Textron Q2 2022 Earnings Call Transcript

Participants

Corporate Executives

• Eric Salander, Vice President, Investor Relations and Treasurer
• Scott C. Donnelly, Chairman, President and Chief Executive Officer
• Frank T. Connor, Executive Vice President and Chief Financial Officer

Analysts

• Sheila Kahyaoglu, Jefferies Financial Group Inc.
• Elizabeth Carolyn Grenfell, Bank of America Co.
• Peter Arment, Robert W. Baird
• David Strauss, Barclays PLC
• George Shapiro, Shapiro Research
• Noah Poponak, The Goldman Sachs Group, Inc.
• Cai von Rumohr, Cowen Inc
• Robert Stallard, Vertical Research
• Pete Skibitski, Alembic Global Advisors
• Seth Seifman, JPMorgan Chase & Co.
• Robert Spingarn, Melius
• Kristine Liwag, Morgan Stanley

Presentation

[Operator]

[Technical Issues] by, and welcome to the Q2 2021 Q2 2022 Textron Earnings Release Conference Call. [Operator Instructions]

I would now like to turn the conference over to Eric Salander, Vice President of Investor Relations. Please go ahead.

[Eric Salander, Vice President, Investor Relations and Treasurer at Textron]

Thanks, Brad, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings, and also in today's press release. On the call, we have Scott Donnelly, Textron's Chairman and CEO; and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.2 billion, essentially flat with last year's second quarter. Segment profit in the quarter was $303 million, up $14 million from the second quarter of 2021. During this year's second quarter, we reported net income of $1 per share compared to $0.81 per share in last year's second quarter. Manufacturing cash flow before pension contributions totaled $309 million in the quarter, down $200 million from the second quarter of 2021.

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

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Thanks, Eric, and good morning, everyone. Aviation had another solid quarter with higher revenues and strong execution, resulting in a 12.1% segment profit margin. We continue to see strong demand, solid pricing and increased deliveries for our citation jets, commercial turboprops and higher aftermarket volume from increased aircraft utilization. We delivered 48 jets, up from 44 last year; and 35 commercial turboprops, up from 33 in last year's second quarter. Order activity was strong in the quarter, reflecting continued order momentum that generated $700 million of backlog growth, resulting in $5.8 billion of backlog at Aviation at the end of the second quarter.

During the quarter, Aviation Defense business was awarded a $91 million contract for eight T-6 aircraft, spares and related support services to Tunisia. Also at Textron Aviation Defense, earlier this week, the AT-6 Wolverine received military-type certification from the U.S. Air Force, paving the way for continued global sales of the light attack aircraft. On the new product front, we delivered the first Cessna SkyCourier to our launch customer, FedEx, and also delivered the first XLS Gen2 aircraft. At Bell, revenues and segment profit were down in the quarter, primarily reflecting lower H-1 program volume. On the commercial side of Bell, we delivered 34 helicopters, down from 47 in last year's second quarter.

While commercial order activity was strong across all models, supply chain headwinds impacted Q2 results as several commercial helicopter deliveries slipped out of the quarter. Overall, the strength in commercial demand, which included South Korea selecting the Bell 505 aircraft for use as its next military trainer, contributed to an increase in Bell backlog of $500 million in the second quarter. During the quarter, Bell announced a contract award of $518 million to upgrade Canada's fleet of CH-146 Griffon aircraft. This upgrade program is expected to be completed by 2028. Moving to Future Vertical Lift. We now expect the FLRAA contract announcement sometime in October following the AUSA conference.

As a result, we anticipate continuing our investment on this program, which will be incremental to our original segment guidance. Moving to Textron Systems. Revenues were down in the quarter on lower volume, primarily reflecting the impact of last year's withdrawal of the U.S. Army from Afghanistan on our fee-for-service and aircraft support contracts. At ATAC, we continue to see increased flight activity on our U.S. Navy and Air Force adversary air contracts. During the quarter, we delivered LCAC 104 to the U.S. Navy and continued to progress the build process of the remaining EMD craft on the Ship-to-Shore Connector program. Last week, the U.S. Army announced that Systems was awarded a $354 million firm-fixed-price contract for the production and delivery of XM204 top attack munition and anti-vehicle system.

This is an IDIQ contract with an estimated completion date of 2027. Moving to Industrial. We saw higher revenues in the quarter, driven by higher pricing and volume in specialized vehicles, mainly in our personal transportation and golf product lines. At Kautex, the auto market remains challenging as we again experienced order disruptions related to the global auto OEM supply chain shortages and COVID-mandated factory shutdowns in China that continue to directly impact our production schedules. In April, we closed the acquisition of Pipistrel, pioneer and global leader in electrically powered aircraft. Beginning in the second quarter of 2022, Pipistrel became part of Textron eAviation, a new reporting segment that includes Pipistrel's operating results and R&D expenses related to the development of sustainable aviation solutions.

In the quarter, we announced that Pipistrel Velis Electro received the U.K. Civil Aviation Authority certification. The Velis Electro remains the only type of certified electric aircraft in the world. Overall, it was a solid quarter with strong cash generation and growth in earnings. Our teams executed well in a difficult environment, where we continue to experience supply chain disruptions, labor supply shortages and COVID-related impacts across our businesses. While these challenges drove manufacturing efficiencies and delayed product deliveries in many of our businesses, our financial performance demonstrates the resiliency of our operations. Looking forward, we anticipate these headwinds to continue through the remainder of the year.

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

[Frank T. Connor, Executive Vice President and Chief Financial Officer 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 $1.3 billion were up $123 million from the second quarter of 2021, largely due to higher aircraft and aftermarket volume. Segment profit was $155 million in the second quarter, up $59 million from a year ago due to the impact from higher volume and mix of $25 million, a favorable impact from performance of $19 million and favorable pricing net of inflation of $15 million. Backlog in the segment ended the quarter at $5.8 billion. Moving to Bell. Revenues were $687 million, down $204 million from last year due to lower military revenues of $170 million, primarily related to the H-1 program and lower commercial revenues of $34 million. Segment profit of $63 million was down $47 million from last year's second quarter, reflecting lower volume and mix, partially offset by a favorable impact from performance, which included lower operating expenses, partially offset by an unfavorable change in net program adjustments.

Backlog in the segment ended the quarter at $5.3 billion. At Textron Systems, revenues were $293 million, down $40 million from last year's second quarter due to lower volume of $44 million, primarily reflecting the impact of the U.S. Army's withdrawal from Afghanistan on our fee-for-service and aircraft support contracts. Segment profit of $42 million was down $6 million from a year ago, primarily due to lower volume and mix. Backlog in the segment ended the quarter at $2.1 billion. Industrial revenues were $871 million, up $77 million from last year's second quarter, primarily due to a favorable impact from pricing and higher volume and mix, principally at Specialized Vehicles.

Segment profit of $41 million was up $9 million from the second quarter of 2021, primarily due to the higher volume and mix. Textron eAviation segment revenues were $5 million and segment loss was $8 million in the quarter. Finance segment revenues were $14 million and profit was $10 million. Moving below segment profit. Corporate expenses were $12 million and interest expense was $28 million. Our manufacturing cash flow before pension contributions was $309 million in the quarter, down $200 million from last year's second quarter. The second quarter of 2022 included significant cash tax payments as a result of the 2022 change in R&D tax treatment.

In the quarter, we repurchased 4.4 million shares, returning $282 million in cash to shareholders. For the full year, we are reiterating our earnings per share guidance of $3.80 to $4 per share, and we are increasing our cash flow from continuing operations before pension contributions guidance to be in the range of $800 million to $900 million, up $100 million from our prior outlook. That concludes our prepared remarks.

So Brad, we can open the line for questions.

Questions and Answers

[Operator]

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

[Sheila Kahyaoglu, Analyst at Jefferies Financial Group]

Hey, guys. I'm impressed, nine minutes today. So in terms of your guidance for the year, you reiterated it that several companies are missing on supply chain. So maybe can you talk about are you seeing some of the supply chain headwinds for the second half of the year? And Scott, in your prepared remarks, you mentioned FLRAA, the pushout to mid-October. How does that impact the results and the additional investment there?

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Sure, Sheila. Look, I think if we look at the sort of across the company, first and foremost, I think Textron Aviation performance will continue to be very strong in the second half. We are trying to ramp production. We expect to try to continue to ramp production through 2023 given the very strong demand environment. Supply chain headwinds are causing some disruptions there, obviously. So I think we'll probably be a little light on revenue. We'll probably miss some deliveries as things push into 2023. But I think that from a performance standpoint, from a margin standpoint, the business will continue to excel. Aftermarket remains very strong, obviously, and that's an important part of the financials in the business. So I think that, that business will be a strong performer in the second half and be really well positioned for us going into 2023 as well.

Industrial segment, look, our vehicle business continues to perform well. It continues to improve. First half was pretty tough in the automotive world, again, mostly supply chain and COVID shutdowns in China. I certainly expect that to improve in the second half, so we'll see better performance from Kautex in the back half of the year. So I think continued improvement will probably be towards the low end of margin just because of the first couple of quarters on the automotive side, but otherwise strong performance.

Systems in the second half, we should get back -- we've had these negative revenue comparisons driven largely by the Afghanistan pullout and the impact it had on our fee-for-service business. Those comps go away in the third and fourth quarter. So I think we get back to stable, even showing some growth probably towards the end of the year, resulting from some new wins, and again, very strong performance, I think, in terms of segment profit.

And Bell will be the one that's a bit of a challenge. Look, we are showing really strong performance on the commercial side. The demand environment is good. We'll certainly have a lot more deliveries in the back half of the year, but they are fighting through the supply chain issues and inefficiencies. We know and fully expect we're going to see lower volume, particularly on H-1 aftermarket.

There's been lower demand, lower volume in that side of the house. But the big issue we'll also have to face into is, obviously, the FLRAA program, which we continue to feel good about. Our teams are working really hard on it. But that's probably a three- or four-month slip from where we thought it would be when we gave our guidance originally. So obviously, we have a big team and we're going to retain that team and keep pressing on. But certainly, that will result in some more investment in our program before we get to a contract award. So that will weigh on Bell for the total year. So I think we'll probably get there on revenue, but we'll be on the lighter side of margin given that transition.

[Sheila Kahyaoglu, Analyst at Jefferies Financial Group]

Maybe just a follow-up on Bell since you just mentioned it. 22% decline, how much of that -- or 23%, how much of that was due to supply chain? And how much of a decline should we expect in the second half? Is it still $3 billion feasible in terms of revenue?

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Yes. I think $3 billion is still feasible. And really, look, I think, split is going to be, in part, again, lower aftermarket on the military side, which is down. And that's kind of lumpy. It was actually pretty strong in the first quarter. It was pretty weak here in the second quarter, but I do think we'll see softness in that aftermarket side. But we'll see, I think, strong deliveries on the commercial side of the helicopter business that will partially offset that here in the third and fourth quarter.

[Sheila Kahyaoglu, Analyst at Jefferies Financial Group]

Great, thank you very much.

[Operator]

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

[Elizabeth Carolyn Grenfell, Analyst at Bank of America]

Hi. It's Elizabeth. Can you hear me? I'm on for Ron this morning. We noticed on your Finance segment slide in your presentation that the 60-plus delinquency more than doubled quarter-over-quarter from $2 million to $5 million. Is there anything to worry about there?

[Frank T. Connor, Executive Vice President and Chief Financial Officer at Textron]

No. The Finance segment has been performing very well as you can see from kind of the earnings for Finance. So we continue to see good performance out of the portfolio. Kind of things come up from time to time where things move around, but the overall portfolio is performing well.

[Elizabeth Carolyn Grenfell, Analyst at Bank of America]

Thank you very much.

[Operator]

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

[Peter Arment, Analyst at Robert W. Baird]

Thanks, good morning, Scott, Frank, thanks for the color. Scott, your backlog continues to swell in Aviation. Can you maybe talk a little bit about just how you're thinking of managing that, ramping that production? And you're obviously probably well into 2023 when you think about kind of delivery slots. Just maybe a little color there, that would be helpful.

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Sure, Peter. Look, I mean, obviously, demand has been really strong and that backlog is continuing to grow. It gives us really good visibility, which is terrific, something we didn't have for a long time, as you know. So yes, we continue to work to be able to ramp, and we'll continue to do that through the course of the year. And obviously, we'll be needing to do that as we go into 2023. We're working really hard on hiring on our end of things to bring staff on board and working with suppliers to just to be able to meet that ramp. So we're making sure we're cautious about how we're committing to customers because we want to deliver on the dates that we'll say we'll deliver. But it's a headwind. And like I said, I think it will impact us this year on some deliveries that we would have originally had.

That will push off into the beginning of 2023. But our teams are obviously working every day on this stuff, and we are making progress with growing our workforce in-house. And we're continuing to work with our suppliers to help them meet that ramp as well. So I don't think it's going to be easy, but clearly, I think we have line of sight to continue to increase our production rates as we go through the balance of this year and through 2023 as well.

[Peter Arment, Analyst at Robert W. Baird]

That's great. And Frank, do you have the -- what the aftermarket growth number was in the quarter?

[Frank T. Connor, Executive Vice President and Chief Financial Officer at Textron]

Yes. It was 18% on Aviation, 18% and 33% of the revenues.

[Peter Arment, Analyst at Robert W. Baird]

Terrific, thanks again.

[Operator]

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

[David Strauss, Analyst at Barclays]

Thanks, good morning. Scott, on FLRAA, what gives you confidence that we're actually going to see a decision here in October? I mean we've seen several slips now. I guess what color can you give us around your content that we're actually going to get a decision here come the fall?

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Well, obviously, we've had ongoing interaction with the acquisition side of the Army. Everything is obviously very quiet from a post-evaluation stage. The indications we get from the acquisition side are that they're going through their process, and there haven't been data requests or proposal-related activity here for some time so we know they're in their detailed evaluation phase. Secretary Bush, who we saw last week, indicated that and he has said this publicly in several forums, that he expects that they're on track to make an announcement after the AUSA conference, that's, what, the 10th, 11th or so of October.

So when he says that, we're kind of surmising that means sometime in that mid-, late October time frame. So that's what we're currently trying to factor into our plans and what we need to do to make sure that our team that's assembled which are currently working, obviously, on the risk reduction program, will continue to have activity and keep progressing this thing while they finish their evaluation. But the dates I'm quoting or, again, kind of publicly, Secretary Bush has made those statements, and again there's no indication from him when we met that there's anything other than just working through their process.

[David Strauss, Analyst at Barclays]

Okay. Frank, a couple of questions. How do you see -- you've raised the free cash flow guidance. But how do you see working -- kind of pieces of working capital, mainly inventory and advances going from here to the rest of the year? And then any initial thoughts on pension for 2023 given asset returns and discount rates? It's a pretty big income item for you guys.

[Frank T. Connor, Executive Vice President and Chief Financial Officer at Textron]

Yes. So on the cash flow side, kind of we're consistent with where we have been. We continue to see good working capital performance. The supply chain issues and kind of potential delays in deliveries obviously could create a little bit of pressure on the inventory side, but I don't expect that to be at all significant as we go into year-end. But we obviously raised cash flow guidance, anticipating continued overall good working capital performance.

And that's bolstered by strong order activity and customer deposits, frankly, both at Aviation and at Bell on the commercial side as well. So overall, good cash flow performance so far year-to-date and expect that to continue through the remainder of the year. Look, on the pension side, it's kind of too early. I guess right now if you snap the line, the interest rate impact would more than offset the impact from -- on the asset valuation side in terms of kind of creating any headwind associated with pension. So we have the potential for some additional tailwind given where things are right now as we move into 2023 from pension.

[David Strauss, Analyst at Barclays]

Great, thank you.

[Operator]

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

Please go ahead.

[George Shapiro, Analyst at Shapiro Research]

Good morning. Frank, a quick one. Why was corporate expense so low in the quarter?

[Frank T. Connor, Executive Vice President and Chief Financial Officer at Textron]

That has to do with the share price impact that kind of flows through corporate for our equity-related comp programs. So unfortunately, we saw a tough overall market and tough share price performance for us in the quarter. So that impacts that number. I'd say in terms of overall for the year, kind of given where the overall market environment is, we're probably $10 million-ish better, we expect on corporate expense from an overall cost for the year. But that -- hopefully, that number for kind of -- it's not a sustainable quarterly number because of the share price performance.

[George Shapiro, Analyst at Shapiro Research]

Okay. And then you had also mentioned that in Bell, there was an adjustment -- unfavorable adjustment made. Can you quantify that?

[Frank T. Connor, Executive Vice President and Chief Financial Officer at Textron]

Yes. We don't talk about that kind of by segments, but the comment related to, we did see some unfavorable program adjustments this quarter. And when you compare that to a year ago, we had some favorable program adjustments. So the overall v between the two years kind of created more negative program adjustment therefore. So that's the nature of the comment. Overall expenses are down at Bell, anticipating the kind of the reduction in volume. But frankly, volume has come out a little faster than we anticipated, and so it did have some negative impact on performance.

[George Shapiro, Analyst at Shapiro Research]

Okay. Then for Scott, in terms of the general aviation demand, did you see any change as we went through the quarter? And is April -- I mean, is July continuing to be strong?

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

George, so far, the market feels about the same. Demand is strong. It continues to be a strong business jet market in North America. In the quarter, we saw a significant pickup in international activity, particularly in our turboprop business, so strong international demand on King Airs, which certainly helps. We see some more of the corporates coming back in as corporate flight activity picks up, but still seeing a lot of new entrants into the market as well. So I think that as we look at sort of how Q2 played out and continues now in the beginning of Q3 is indicative of really strong demand across the entire portfolio of products.

[George Shapiro, Analyst at Shapiro Research]

Okay, thanks very much.

[Operator]

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

[Noah Poponak, Analyst at The Goldman Sachs Group]

Good morning everyone. Scott, how are you going about deciding exactly where to lay the Cessna production and deliveries for the remainder of this year and next year?

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Well, I mean, for the most part, Noah, these are pretty well booked. So we know what commitments we've made to customers in terms of delivery dates. I mean as you know, unlike it was for a long time, this is a pretty well-booked business. So we know the models, we know the makes, we know the interiors and colors. I mean it's -- we know what we got to go do. That's not a problem. The challenge is to get enough people and suppliers to deliver the parts and get the stuff in there and get it produced. So it's a good problem to have but it's still a problem, right? So we're working our way through that. And like I said, I think the performance of the business despite a lot of those interruptions and disruptions, they're largely getting it done.

I do think we'll have some aircraft slip out because of some particular supplier issues that we're not -- we just know their delivery dates aren't going to get there, but it's a relatively small number of aircraft. And again, that's offset by a very strong aftermarket. The utilization of the aircraft is very high. That drives a lot of service business, which is great. And just overall, I think the business is performing really well.

[Noah Poponak, Analyst at The Goldman Sachs Group]

You've had bookings in excess of revenue by about 50% several quarters in a row. It's -- the backlog isn't all new build but just the implied bookings, it's running about $2 billion a quarter. Do you try to take the production system and the revenue to a place that would match some assumption of that order rate slowing down and try to get the revenue and the orders to land in the same run rate? Or do you want the orders to keep exceeding revenue and keep growing the backlog from here? Or can you just not even do that because it's customer-dependent?

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Well, I mean, look, there's a lot of moving parts here, right? But I mean, to be honest, you had your dream, you have a one-to-one, right? You build them and keep selling them and everything would be great. So obviously, right now, demand is stronger than that, which leads to that backlog going out further in time. That's certainly not all bad but it gives us visibility, and we'll plan a production rate. Again, we are increasing our production rates, and we'll continue to increase those rates in the next year. But look, we keep a close eye on that, right? Because in the end, this is about matching supply and demand. And I think as we've talked about before, this is a business that should run off backlog, right? I mean it's better for our customers. It's better for us.

I think the whole market is in a better place when there's adequate time for people who have their aircraft to sell their aircraft and doing their upgrades and have a better flow in manufacturing and customizations. So look, a one-to-one is a healthy place to be. You can't build backlog forever, obviously, right? I mean you get to a point where somebody is not going to order an aircraft if it's not available for three or four years.

And it's -- there's more customization and longer lead time probably in order cycle around some of the larger aircraft and smaller aircraft, so that you have that dynamic in there. But look, I think we're in a really good place. Obviously, we want to maintain a backlog, and we need to balance it where it's a good spot for both ourselves and our customers. And I think that's where we are right now. So demand continues to grow and so we will grow our production rate. But there's no objective to try to get this back to where you're not working off of the backlog. I don't think that's good for the business or the overall market.

[Noah Poponak, Analyst at The Goldman Sachs Group]

Yes, I know. I meant it more anticipating a slowdown in the order rate and therefore keeping the supply tight. But

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Well, look, the good news, Noah, is, I mean, we're out far enough that if you do see a slowdown at some point, you can adjust that, right, and manage it if you start seeing some out. Yes, absolutely.

[Noah Poponak, Analyst at The Goldman Sachs Group]

And then just on the margin, it's another incremental that's well above that sort of longer-term framework you have in the segment. Can you give us some color on how much of that is price versus absorption versus mix? And then where do you see that for the remainder of the year?

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Well, look, I mean, I think we're still coming out of some highly disruptive times when you look at the year-over-year, right? So we saw this in the first quarter as well. Price over inflation is good and we needed that in this industry, obviously, for a long time. So I think that obviously is a positive contributor. But I still think if you think about the long term, the gross margins, the mix between original equipment and aftermarket, that this is a business that generally you should expect to see sort of that 20%, 25% conversion. We're a little stronger than that coming off some pretty extraordinary times. But as we go forward, I think that's a reasonable expectation that generally, we'll see somewhere in that 20%, 25% range.

[Noah Poponak, Analyst at The Goldman Sachs Group]

Okay, thank you.

[Operator]

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

[Cai von Rumohr, Analyst at Cowen]

Yes, thanks so much for taking the question. So Scott, could you talk a little bit about supply chain specifically at Aviation and also labor availability in the Wichita area? You seem to have obviously done pretty well. What kind of a challenge is it? And is it getting better or getting worse?

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Cai, it's kind of flat, right? I mean on the labor front, look, we are making progress. But if I look at the ramp as we think about this year going into next year, we're looking to add kind of net 100 people or so a month. So that's -- we're running hiring fairs. We are seeing people coming back into the workforce. We're working that hard. It's the entry level, bringing new people in. And obviously, you've got training and development, so there's only so fast we can do it. But we are working and like Wichita has always been a great place for us in terms of availability of labor and people that have good work ethic and stuff. So we're continuing to work that. But it's a sizable number of people that we need to bring onboard to support that ramp every month.

So when you go to the supply chain, Cai, look, I think a lot of our smaller suppliers continue to struggle with a little COVID thing here and there. And when we have an issue and some people can't show up to work, we're big enough that we can kind of try to move people around and sort of keep things going. Not easy, but our guys do a pretty good job with that. When you've got smaller suppliers and they lose a chunk of their workforce for a week, they can -- they'll slip a week on part availability. So again, our guys do everything they can to manage those inefficiencies and do out-of-station work, and they're constantly working this. So I don't think it's getting worse, but it's -- unfortunately, we haven't seen it get dramatically better.

And then you'd always have a couple of suppliers where what the lead times are, if they've had an issue or a problem. We talked last time about some resourcing out of Russia and the U.S. manufacturers. That's a discontinuity that's -- we will get caught up on some of that, but I do think it will impact us in pushing some things into 2023. But again, net of all that, I think the business is performing really well despite those challenges.

[Cai von Rumohr, Analyst at Cowen]

Terrific. And you've owned Pipistrel now for a little over a quarter. Could you give us some thoughts on where you plan on taking the products here? Specifically, before Pipistrel, you had some of the VTOL designs. Do you hope to take their technology and pursue that area? You have the Nuuva. You got a number of potential opportunities. Maybe give us some color in terms of where you're thinking of taking that.

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Sure. Absolutely. Look, the Nuuva you just mentioned, we're very excited about that thing. They've done some good work in the past. That is one of the areas that we're adding R&D to try to accelerate that and get the aircraft -- the first aircraft flying. I think when you think about unmanned, I actually think unmanned cargo is probably something that's a reasonable expectation for acceptance in the marketplace and growth.

And that Nuuva is kind of 1,000-pound cargo kind of a craft. I think the guys are working hard on that right now. And again, that's an area we've accelerated some of our investment to bring that to market. You talk about Nexus and sort of the eVTOL space. As we talked about, Cai, I think that when we look at our company, we feel great about our aero and fatigue and structures and flight controls guys.

Obviously, these things look like, at least in our view, is sort of a mini tool kind of a technology. We actually do that. We have the right technical talent to pull that off. Our weak spot in terms of organic capability was around the powertrain and electric propulsion. And the Pipistrel guys are fantastic at that. This is what they do. And so in that particular area on eVTOL, absolutely. We have that team now engaged in adding some resources to help our team in Wichita to deal with the battery storage, battery energy and electric propulsion trains that would support eVTOL. So I'd say so far, while we've only owned them for a couple of months here, they've got some great current product line. You've got things like Panthera that have been sold previously under sort of experimental tickets.

I think we have a great pathway for that to be a great airplane, part of our portfolio as a certified IFR aircraft. So again, areas where the teams that do that kind of work in Wichita are now helping the team in Slovenia on how do you lay out a product certification for an IFR aircraft. So, so far, I'd say the integration is really going really, really well. The Pipistrel folks have a fabulous engineering and technical base and we're just growing that. So

[Cai von Rumohr, Analyst at Cowen]

Okay, terrific. Thank you very much.

[Operator]

And our next question comes from the line of Robert Stallard with Vertical Research. Please go ahead.

[Robert Stallard, Analyst at Vertical Research]

Thanks so much, good morning. Scott, probably a question for you. Obviously, concerns out there about a slowing global economy. I was wondering if you've seen any sign of this in your Industrial division. And if this were to occur, switching over to Aviation, how would you say the setup here differs from what you saw back in, say, 2007, 2008 peak in the last cycle?

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Well, Rob, it's a great question. I mean look, we haven't seen it yet. I mean I think, we all kind of keep an eye on things and everyone sees some softness in some of the, let's call it, lower end retail sort of side of things. I think that makes a lot of sense. People are obviously putting a lot more cash into their gas tank, that takes some of that discretionary spending away. But we keep a very close eye on this in terms of the demand, particularly in some of that in the industrial world. But we're still seeing a very strong demand environment. We continue to be gated more by supply chain issues and just getting product out there. Dealer inventories are still at very, very low levels. So look, we'll continue to keep a very close eye on it obviously, but we're not seeing that change just yet.

On the GA side, Robert, actually we have -- the situation today, having lived through that 2008, 2009 is just a totally different dynamic, right? You had a liquidity-based financial crisis. Today, I would argue we have absolutely the opposite of that, right? The world is awash in money. And I think, again, if you go on the Aviation side, you had political overhang back in 2008 and 2009, right, where it was bad to have a business jet.

And today, you see situation were good, better and different. The commercial airlines and the whole network of commercial travel is struggling and you see people moving and be incentivized to move into the business, aviation world. So the dynamic is just wildly different. I think the underlying economics are just totally different, right? You went from a liquidity problem to a world that is just awash in money. So totally different dynamic.

[Robert Stallard, Analyst at Vertical Research]

That's great. Thanks, Scott.

[Operator]

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

[Pete Skibitski, Analyst at Alembic Global Advisors]

Good morning guys. A question on system, sorry if I missed this. But are you still expecting the $1.3 billion for the full year? And if so, which programs are going to ramp in the back half?

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Well, I think that we'll -- I'm not sure. It's probably going to be $1.2 billion or something in that, Peter. I think the -- we continue to see growth in our services business on adversary air. We're continuing to see growth in our weapons and munitions business as GBSD continues to ramp. We just mentioned an award on the XM204. It's a program we've been working on for a very long time. It's across, obviously, very important milestones here that will start to contribute growth to the business. So it's across all the other segments. The comparative that we've struggled with, really, has been this Afghanistan withdrawal. And I think you'll -- again, you'll start to see this business pick up and go back into a growth mode here in the latter part of the year driven by those programs.

[Pete Skibitski, Analyst at Alembic Global Advisors]

Okay. And just last one for me. Much smaller program, but I'm just curious if you guys are tracking the SOCOM Armed Overwatch program, just because it seems like the type of thing that could be maybe leveraged internationally, and you just got the AT-6 certified. So just wondering if you think that might be awarded this year and if it's going to be meaningful to you or not.

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Well, look, it would be, Peter. I think that on overwatch, our expectation is that, that could be announced any day, any week here. Again, the Air Force is in their proposal valuations, so all is quiet there, but they're going through their process. So yes, absolutely. I think that's something that will be announced in the pretty near future. But regardless, the fact that we did get the military-type certification on the AT-6 is a big deal for us on the international markets.

As you know, we've already taken our first orders for that because customers expected we would get the type cert, and we have a large installed base and a very successful product in the T-6 on the trainer side of things. So an awful lot of customers have been in dialogue with us around their desire to go be able to transition from that T-6 into an AT-6 for their light attack aircraft. So I think that we see a bright future for that product now that we have the MTC. If we were to win the Armed Overwatch program, that would obviously be a huge opportunity for us. But either way, I think we feel really good about where the AT-6 is positioned going forward.

[Pete Skibitski, Analyst at Alembic Global Advisors]

Great, thank you.

[Operator]

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

[Seth Seifman, Analyst at JPMorgan Chase & Co.]

Thanks very much and good morning everyone. I was wondering if you could talk a little bit more about Bell and just kind of sort of the pace of recovery through the year, but also with H-1 ramping down, just the extent to which the EBIT level that we saw in Q2, even though that's -- there were some onetime aspect to it. To what extent does that become kind of a preview of 2023, 2024 as H-1 goes away and we think about the transition potentially into FLRAA?

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Well, look, I think what we saw this quarter is probably kind of where Bell is going to be here for a little while as we see those lower aftermarket military volumes. Again, we'll see commercial kicking in here with some increases on the revenue side. And obviously, a lot of this will depend on where FLRAA goes, right? So obviously, we're optimistic about the program with the Army. It's their decision. And hopefully, we'll see that happen here in that October sort of time frame because that's -- clearly, that's really important for us for the future in terms of that program moving from the investment phase, which has been now for almost a decade and moved into a real program. So

[Seth Seifman, Analyst at JPMorgan Chase & Co.]

Okay. And then I apologize if you mentioned it, but I think you said a few deliveries might slip out due to supply chain issues in Aviation. We thought that the target was kind of to get back to 2019 level of 206. Should we still be thinking about, let's say, 200 deliveries? And do these supply chain issues have much impact on the quarterly cadence in the second half?

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Look, I think it's going to be south of the numbers you're talking about here. We don't -- we've never given the exact number. But like I said, I think you can expect that our original guide on the revenue is probably going to be short a couple of hundred million dollars. But on the margin side, it's going to be north of our guide because, again, I think our business is -- despite all these disruptions, is performing really well, very strong aftermarket. As Frank mentioned, really strong growth again in the quarter. So as you look through the balance of the year, I think Aviation will continue to perform really, really well. But for sure, the supply chain issues are going to have -- force a few aircraft out of the year.

[Seth Seifman, Analyst at JPMorgan Chase & Co.]

Okay, great. Thanks very much.

[Operator]

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

[Robert Spingarn, Analyst at Melius]

Hey, good morning. Scott, on the slippage and the deliveries that we're just talking about here, you mentioned it's a lot of small suppliers. But are engines involved at all? Is there an engine shortfall?

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Sure.

[Robert Spingarn, Analyst at Melius]

And so is that the dominant factor? Or again, it's across the airplane?

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Well, it's across airplanes. I mean the engine impact on one particular model is probably our single biggest impact. And again, that's one where I think they're working really hard at trying to get this stuff back in. And I think the good news is the -- in that particular case, the resourcing is well defined. It's well understood. It's someone who's built the part before. I think there's a good path to getting back on track.

But I just don't see that getting itself resolved and not impacting deliveries this year. But yes, those are a couple move into 2023. And again, financially, we're going to be fine. Again, the business is performing really, really well. The big risk for me is, frankly, I have some customers obviously that want their aircraft that are going to get pushed into next year as a result of that. But I think the path to get that resolved is quite clear. It's been worked really hard. So the other craft is a couple here -- a couple of -- it's small -- there's just a lot of suppliers with a lot of issues, and it's a bit of a fight every day. So

[Robert Spingarn, Analyst at Melius]

Right. And it looks like your pricing is outpacing inflation. But if inflation continues to stay where it is or gets worse, are there any protections being built into the newer contracts?

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

No. Look, we -- I mean, most of our aircraft, these deals are negotiated. I mean we know what the delivery dates are and our guys have put in appropriate pricing associated with what our expectations are on the inflation side. So when we have the few deals we have that are kind of out there in time and prenegotiated and take into consideration market pricing at the time, so I think we feel like we have adequate protection and adequate incorporation of inflation going forward.

[Robert Spingarn, Analyst at Melius]

Thanks so much.

[Operator]

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

[Kristine Liwag, Analyst at Morgan Stanley]

Scott, back on Textron Aviation. I mean you reported margins at 12%, the highest we've seen since 2008. And when we look back, it's really been 14, 15 years since we've seen a real light and midsized biz jet up cycle. At this point, used inventories in your favor, you're getting pricing, you're getting orders. If we continue to see sustained demand and the supply chain issues ease, are there any structural differences in the business today that could prevent margins from going back to that mid- to high teens that we saw in 2007, 2008 at some point? I mean not this year, clearly, but at some point.

[Scott C. Donnelly, Chairman, President and Chief Executive Officer at Textron]

Look, I think the way we look at the market right now and the performance of the business and the mix of aftermarket and aircraft and all the programs, the new models, I mean, obviously, we have a very different portfolio of product today than we did back then as well. I think the cost structure of the business is really, really well managed. It's well aligned to what the volumes are. And so certainly, our expectation is that we'll continue to see positive margin progression as we go into the future.

That's absolutely our plan. And look, we've -- as you said, we spent a long, hard fight from back in the 2008 days to get to where we are today. But this is kind of back to where you've got a business running the way it's supposed to be running and with a strong backlog like it's supposed to have. And the dynamics, as you mentioned, used aircraft available for sale are at record lows versus being a real problem for quite a number of years. So look, I think the business at 12% margin, this is spectacular business. And I do think we can continue to improve those margin rates as we go into future years.

[Kristine Liwag, Analyst at Morgan Stanley]

Great. Thanks, Scott.

[Operator]

And with that, there are no further questions for today's call. Today's conference will be available for replay after 11:00 a.m. Eastern today through October 27. You may access the AT&T replay system at any time by dialing one (866) 207-1041, entering the access code 5456778. International participants may dial (402) 970-0847. [Operator Closing Remarks]

[Eric Salander, Vice President, Investor Relations and Treasurer at Textron]

Thanks, Brad. Thank you, everyone.