morning. Good morning.

[Gavin Parsons, Analyst at UBS Group]

Just maybe two questions on the Aviation margin. You mentioned still having some impact of the disrupted 24 deliveries slipping into 25. Just I was hoping you could give us some sense of how much of that excess cost you're absorbing in that 12% to 13% margin guide?

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Well, we're not. It was a big driver, Gavin, of the Q4 number because we did take and period expense a lot of overhead which otherwise would have been into our sort of base cost spread across aircraft deliveries and given that we were light, we did take a pretty significant hit on period expense. But as we think about the go forward number, we expect and have built a plan around margin rates and normal volumes of aircraft deliveries. So I wouldn't expect to see any significant period expensing associated back with the lower volumes of 2024.

[Gavin Parsons, Analyst at UBS Group]

And then anything that you can give us on what you're expecting on net price and performance for 2025?

[Scott C. Donnelly, Chairman, CEO & President at Textron]

No. Look, I mean, as I said, we certainly expect performance and factory efficiencies to be up significantly versus 2024 and that's a driver of a lot of where we think we'll end up with the margin that we have guided. In terms of price, the price is still good in the industry, but there's also inflation out there. So as we've talked about before, I don't expect a huge spread on the net of that. I think most of our performance improvement, most of our margin improvement getting back to where we should be here in 2025 is a result of much better factory performance.

[Gavin Parsons, Analyst at UBS Group]

Thank you.

[Operator]

And we'll take our final question this morning from Pete Skibitski of Alembic Global.

[Pete Skibitski, Analyst at Alembic Global]

Hey, good morning, guys. Congrats, Frank.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Good morning,

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Pete.

[Pete Skibitski, Analyst at Alembic Global]

Hey, guys, this longer fiscal 2025 continuing resolution, is that impacting your military programs at all?

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Pete, I have not seen it have a big impact. I mean, look, we hate the uncertainty of it. And I think our certainly our customer hates it because they're constantly in I mean, they're trying to now do 2026 budgets when they haven't been allowed to finalize 2025. But I think the expectations, the customer appears to be executing to what they expect their 2025 budget to be and has sort of been appropriated and sitting on the shelf waiting for the final action. So it's very disruptive.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

I think It's a horrible process, obviously, and it takes a lot of time and energy away from the customer review focused on other things. But the good news is most of our programs are already funded programs. They're not new starts. There are some things as you get further into the year that will become new starts, but we certainly expect that the CR will be resolved, you'll have an actual budget before that becomes a problem.

[Pete Skibitski, Analyst at Alembic Global]

Got it. Okay. Thank you. Just one last one for me. Across the whole company in terms of the new administration, is there anything on your radar in terms of new regulations or policies or the tariff issue that could be either positive or negative for the business that's on your radar?

[Pete Skibitski, Analyst at Alembic Global]

I think maybe one thing in terms of if we get tariffs towards Canada, does that impact Bell Commercial at all? Just anything on your radar that you can share with us? Thanks.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Yes, sure. Look, Pete, I think on the positive side, again, we talked about just sort of what our expectations are for the overall business climate, less regulation, probably a better tax resolution than maybe otherwise could have happened. So I think from an overall business environment standpoint, those that's very positive on the tax front, on the regulatory front. On the military front, as I said, I think we have an administration coming in that has in the past been pro, how do we figure out how to accelerate, how do we go faster, which would be again net good for us. Look, the tariff is very much a wildcard.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

I mean, we don't know the specifics. Clearly, we have operations in Mexico. We have, as you noted, a pretty significant operation in Canada, particularly on the Bell Commercial side. A lot of the value of the dollars are things that go over from the U. S.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Into Canada and then back, assume those don't get hit. But we do have some big important suppliers like Pratt Canada that sell a lot of engines to us in both rotor and fixed wing. And we do have our Bell, Mirabel operations on the commercial side of Bell. So look, it's an unknown. And so we're not rotating a position one way.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

On the other, I think we've got to see how this plays out. And again, I think a lot of this is around negotiations and working on how do you deal with the free trade agreements on a go forward basis. So we're just going to kind of hang in there and see how it plays out.

[Pete Skibitski, Analyst at Alembic Global]

Got it. Got it. Helpful. Thanks, guys.

[Scott C. Donnelly, Chairman, CEO & President at Textron]

Thanks.

[Operator]

Thank you. And ladies and gentlemen, that will bring us to the conclusion of today's Textron Q4 2024 Earnings Release Call. We'd like to thank you all so much for joining us today and wish you all a great remainder of your day. Just a reminder, today's call will be available for replay beginning later today by calling 1-eight hundred-eight thirty nine-five thousand one hundred and twenty five or 402-two twenty-fifteen oh two. Again, thanks for joining us everyone.

[Operator]

We wish you all a great day. Goodbye.

Participants

Executives

• David Rosenberg, VP-IR
• Scott C. Donnelly, Chairman, CEO & President
• Frank T. Connor, EVP & CFO

Analysts

• Sheila Kahyaoglu, Managing Director - Equity Research at Jefferies Financial Group
• Peter J. Arment, Senior Research Analyst at Baird
• Robert Stallard, Analyst at Vertical Research Partners
• Noah Poponak, Analyst at Goldman Sachs
• Seth Seifman, Executive Director at JP Morgan
• Myles Walton, Analyst at Wolfe Research
• David Strauss, Managing Director at Barclays
• Ron Epstein, Analyst at Bank of America
• Gavin Parsons, Analyst at UBS Group
• Pete Skibitski, Analyst at Alembic Global