Textron Q1 2025 Earnings Report

Textron EPS Results

• Actual EPS: $1.28
• Consensus EPS: $1.17
• Beat/Miss: Beat by +$0.11
• One Year Ago EPS: $1.20

Textron Revenue Results

• Actual Revenue: $3.31 billion
• Expected Revenue: $3.26 billion
• Beat/Miss: Beat by +$50.26 million
• YoY Revenue Growth: +5.50%

Textron Announcement Details

• Quarter: Q1 2025
• Date: 4/24/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, April 24, 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 Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good morning, everyone, and a warm welcome to the Textron Q1 twenty twenty five Earnings Call. My name is Emily, and I'll be moderating your call today. After the presentation, you will have the opportunity to ask any questions, which you can do so at any time by pressing star followed by the number one on your telephone keypad. I will now hand over to Scott Hegstrom, Vice President of Investor Relations to begin. Scott, please go ahead.

[Scott P. Hegstrom, VP - Investor Relations, Mergers & Acquisitions and Strategy at Textron]

Thank you, Emily, and good morning, everyone. Before we begin, I'd like to mention that 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, have Scott Donnelly, TxRON's Chairman and CEO and David Rosenberg, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website.

[Scott P. Hegstrom, VP - Investor Relations, Mergers & Acquisitions and Strategy at Textron]

Revenues in the quarter were $3,300,000,000 up $171,000,000 from last year's first quarter. Segment profit in the quarter was $280,000,000 down $10,000,000 from the first quarter of twenty twenty four. During this year's first quarter, adjusted income from continuing operations was $1.28 per share compared to $1.2 per share in last year's first quarter. Manufacturing cash flow before pension contributions reflected a use of cash of $158,000,000 compared to a use of cash of $81,000,000 in last year's first quarter. With that, I'll turn the call over to Scott.

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

Thanks Scott and good morning everyone. Overall revenues were up 5% led by Bell partially offset by lower revenues in industrial. During the quarter aviation over 31 jets and 30 commercial turboprops compared to 36 jets and 20 commercial turboprops in last year's first quarter. Aviation operations continue to improve as the factory progressed toward pre strike performance levels while ramping production. Textron Aviation's fleet utilization remained strong in the quarter contributing to aftermarket revenue growth of 6% as compared to last year's first quarter.

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

Aviation announced the sale of seven King Air two 60 training aircraft that will be used to train pilots for the Royal Canadian Air Force. In February, the FAA announced certification of the GE Aerospace Catalyst Turbo Prop engine marking an important milestone for the Beachcraft Denali program. To date the program has amassed more than 2,700 flight hours and across 1,000 flights with three test articles. At Bell revenues were up $256,000,000 or 35% compared to last year's first quarter driven by strong growth in both military and commercial product lines. On the military side execution of the FLAARA and strength in military support programs contributed to significant growth from last year's first quarter.

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

As we progress through the Pilar program, the focus this year includes design maturation and deliverables towards subsystem and weapon system critical design review, our next major program milestone. On the commercial side Bell delivered 29 helicopters up from 18 in last year's first quarter. During the quarter Bell was awarded a contract for five additional CMV-twenty two aircraft. This award extends production through 2027. Bell announced a purchase agreement with Air Methods for 15 IFR configured 407GXIs and an option for 12 additional aircraft with deliveries expected to begin later this year.

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

Moving to systems, revenues in the quarter were slightly lower compared to the prior year largely resulting from the cancellation of the shadow program in 2024. Strong execution in the quarter drove a 13.5% segment profit margin, up 110 basis points as compared to last year's first quarter. During the first quarter, Systems received a contract valued at up to $100,000,000 from the U. S. Navy for support software development updates for its unmanned mine sweeping operations.

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

Also during the quarter systems delivered the thirteenth ship to shore connector aircraft to the U. S. Navy. Moving to industrial, we saw lower revenues in the quarter compared to last year's first quarter consistent with our expectations with segment profit essentially unchanged as cost savings from our previous restructuring activities offset the impact of lower revenues on segment profit. Within specialized vehicles, we have completed the previously announced strategic review of the powersports product line resulting in the sale of the powersports business including the Arctic Cup brand and its operations.

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

Also during the quarter, Aviation successfully completed the first hover flight of the Nuva V300, a long range large capacity hybrid electric VTOL unmanned aircraft. This milestone marks an advancement in the development of sustainable and versatile unmanned aerial systems. With that, I'll turn the call over to David.

[David Rosenberg, 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 $1,200,000,000 were up $24,000,000 from the first quarter of twenty twenty four, largely reflecting higher aftermarket revenue of $27,000,000 Segment profit was $127,000,000 in the first quarter, down $16,000,000 from a year ago, primarily reflecting the mix of aircraft sold, partially offset by higher aftermarket volume. Backlog in the segment ended the quarter at $7,900,000,000 Moving to Bell, revenues were $983,000,000 up $256,000,000 from the first quarter of twenty four. The revenue increase in the quarter was driven by higher military revenues of $154,000,000 primarily due to higher volume from the U.

[David Rosenberg, EVP & CFO at Textron]

S. Army's FLAIR program and military sustainment programs and higher commercial revenues of $102,000,000 primarily due to higher volume and mix. Segment profit of $90,000,000 was up $10,000,000 from a year ago, primarily due to higher volume mix of products and services. Backlog in the segment ended the quarter at 7,100,000,000.0 At Textron Systems, revenues were $296,000,000 down $10,000,000 from last year's first quarter, largely due to lower volume, which included the impact of the cancellation of the Shadow program in 2024, partially offset by higher volume for the Ship to Shore Connector program. Segment profit of $40,000,000 was up $2,000,000 from last year's first quarter, primarily due to lower research and development costs, partially offset by lower volume.

[David Rosenberg, EVP & CFO at Textron]

Backlog in the segment ended the quarter at 2,300,000,000.0 Industrial revenues were $792,000,000 down $100,000,000 from last year's first quarter, largely due to lower volume and mix. Textron Specialized Vehicles revenues decreased $62,000,000 reflecting lower volume and mix, primarily in golf and Context revenues decreased $38,000,000 largely due to lower volume. Segment profit of $30,000,000 was essentially unchanged from the first quarter of twenty twenty four as the impact of lower volume and mix was offset by the benefit of cost reductions from restructuring activities. Textron E Aviation segment revenues were $7,000,000 in the first quarter of twenty twenty five, and segment loss was $17,000,000 as compared with a segment loss of $18,000,000 in the first quarter of twenty twenty four. Finance segment revenues were $16,000,000 and profit was $10,000,000 in the first quarter of twenty twenty five as compared to segment revenues of $15,000,000 and profit of $18,000,000 in the first quarter of twenty twenty four.

[David Rosenberg, EVP & CFO at Textron]

Moving below segment profit, corporate expenses were $43,000,000 net interest expense for the manufacturing group was $25,000,000 LIFO inventory provision was $29,000,000 intangible asset amortization was $8,000,000 and the non service component of pension and postretirement income were $66,000,000 Our adjusted effective tax rate for the first quarter of twenty twenty five was 15.3%. For the full year, we still expect a rate of 18%. During the quarter, we repurchased approximately 2,900,000.0 shares, returning $215,000,000 in cash to shareholders. To wrap up with guidance, we are reaffirming our expected full year adjusted earnings per share to be in a range of $6 to $6.2 We also expect full year manufacturing cash flow before pension contributions of 800,000,000 to $900,000,000 That concludes our prepared remarks. So operator, we can open the line for questions.

[Operator]

Thank Our first question today comes from the line of Robert Stallard with Vertical Research. Robert, please go ahead.

[Robert Stallard, Partner at Vertical Research Partners]

Thanks so much. Good morning.

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

Good morning, Rob.

[Robert Stallard, Partner at Vertical Research Partners]

Scott,

[Robert Stallard, Partner at Vertical Research Partners]

maybe to start with you. On the Arctic Cat disposal, congrats on getting that done. Are you considering any further portfolio actions here?

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

Nothing that were announced there, Rob. We always look at the portfolio, but we certainly would never preannounce.

[Robert Stallard, Partner at Vertical Research Partners]

Okay. And then the other major issue, of course, at the moment is tariffs and the trade war. And I was wondering if you've given any consideration to what the impact could be on the Textron businesses going forward from here?

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

Sure. Look, think the tariff issue is one that everybody's talking about. I would say that when you look at our businesses, first of all, our largest businesses in the aviation space, whether it's fixed wing or rotorcraft, we are principally a North American manufacturer. The vast majority of that manufacturing is in The United States. Certainly, have operations in Mexico and in Canada.

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

The good news is that with USMCA compliance, we're not having tariffs as things are crossing over that border. We do have quite a process that we were sort of in the middle of just going through and validating USMCA compliance. But I think so far we've seen to be in very good shape. So we haven't seen a tariff impact in terms of anything moving amongst our North American operations. If you look at the Caltex business, as you know we have manufacturing operations all around the world.

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

You need to be close to those OEMs. But as a result, all those products that we manufacture in different regions around the world are consumed in those regions around the world. So we're not subjected to tariffs on any of that. Certainly in all of our businesses, we do have some parts and suppliers that are either in Europe or in Asia. But so far the impact of that has been pretty de minimis and I think we'll just continue to monitor that as the situation evolves.

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

But at this point, we certainly don't see it as being something that's a material impact to the company.

[Robert Stallard, Partner at Vertical Research Partners]

That's great. Thanks a

[Operator]

Thank you. Our next question comes from Sheila Kahyaoglu with Jefferies. Sheila, please go ahead. Thank

[Sheila Kahyaoglu, Aerospace & Defense and Airlines Equity Research at Jefferies Financial Group]

you. Morning, Scott and David. And David, I just want to say congratulations on keeping up with the eight minute typescript So congrats on that with the proposal.

[David Rosenberg, EVP & CFO at Textron]

Thank you. Thank you.

[Sheila Kahyaoglu, Aerospace & Defense and Airlines Equity Research at Jefferies Financial Group]

Scott, maybe first one on Bell, just really outstanding performance there. Revenue is up 35%, equally split between military and commercial. How do you think about the puts and takes on maybe the flora revenue contribution and profitability from here?

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

Sure. So, Shell, think we a very big increase obviously on a Q1 to Q1 basis. We did have very strong performance in terms of deliveries on the commercial helicopter side, but we also had a very large increase on the FAR program. Q1 was sort of still early in the program. Obviously, we're full At this point, it's not only our internal level of activity, but a lot more suppliers on board as we're starting to issue drawings and get things on purchase authorizations and actually start to build first parts in many cases.

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

So we're seeing a real step function. I do still believe if you look at FAR on a year over year basis, it's probably going to be up 20% or so. So it will be a contributor through the course of the year. I think the margins are roughly in line with where we guided. I think that'll be relatively consistent through the course of the year as we see a large mix of the flower program driving a lot of the growth and commercial helicopters, OEM deliveries as you

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

know are

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

also tend to be a little bit dilutive to our overall margin rate. But I think all in all, Bell had a great quarter and we would expect to continue to see nice growth and solid performance through the balance of the year.

[Sheila Kahyaoglu, Aerospace & Defense and Airlines Equity Research at Jefferies Financial Group]

Can I also ask on Industrial, how the Arctic Cat and certain product line sales impact revenues and profitability for the remainder of the year?

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

Yeah. So we'll be down a little bit on revenue. When we did the guide, we assumed first quarter, which obviously there's revenue in line with what we expected here in Q1. We did have some revenue through the balance of the year and expectation that we would need to run this as an aftermarket business. Obviously, as a result of the sale, which was really our desired outcome, we won't have that revenue in the next three quarters, but it's a pretty de minimis number.

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

So I think we'll still be in the guide range on the revenue side and probably have a little bit of movement towards the upper end of the guide in terms of the margin.

[Sheila Kahyaoglu, Aerospace & Defense and Airlines Equity Research at Jefferies Financial Group]

Great. Thank you.

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

Sure.

[Operator]

Thank you. Our next question comes from Noah Poponak with Goldman Sachs. Noah, please go ahead.

[Noah Poponak, Research Analyst at Goldman Sachs]

Hey, good morning, everyone.

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

Good morning, Noel.

[Noah Poponak, Research Analyst at Goldman Sachs]

Scott, maybe you could just talk about the demand environment in the private jet market. Obviously, to predict the future, but in the past when we've had macro concerns that we've at least seen some pause in in orders. Your one q book to bill was was still pretty healthy even though the equity market highs were were early March, but, but, you know, April 2 was was after the quarter ended. So I know it's never super useful to break it apart month by month, but just curious to what you're seeing and hearing from your customers.

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

Well, no, I mean, look, think as you point out, anytime there's a great deal of uncertainty in the world, you can see some folks pause a little bit. We're not seeing a dramatic impact. There's still order activity and flow that's happening, which I think is encouraging. And I do think part of it, Noah, is the fact that unlike the last decade or so when you have uncertainty or a ripple in the system, it's easy for people to say, well, I'll wait until next quarter. I think the backlog situation helps people say, okay, look, I'm talking about an aircraft that's going deliver eighteen months from now.

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

So I think that's it's a different dynamic when you're thinking about deliveries that are out there eighteen months to two years even as opposed to jeez, do I do it this quarter or next quarter. So yes, some customers are taking a pause, but a lot of other customers are continuing with order activity. And think we still feel like the demand environment is solid and we continue to press on.

[Noah Poponak, Research Analyst at Goldman Sachs]

Okay. And then maybe you could just give us your updated plan on production and delivery growth through the rest of the year as you continue to recover from the strike but have demand to deliver more airplanes?

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

Sure. Look, I think we will see the ramp continue as we guided originally. We expected the first half to be a little bit lighter and to be a little bit lighter on the margin rate because you had a lot of that disruption still kind of working its way through and aircraft that were in part built last year and still getting delivered through the first of this half of this year. So I still think we're very confident in where we guided and we'll see these couple hundred basis points below our guide here in the early part of the year and make up for that in the back half. The encouraging part is as we leave the quarter the metrics that our teams track around productivity and attrition and earned hours and all those sorts of metrics that Ron and his guys drive every day.

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

Leaving the quarter, we're getting back to kind of where we were in the pre strike. So I would say that we do feel very comfortable that we've recovered from that disruption And those aircraft that we're now manufacturing largely which will deliver in the second half of the year are seeing the impacts of the productivity and efficiencies that we expected. So that model of sort of a ramp through the course of the year and improving margins particularly in the back half I think is going to be what we're going to see.

[Noah Poponak, Research Analyst at Goldman Sachs]

Okay. Thank you.

[Operator]

Thank you. Our next question comes from Peter Arment with Baird. Please go ahead, Peter.

[Peter Arment, Senior Research Analyst at Robert W. Baird & Co]

Yes. Thanks. Good morning, Scott and Dave. Hey, Scott. On the continuing resolution, I know you had limited new starts in the first half, but now we've got a full year CR.

[Peter Arment, Senior Research Analyst at Robert W. Baird & Co]

Any impacts from that on systems or any of the other businesses?

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

Well, that's a good question, Peter. I would say that in general, no. So when you look at this full year CR, which is obviously a very unusual situation, there were quite a few so called amendments to that that provided specific guidance that allowed programs to increase. Flora is a good example. That was in there at the number that we always expected in terms of the appropriation process.

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

So that's why you're seeing this ramp on the Flora side. So I think we're in good shape there. Similarly on ship to shore connector, the next tranche of craft was in that number. And so that's we're in the process of getting that added to the contract working with the Navy and sort of real time here. Other programs look money was appropriated in that FY 2025, so it's there.

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

So we're hoping to understand final resolution here on things like RCV and FQAS later on in the year. But the good news is generally speaking order flow contract activity in systems has been looking pretty good so far.

[Peter Arment, Senior Research Analyst at Robert W. Baird & Co]

That's great to hear. And then just a quick follow-up on in aviation, just the latest on Denali. I saw the GE engine certainly certified in February. How is the

[Peter Arment, Senior Research Analyst at Robert W. Baird & Co]

rest of the program going?

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

I'd say the rest of the program is going very well, Peter. The milestone of getting the engine certified is hugely important to us. As you guys know as we saw delays on that side of the program, we've always continued the flight test program, but in terms of all the formalities we would kind of put other things in front of it like Ascend and some of these Gen 2s on CJ3s and things like that. So we kind of have I would say we have Denali back in the queue here in terms of working through the balance of certification.

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

And as we've always said the good news is this issue around the engine with the certification was challenging, but the performance has been very, very good. So the aircraft is flying really, really well. We're thrilled with it. And we're sort of back in the queue now with the FAA and we'll be working through the aircraft level certification. Appreciate the details.

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

Thanks.

[Operator]

Thank you. Our next question comes from David Strauss with Barclays. David, please go ahead.

[David Strauss, Managing Director at Barclays]

Thanks. Good morning.

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

Good morning.

[David Strauss, Managing Director at Barclays]

Scott, you talked about Caltechs, real tariff impact given the localized production. But how do you think about the demand environment for Caltex given what's going on with tariffs?

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

Yes, David, that's a good question. If there's any risk to a lot of the stuff in general economically it's more snow than tariffs. It is what happens to macro demand. We try not to we don't generally forecast on that. We kind of follow IHS as you know it's one of the only business really where we're not the end market guy.

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

So I don't have any crystal ball to pontificate on what's going to happen to the global automotive markets. But the Q1 numbers were in line consistent with what we have expected. So far that's true in Q2. But what happens to global automotive demand is I suppose anybody's guess. And we obviously will roll with that one way or the other.

[David Strauss, Managing Director at Barclays]

Okay. And Dave, I mean, can you it sounds like industrial margin may be a little bit higher. Can you maybe just walk us through if there are any other moving pieces relative to the original guide, maybe corporate to the corporate is a little bit lower than what you thought for the year, there's anything else we should know?

[David Rosenberg, EVP & CFO at Textron]

No. I mean, I think we would still expect corporate expense to normalize through the year, so we'll maintain our guide of $160,000,000 Interest expense will continue to trend up slightly throughout the year as we expected just based on the turnover of our debt at a higher interest rate and we expect a lower cash on hand, which generates interest income. On Industrial, I'd say the sequencing remains the same. We talked about as the year went on, the restructuring impact will continue to take effect and we're starting to see that. So you'll see some sequential growth in the overall industrial number as we go through the rest of the year.

[David Rosenberg, EVP & CFO at Textron]

And then as Scott said, a slight benefit as a result of the transaction with Arctic Cat that we announced today.

[David Strauss, Managing Director at Barclays]

Okay. Are there any proceeds from the Powersports divestiture? And are you holding on to that aftermarket piece? Or did that go as well?

[David Rosenberg, EVP & CFO at Textron]

The aftermarket piece went with the business. And there was some small proceeds that were immaterial that will be in the Q2 results.

[Operator]

Thank you. Our next question comes from Seth Seifman with JPMorgan. Please go ahead, Seth.

[Alex Kaufman, Wealth Advisor at JP Morgan]

Yes. Hey, guys. This is Alex on for Seth. Maybe wanted to kind of ask a follow-up regarding demand that you guys have kind of seen in aviation. I understand you guys kind of pointed to that there hasn't really been any major changes, but maybe to put a finer point on it and kind of address, I guess, the fractionalnet jet sides of things.

[Alex Kaufman, Wealth Advisor at JP Morgan]

I'm curious if you guys kind of have any color you could add on that, whether you've maybe seen any changes in kind of data customer behavior, typically think of them as a little bit more macro sensitive. So curious if you guys could kind of maybe provide some color there.

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

I guess we don't normally try to provide NetJets guide. I mean, we're still I mean, NetJets is still taking deliveries of aircraft and NetJets is still putting new aircraft on order. So I guess I probably won't give a lot of color as far as the NetJets fractional end market, but certainly order activity continues, deliveries continue. So I don't I wouldn't break that out as a specific item one way or the other.

[Alex Kaufman, Wealth Advisor at JP Morgan]

Okay, Understood. And then maybe as a quick follow-up, maybe if we could get kind of an update on how things are trending more recently in the supply chain with regards to aviation. I know you guys talked about an expected improvement in labor productivity following the strike as well. Is everything there kind of trending towards expectations?

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

Yes. Would say that we still feel very good about where the supply chain side is at aviation. I think that certainly that's one of the factors driving the improvements in productivity. We don't see nearly as much out of station work. Parts are there so the flow is much cleaner that clearly helps to drive the productivity side.

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

Our attrition rates are also down. So in terms of training and disruption new people coming in worried about the level of employment that we need execute on the plan. Obviously, there's always a certain amount of hiring going on with retirements and things of that nature. But yes, I would say that the parts situation at Aviation is where we expect it to be. In much, much better shape than it's been in a long time.

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

There are always as you can imagine supply chain issues that pop up. There always have been issues that pop up periodically. But I'd say at a macro level the supply chain at aviation is in good shape and our workforce situation is in good shape. And that's what I think will help to drive that improvement in both the volume and the productivity efficiencies and therefore margins as we go through the balance of the year.

[Alex Kaufman, Wealth Advisor at JP Morgan]

Cool. Thank you, guys.

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

Sure.

[Operator]

Thank you. Our next question comes from Myles Walton with Wolfe Research. Myles, please go ahead.

[Myles Walton, Managing Director at Wolfe Research LLC]

Thanks. Good morning. I'm wondering on systems backlog, it looks like it declined sequentially about in line with your sales. And so maybe Scott, back to Rob's question or maybe it was Peter's question on the demand in the defense complex. What if anything was ordered there?

[Myles Walton, Managing Director at Wolfe Research LLC]

And did you have any de books that caused the decline?

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

No, there were no de books guys. I mean, don't usually go into much detail on the systems backlog. It tends to be very lumpy, right, because it aligns with contract awards. So I mean I talked frankly about ship to shore is a good example, right. I mean that was in the CR.

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

We're in the process of negotiating with the Navy, but that number that won't go into backlog until we've definitized that contract. So it tends to be very lumpy and I wouldn't read anything one way or the other into the Pet Systems backlog.

[Myles Walton, Managing Director at Wolfe Research LLC]

Okay. On the cash flow statement, could you give some color as to the larger use of cash and operating cash flow from the other category? What was that?

[David Rosenberg, EVP & CFO at Textron]

Yes. There are really two components. Some additional inventory build at Aviation that will normalize throughout the year and then just some payment timing at Bell from Q1 to Q2 around some government programs. But nothing really unexpected in either of those. And we will look at on the payment timing with Bell, we'll get those receipts in Q2.

[Operator]

Thank you. Our next question comes from the line of Jason Gersky with Citigroup. Please go ahead, Jason.

[Jason Gursky, Equity Research Analyst at Citigroup]

Yes. Good morning, Scott.

[Jason Gursky, Equity Research Analyst at Citigroup]

I wanted to ask you a quick question about the defense businesses, both at Bell and Navy Systems. We're clearly hearing a lot from DoD that the future is going to include a lot more unmanned autonomous and attributable systems. I'm just kind of curious what you're seeing, both on the demand side and whether there are new programs of record that are being stood up or whether there's increased usage of OTAs and and we've got some nontraditional actors that are coming in and in garnering some some wins, you know, utilizing some products that they've developed that are unmanned, autonomous, and attributable? And kind of how your company is responding to this new vector in demand and what that means for R and D and contract types that you might be working on in the future? Just kind of curious if there's going to be a bit more IRAD here and for fixed price contracts going forward.

[Jason Gursky, Equity Research Analyst at Citigroup]

Thanks.

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

Sure. So I guess I would say with respect to unmanned, without a doubt there's a continued focus in that area. Obviously things like FQAS are on the horizon which is all unmanned. I would say that even when you look at platforms like a Flora for instance, you know the Army wants to make sure that that aircraft can be unmanned. Know now that doesn't necessarily mean they're going to fly it as an unmanned aircraft with a you know 12 guys in the back going into a you know an assault insertion but relocations and different missions there might be places where they want that.

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

So certainly one of the requirements on a new platform like that is that it needs to have the capability to perform autonomously. You may recall, good news is we flew the actual original V-two 80 with safety pilots obviously, but we flew that on autonomous mission many years ago. So ensuring that the capability is in these platforms for either optionally or unmanned capabilities is becoming very, very standard. In terms of other activity that's out there, look we've talked in the past about our high speed VTOL program. I think we're working with the military sort of what are the next steps of that.

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

So certainly when you look at technology that's still in that DARPAsort of special operations there's activity there which again is very focused unmanned capability whether that's in the CCAs or contested logistics that continue to be a focus and we're participating in that area. So there's no question that unmanned platforms of all types are going to continue to be a focus area. When you look at remote combat vehicle, again there's an area where we've invested for better part of a decade for autonomous land vehicles as well. And of course we have our custody programs and things which we continue to support in unmanned line sweeping. So as a company, we have a lot of different programs everywhere from production to working with the DARPAs of the world on unmanned platform.

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

So it will be a continued focal point and I think we've we're in a very good place. In terms of contract type, I guess I would say that I continue to see the trend being that when you're in production that the military will lean towards fixed price contracts and frankly we're fine with that. When you have a production product you understand it, you know it. I think it's in everyone's interest to try to drive fixed price contracting. But in most development activity Florida is a good example when you're in the EMD phase, you're largely cost plus.

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

Most of these other contract types where you're working with earlier development even if it's developmental they're tending to stay to the cost plus or best effort kinds of contracting.

[Jason Gursky, Equity Research Analyst at Citigroup]

Right. Okay. That's helpful. I'm just kind

[Jason Gursky, Equity Research Analyst at Citigroup]

of as a follow-up, one of the things you didn't mention there is a tradable systems. I'm just kind of curious on the munitions side or, know, a treatable mass seems to be a phrase that we hear quite a bit coming out of DOD these days. I'm just from a product perspective, what does that mean to you? And is it an area that's of interest to you?

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

Well, we have some areas in the classified space and IRAD space that are looking at attributable, I guess most of the stuff for sure that I just mentioned are sort of platforms or derivations of platforms that are certainly much higher dollar value. So those would not fall into a desire for those to be attributable. But that's not been our historical focus, but for sure there are some smaller programs that we're executing that would be more along that attributable line.

[Jason Gursky, Equity Research Analyst at Citigroup]

Appreciate the color. Sure.

[Operator]

Thank you. Our next question comes from Christine Lewog with Morgan Stanley. Please go ahead Christine.

[Kristine Liwag, Executive Director at Morgan Stanley]

Hey, good morning everyone. On Bell, we saw a nice positive uptick in commercial helicopter deliveries in the quarter. Can you talk about the demand environment, customer profile, pricing and whether you'd expect this strength to continue?

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

Look, I would say on the Bell Commercial side, the demand is solid. I mean, order activity is good. It's across pretty much all of our models, of our product lines, everything from the five zero five up through the 412s. As you know we have our initial 525s booked. We just at VerdeCon signed a deal with Omni to get five twenty five out into their routes to do route proving.

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

So I would say pretty much across the board whether it's paramilitary, border patrol, medical, oil and gas we're seeing strong demand across pretty much all of the helicopter product lines.

[Kristine Liwag, Executive Director at Morgan Stanley]

Great. Thanks. And Scott, if I could add another one on business jets, mean, on aviation. Historically, we've seen a strong correlation of U. S.

[Kristine Liwag, Executive Director at Morgan Stanley]

Investment spending and demand for medium sized business jets. And with this administration focused on bringing manufacturing back to The U. S, are you seeing any early indication of increased demand from corporate clients who may want to reshor manufacturing or anything like that?

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

As I said, I think we're we continue to see a strong demand environment. I don't know if I know how to correlate that to a company that brings reshoring per se. But I would say in general despite the fact that there's a great deal of uncertainty and without a doubt the tariff situation is helping create some uncertainty. But I think most companies in the mid to long term feel pretty good about where things are. And I mean what tax policy obviously is hugely important.

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

That doesn't get talked about here a lot just because of all the other things that are going on. But I think most people view the mid to long term as a favorable environment. So I think that's partly what's driving that. Is reshoring and growth in The U. S.

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

Helping that? It could be. I don't know that I have any anecdotal that would say, hey, this particular company who's reshoring is talking about a jet. But it's a good environment.

[Kristine Liwag, Executive Director at Morgan Stanley]

Great. Thank you.

[Operator]

Thank you. Our next question comes from Gavin Parsons with UBS. Please go ahead.

[João Santos, Associate Director, Equity Research Analyst at UBS Group]

Hi, Scott and David. This is Joel Santos for Gavin Parsons from UBS. Given the current demand environment for business jet, can you give us some more color on how net pricing and performance have been year to date? And if those align with your expectation for 2025?

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

Well, as I said, I think the environment for biz jets remains solid. Our order activity continues to flow. You saw that in the first quarter in terms of book to bill. And as I said earlier, I think you'll have some people that will take a brief pause here just for some of the uncertainty. But given the nature of the backlog and the overall, I think, people's longer term economic outlook, we continue to see good order activity.

[João Santos, Associate Director, Equity Research Analyst at UBS Group]

And on aviation aftermarket, can you guys give us some more color on the strategy in place for continuing to grow the segment? And how that's impacting the overall profitability?

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

Okay. The aftermarket business was up 6% in the quarter, which is good growth. So we see flying hours stays robust. So our service centers are busy. Parts flow into the aftermarket is obviously strong.

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

So that's a really important part of our overall company. As you guys know, we serve a huge installed base and that's largely driven by flying and people are flying.

[João Santos, Associate Director, Equity Research Analyst at UBS Group]

Perfect. Thank you.

[Operator]

Thank you. Our next question comes from Ron Epstein with Bank of America. Please go ahead.

[Ronald Epstein, MD - Aerospace & Defense at Bank of America Merrill Lynch]

Yes. Hey, good morning, guys. Changing gears a little the Electric Aviation segment, is there opportunity to take some of the technology you guys are developing in there and moving it over to some of your other aircraft like, for example, an electrified caravan?

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

Well, LeBron, as you know, there's a number of companies out there that are electrifying caravans. It's been sort of one of the preferred choices frankly for folks that are working in that space because it has just such a huge useful load, right? So to the extent that you have a penalty in terms of battery weight and stuff like that, a caravan can absorb an awful lot of weight and still provide really good performance with a good payload and still hundreds of miles of range even with a lot of battery load. So caravans have actually been used by a lot of companies as test beds for this activity. So now again, where that goes and is it the right answer?

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

Do you have a hybridized version of it? That I think is all still to be determined. But for sure, caravan is one where you can electrify. People have electrified Caravan. And we work to support those companies.

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

We're not doing that ourselves. We're working with those guys to support their efforts towards ultimately hopefully certification where you would have an electrified Caravan.

[Ronald Epstein, MD - Aerospace & Defense at Bank of America Merrill Lynch]

Now if there's meat on that bone, is that the market you'd want to get into? I guess that's what I'm getting at, right? Like given that you have in house technology anyway?

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

Yes. I mean, well, I mean, will go into all the gory details here. I mean, a couple of companies we've worked with, we do have arrangements where, let's say, they're doing the work, we're supporting them and providing them information. They would own, let's say, a supplemental type certification that would let you take a caravan and modify it to put it into service as an electrified aircraft. And we have the ability to take that and incorporate that STC basically into our production line.

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

So if we see sufficient volume, sufficient demand, we would absolutely look at incorporating that and turning that into a production product.

[Ronald Epstein, MD - Aerospace & Defense at Bank of America Merrill Lynch]

Got it. Got it. And then maybe just one last one changing gears. Nobody's really asked much about on the m and a front. Is there much out there?

[Ronald Epstein, MD - Aerospace & Defense at Bank of America Merrill Lynch]

I mean, you guys are looking at stuff. Defense tech seems to be a space where there's a lot of interest in kind of, you know, software driven hardware and that kind of thing. Is are you are you guys thinking about anything like that? Or if you just give us a broader feel about how you're thinking about the current M and A environment?

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

Sure, Ron. Look, mean, we continue to look all the time. We've been in a number of deals, but we do look at what are the multiples look like, what are the earnings look like and is it something that we can do that would be accretive. And if it's something that we could thought we could get a price point where it's accretive, we would absolutely entertain adding things like that obviously particularly in our A and D space. But look I mean things maybe here are a little rocky with some of the uncertainty in the world but a lot of these deals were just kind of little bit on the nutty side in terms of multiples and not something that we thought could be accretive for our shareholder.

[Operator]

Thank you. Our next question comes from Pete Skibitski with Alembic Global. Please go ahead.

[Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global Advisors]

Good morning, guys. Hey, Scott, the release stated and I think you might have mentioned that Bell military sustainment volume was up year over year. Can you talk about where that's coming from? I assume maybe it's H1 and V-twenty '2. I don't know if it's weighted one way or another.

[Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global Advisors]

But can you talk about that and maybe if that's sustainable or if it was just a timing thing?

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

Sure, Pete. Now look, you're right. Mean it is the legacy so called legacy platform. So H1 and V-twenty two, we continue to have ongoing contracting activity with parts with PBLs and things of that nature. That as you know is also a little bit lumpy, right.

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

We often find ourselves in a situation where we're out there building because we know the demand is there and then just contracting takes a while. And so when those contracts get definitized stuff that we have that would move from company funded long lead gets put up against that contract. So you always do have a little bit of lumpiness. But yes, it's related to H1 and V-twenty two programs, but I expect that to continue to be there. Aircraft flown every day and they generate a lot of aftermarket demand and we expect to continue to support that for many, many, many years to come.

[Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global Advisors]

Okay. Thank you. And then just I just want to follow-up on Jason's comment earlier question earlier about unmanned. But sticking kind of to the unmanned surface vehicle area where you've participated in the past with the CUSVI and I think you guys announced the tsunami family. I just wanted to ask, is this a marketplace on the USB side that's really growing rapidly?

[Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global Advisors]

You mentioned you dropped in classified earlier in your comments. And I ask because I think there's been a couple of startups that have emerged out of stealth mode fairly recently with some money behind them. And so I'm just wondering if this is an area on the surface side that's really kind of poised to grow or if you're maybe more balanced type of a view and you think it's going to be a few more years of experimentation before we see something there out there?

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

Well, look, I do think it's growing. I think the analogy I would go back to when you think about early days of unmanned aircraft systems, the proliferation of those missions and different types and whatnot has grown dramatically from just ISR to weaponization. Obviously, you've got very long range, high altitude stuff. You've got very tactical all the way down to almost micro versions of these systems. So I think you're seeing the same thing happen in the unmanned surface vessel area.

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

Obviously, we've been a player in this from the very, very early days of it. With CUS V, it's not surprising that the first applications that everyone knows of that are out there are around mine hunting. This is a place you'd like not to be as a person when you're out there doing mine hunting operations. So whether it's sweeping or interdiction that's an area that we've played. We continue to do that.

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

We work very closely with the Navy and have for quite some time in supporting that mission and also supporting now the integration of new platforms onto those sorts of craft. I think they have a roadmap that shows more craft of different types and different missions going into the future. We're working with them on that all the way to the extreme. And you mentioned it is something like tsunami, right, which is sort of in that attributable higher volume, lower cost, again with different mission payloads going forward. And that's a good example.

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

Everybody talks about sort of these new companies will and putting money behind it. We've been putting money behind this for a very long time and we have programs to show for it. It's these things do take investment upfront for sure. But I think Tsunami is a good example, shows you can go compete with all these new upstart companies and we actually won because we too have put a lot of money behind this and invested in future applications.

[Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global Advisors]

Great. Thanks for the color.

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

Sure. Thanks.

[Operator]

Thank you. We have no further questions. And so this concludes today's call. Thank you, everyone, for your participation. A replay will be available until Thursday, May 1 at 11:59PM Eastern Time.

[Operator]

You can access the replay by dialing The United States local number (929) 458-6194 and use the access code 826596. Thank you everyone for joining us today. You may now disconnect your lines.

Participants

Executives

• Scott P. Hegstrom, VP - Investor Relations, Mergers & Acquisitions and Strategy
• Scott C. Donnelly, Chairman, CEO & President
• David Rosenberg, EVP & CFO

Analysts

• Robert Stallard, Partner at Vertical Research Partners
• Sheila Kahyaoglu, Aerospace & Defense and Airlines Equity Research at Jefferies Financial Group
• Noah Poponak, Research Analyst at Goldman Sachs
• Peter Arment, Senior Research Analyst at Robert W. Baird & Co
• David Strauss, Managing Director at Barclays
• Alex Kaufman, Wealth Advisor at JP Morgan
• Myles Walton, Managing Director at Wolfe Research LLC
• Jason Gursky, Equity Research Analyst at Citigroup
• Kristine Liwag, Executive Director at Morgan Stanley
• João Santos, Associate Director, Equity Research Analyst at UBS Group
• Ronald Epstein, MD - Aerospace & Defense at Bank of America Merrill Lynch
• Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global Advisors