Textron Q3 2022 Earnings Call Transcript

Participants

Corporate Executives

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

Analysts

• Robert Stallard, Vertical Resources
• David Strauss, Barclays PLC
• Sheila Kahyaoglu, Jefferies Financial Group Inc.
• Seth Seifman, J.P. Morgan
• Peter Skibitski, Alembic Global Advisors
• Noah Poponak, The Goldman Sachs Group, Inc.
• Peter Arment, Robert W. Baird
• Cai von Rumohr, Cowen Inc
• Rob Spingarn, Melius Research
• George Shapiro, Shapiro Research
• Kristine Liwag, Morgan Stanley
• Ronald Epstein, Bank of America Merrill Lynch

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2022 Textron Earnings Release Conference Call. [Operator Instructions]. As a reminder, today's call is being recorded.

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

[Eric Salander, Vice President, Investor Relations 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 call today, we have Scott Donnelly, Textron's Chairman and CEO; and Frank Connor, our Chief Financial Officer.

Our earnings call presentation can be found in the Investor Relations section of our website.

Revenues in the quarter were $3.1 billion, up $88 million from last year's third quarter. Segment profit in the quarter was $299 million, up $20 million from the third quarter of 2021. Income from continuing operations for the quarter was $1.06 per share compared to $0.85 per share on an adjusted basis in last year's third quarter. Manufacturing cash flow before pension contributions totaled $292 million in the quarter, up $21 million from the third 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. Overall, we had a solid quarter across our manufacturing businesses with higher net operating profit, cash generation as compared to last year's third quarter despite ongoing supply chain and labor challenges.

Aviation generated segment profit margins of 11.9%, up from 8.3% in the third quarter of 2021 on slightly lower revenues, reflecting a favorable revenue mix with higher aftermarket volume and strong pricing, net of inflation.

We continue to see solid demand across our jet and turboprop products, resulting in backlog growth of $524 million in the quarter. We delivered strong performance even as we continued to experience supply chain disruptions throughout the year that have impacted production schedules. In the quarter, we delivered 39 jets, down from 49 last year, and 33 commercial turboprops, down from 35 in last year's third quarter.

Last week at NBAA, we also announced two large fleet orders that included an agreement with flyExclusive for eight XLS Gen2 aircraft with expected deliveries in 2024, and up to six longitude aircraft with deliveries expected to begin in 2025. flyExclusive also exercised its option to purchase an additional five CJ3+ aircraft from its order earlier in the year with deliveries expected to occur in 2024. We also had an agreement with Fly Alliance for four XLS Gen2 aircraft and options for an additional 16 aircraft with deliveries expected to begin in 2023.

At Bell, revenues were down in the quarter on lower military revenues, partially offset by higher commercial revenue. On the commercial side of Bell, we delivered 49 helicopters, up from 33 in last year's third quarter, including the 400 Bell 505 aircraft. During the quarter, we continued to see solid commercial demand across all our models.

Moving to Future Vertical Lift, we continue to await a FLRAA contract award announcement from the U.S. Army.

At Textron Systems, revenues were slightly lower in the quarter. During the quarter, ATAC announced a five-year IDIQ contract with the U.S. Navy to provide chase flight services for the F-35 program. Systems was also recently awarded a contract to provide Aerosonde operational support on its fourth maritime site with services that are expected to begin in 2023.

Moving to Industrial. We saw higher revenues in the quarter, driven by higher volume at both Kautex and Specialized Vehicles and favorable pricing principally in Specialized Vehicles. Kautex while revenues were higher in the quarter as compared to the prior year, we continued to experience order disruptions related to the global auto OEM supply chain shortages.

Moving to Aviation. We are seeing increased order activity for our training aircraft like the Alpha Trainer, which is a low-cost pilot development platform. In the future, we will look to expand this training option to include the Velis Electro as we work to achieve [Indecipherable].

Also last week at NBAA, we unveiled our new Nexus eVTOL model aircraft. Our updated design reflects our ongoing investment in the underlying research and development, supporting Textron's long-term strategy to offer a family of sustainable aircraft for urban air mobility, general aviation, cargo and special mission roles.

To wrap up, we continue to see strong demand in our end markets, and our teams are executing well in a challenging environment.

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

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

Thanks, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation.

Revenues at Textron Aviation of $1.2 billion were down $14 million from the third quarter of 2021, largely due to lower Citation jet and pre-owned volume partially offset by favorable pricing and higher aftermarket volume. Segment profit was $139 million in the third quarter, up $41 million from a year ago, largely due to favorable pricing net of inflation of $31 million. Backlog in the segment ended the quarter at $6.4 billion.

Moving to Bell. Revenues were $754 million, down $15 million from last year, due to lower military revenues of $112 million, primarily in the H1 program due to lower aircraft and spares volume, offset by higher commercial revenues of $97 million. Segment profit of $85 million was down $20 million from last year's third quarter, primarily reflecting lower volume and mix, partially offset by favorable pricing net of inflation. Backlog in the segment ended the quarter at $4.9 billion.

At Textron Systems, revenues were $292 million, down $7 million from last year's third quarter. Segment profit of $37 million was down $8 million from a year ago, primarily due to lower volume and mix. Backlog in the segment ended the quarter at $2 billion.

Industrial revenues were $849 million, up $119 million from last year's third quarter, primarily due to higher volume and mix of $95 million, and a $58 million favorable impact from pricing, principally at Specialized Vehicles, partially offset by an unfavorable impact of $34 million from foreign exchange rate fluctuations. Segment profit of $39 million was up $16 million from the third quarter of 2021, primarily due to higher volume and mix.

Textron eAviation segment revenues were $5 million, and segment loss was $8 million in the quarter, which reflected the operating results of Pipistrel and costs for initiatives related to the development of sustainable aviation solutions.

Finance segment revenues were $11 million, and profit was $7 million. Moving below segment profit, corporate expenses were $14 million, and net interest expense was $21 million. Our manufacturing cash flow before pension contributions was $292 million in the quarter, up $21 million from last year's third quarter. Year-to-date manufacturing cash flow before pension contributions totaled $810 million.

In the quarter, we repurchased approximately 3.1 million shares, returning $200 million in cash to shareholders. Year-to-date, share repurchases totaled $639 million.

To wrap up, we now expect our full year capital expenditures will be about $375 million and the full year tax rate to be about 16%. For the full year, we are narrowing our earnings per share guidance to a range of $3.94 per share. Also, we are increasing our full year manufacturing cash flow before pension contribution guidance to be in a range of $1.1 billion to $1.2 billion, up $300 million from our prior outlook.

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

Questions and Answers

[Operator]

Of course. And our first question today comes from question is from the line of Robert Stallard with Vertical Resources. Please go ahead.

[Robert Stallard, Analyst at Vertical Resources]

Thanks so much. Good morning.

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

Good morning.

[Robert Stallard, Analyst at Vertical Resources]

A couple of questions from me. It may be my numbers are wrong, but it looks like revenues in Aviation and Systems were a bit lower than what we had anticipated in the third quarter. I was wondering, if you could perhaps go into a bit more detail with what you experienced in the quarter if it was supply chain issues and whether this has pushed some deliveries to the right?

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

Yeah, Robert, I think that's safe to say. As you know, we've been sort of ramping up our production volumes through the course of the year. We continue to do that, but we have been hit by a number of supply chain challenges that have resulted in aircraft pushing out to the right. Our guys are managing through that. We'll continue to work hard to make deliveries, and we'll continue to work on that ramp as we go into 2023 as well. So, again, look, I think it's a very strong demand environment, aftermarket has also been very strong driven by high utilization. But for sure, we're continuing to see some difficulties around just getting parts. Labor ramp is, I'd say, picking up and doing reasonably well, but we've had some critical part impacts.

[Robert Stallard, Analyst at Vertical Resources]

So, Scott, does this impact your division-by-division guidance expectations for the year?

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

Well, as we said before on the last call, Robert, I think we expect Aviation probably is going to come in about $300 million below what we originally guided. I think we're still on track to do that, I think we'll still make strong margin performance as the team has executed well. As I said, it's a tough market, but -- with our tough situation, but they're executing very well. So, I think we'll be solid on the margin side, but a little bit light on the top line. I think at Systems, you also mentioned our system is pretty close. I mean, they're kind of flattish. We still had a little bit of impact on that year-over-year from Afghanistan. But I think as we get into the fourth quarter here, you'll start to see some slight growth in that business. And obviously, we expect that to continue into 2023.

[Robert Stallard, Analyst at Vertical Resources]

Okay. And then just a technical one for Frank. On the Corporate and Other big decline year-on-year, what sort of run rate should we expect on that line going forward?

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

Yeah. I think we should probably think about $110 million or so for the year. So, a higher level in the fourth quarter that we've been running at a lot of -- some of that depends, obviously, on share price, but in that zone.

[Robert Stallard, Analyst at Vertical Resources]

Okay. That's great. Thank you very much.

[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, guys.

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

Good morning, David.

[David Strauss, Analyst at Barclays]

Scott, can you maybe touch on your manufacturing footprint in Europe, how you feel about things there from kind of an energy perspective? And also how we should think about -- obviously, in the quarter, you had a pretty big FX impact there, how we should think about the FX impact given the euro-dollar parity at the moment?

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

Yeah, the FX has been obviously quite a drag primarily in our Kautex business. And I mean, obviously, we expect that to continue, but we'll manage our way through that. I think on the factory front, most of the impacts we've seen in that footprint in Europe have been driven really just by auto OEM issues around hitting their volumes. It hasn't been energy related at this point. Most of what I'm reading here lately is actually the energy situation seems to be a bit better than they expected heading into the winter. So, we haven't had any indications yet that anyone's going to back off on their auto manufacturing based on that energy, it's really more of these other supply chain issues that they're continuing to just be impacted. And look, David, as you know, we go kind of by IHS data in terms of how we think about and forecasting volumes going forward. So, clearly, the year has been disappointing in terms of what was originally thought the volumes would be achieved. But right now, it's looking like IHS is probably forecasting sort of a mid to high single-digit growth next year on top of some growth we saw this year. So, that's kind of how we think about the volumes in the business, including the European footprint.

[David Strauss, Analyst at Barclays]

Got it. Thanks. And Scott, I guess, your latest update on Florida and the timing you're expecting now for a decision? And what kind of incremental spending are you looking at for the rest of the year to continue to carry on your effort?

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

Sure. So, look, the latest we're hearing is it's probably a November time frame. Obviously, we continue to work with the customer, and we've got to make sure -- we've been working on this, as you guys know, for a very long time, we're not going to do anything that's other than supportive and doing the right thing for the program, making sure we keep the team together and keep making forward progress. Obviously, we still feel good about the program. And I think that there's obviously still some uncertainty around this. I mean, we don't know an exact date, but -- we're doing the right thing by the program, right through by the people. And while there is some uncertainty, I would say that we're pretty comfortable that we incorporated any impacts over the total year from where we were on our plan in our guidance. So, I think that we're comfortable that we'll land inside that guidance despite the impacts we've seen on [Indecipherable].

[David Strauss, Analyst at Barclays]

Thanks very much.

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

Sure.

[Operator]

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

[Sheila Kahyaoglu, Analyst at Jefferies Financial Group]

Hi, good morning, guys. Just a follow-up on the last point, Scott. How do you think about Bell without a FLRAA win? What would sort of the scenarios look like for Bell without FLRAA or potentially FARA? And maybe can you remind us of the R&D investment impact for FLRAA associated with 2022?

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

So, I don't think about Bell without FLRAA. Look, as I think we're in a good place, we will let the performance of our products stand and just kind of work through the process. Obviously, the army is going through a very, very rigorous process here. So, we'll bear with them and let this thing play out. But we're pretty bullish on that program, and we'll leave it at that, I suppose. In 2022, the R&D has actually been down a little bit because we've had more of the cost share activity, both on the FLRAA program and the FARA program. So, even with some of the impacts that we've seen on some of the delays, I think we'll be fine there. We're working our way through it. Clearly, the FARA program is going to continue to extend, and like I say, hopefully, here compared to all the years we've been working on this thing for delays relatively short period of time. So...

[Sheila Kahyaoglu, Analyst at Jefferies Financial Group]

Great. No, that's helpful. And then I'm glad you don't think about Bell without FLRAA. But switching gears to Aviation. When we look at year-to-date deliveries there light, you mentioned supply chain. How long does that linger? And how do we think about jet deliveries for '22 in total? And does it linger into '23?

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

Sure. Look, it's a good question. I think the way we're starting to lay out the year, as you know, we've been planning on ramping production all through the year. We've been achieving that. I mean we have been increasing the number of hours and the labor and the activity in the factory, we're clearly not going to get to the number of jets that we were originally hoping to based on some of these delays. But we're going to keep that ramping activity going through 2023. So, when you look at the incremental volumes that we had in 2022, we're not ready to guide '23 yet, but it's not unreasonable to expect that we would see a similar increase in volumes in 2023 from what we saw from the '21 to '22 time frame.

[Sheila Kahyaoglu, Analyst at Jefferies Financial Group]

Great. Thank you.

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

Sure.

[Operator]

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

[Seth Seifman, Analyst at J.P. Morgan]

Hey, good morning, everybody. I guess just to follow up on that question, Scott, when you think about the strong backlog that you've been able to build here, and you think about where deliveries might ultimately go, I mean, I assume the aim would be to be back to kind of the 200-plus [Phonetic] level maybe in 2023, kind of the level that had been anticipated for 2022 before the supply chain issues. And then when you think about moving higher from there, would it make more sense to kind of focus on keeping that backlog, maybe expanding margins even a little further from this low double-digit range and having a more steady delivery pace as we head toward mid-decade?

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

Well, first of all, Seth, I think your thoughts on volume here in the near-term are correct. We obviously would like to have had more in '22, but it's probably reasonable to think that what we hope to get in '22 will be there by the end of '23. So, we should back to that kind of 200-ish number in the '23 time frame. Now beyond that, look, we'll continue to watch demand in the marketplace. It continues to be strong. As long as we see that kind of growing backlog in a strong environment, then we'll continue that ramp. But it's going to be a slow steady ramp, right? I mean, we certainly like and we think it's better for -- I think we've talked about it's better for our company, it's better for our customers, it's better for the whole market to be operating with better visibility around the backlog that's out there in that 18-month kind of time frame. So, right now, the demand continues to be very robust. We're seeing a lot of order activity that's out in that 18-plus sort of time line. And so, we'll match production as we tend to meet that. If the market starts to ease back or slow down, then obviously, we can taper off on the ramp. But I certainly don't see that being a case going through 2023, considering where the backlog is and where the demand environment is. So...

[Seth Seifman, Analyst at J.P. Morgan]

Okay. Great. And just a follow-up, very strong cash this year. And when you think about next year, other than what we might assume on the P&L, are there any things you'd note about cash flow, either headwinds or tailwinds heading into '23?

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

I think -- not really. We've -- obviously, we've had good working capital management again this year just like last year. We certainly benefited again from strong customer activity and deposits. And so -- but there's nothing from a kind of working capital or other cash impacts that are kind of out of line with where we've been.

[Seth Seifman, Analyst at J.P. Morgan]

Okay. Great. Thanks very much.

[Operator]

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

[Peter Skibitski, Analyst at Alembic Global Advisors]

Hey, good morning, guys.

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

Hi, Pete.

[Peter Skibitski, Analyst at Alembic Global Advisors]

Scott, I just wanted to beat the dead horse a little bit on Aviation, just because even at a little bit of a lower guidance number there, it still implies a pretty good hockey stick in the fourth quarter. So, I'm just wondering kind of on the risk assessment front, do you have the engines in-house already that you need in the parts and the labor trained up? Or is there still some risk to that number, do you think, given the ramp?

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

Well, look, I'd say there's always some risk to the number, right? But I think we're -- obviously, our guys are working the heck out of this every day. They're tracking all the critical components. So, I think kind of that number right I gave you guys were probably a few hundred million [Phonetic] under our original guide, it is still holding. Is there some risk to it? Yeah. I mean, one of the challenges is that we -- you get suppliers as they pop up every day, I think we're in good shape in terms of labor and the things we can control. Stuff pops up, we get all over it. But I think we've got a pretty good shot at getting to the number that we told you. And if we miss something, it'd be a few aircraft around a particular part that pops up between here and there. So, the guys are working every day. I think it's a good guide. And could there be some risk in the environment we live in? Sure. But I think we're -- our folks are all over it.

[Peter Skibitski, Analyst at Alembic Global Advisors]

Okay. No, I appreciate it. And just one follow-up on the same segment. Kind of post NBAA, how are you guys feeling about kind of the health of your customer base at Aviation, how the conversations go? And obviously, I'm sure the macro backdrop was part of the conversations down there. I'm just wondering kind of what your net assessment is.

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

It's very positive. I think that we're continuing to see some new people coming into the market. We're seeing some of our historical corporate customers that are doing fleet refreshes. They're putting aircraft orders in, which obviously are deliveries or ways out, but they're refreshing their fleets. Obviously, the level of flight activity in the industry continues to have kind of charter and fractional customers very motivated to bring additional assets online. So, I would say, all in all, it's really strong, Pete. And again, I also would put against the backdrop of hardly a bubble, right? I mean, we're talking about jet delivery volumes that are kind of back to even still maybe below historical norms. So, I don't think there's this euphoric bubble burst, but people are refreshing fleets. They're investing in their aircraft. It's -- we don't see this big pull in, right? It's just the market is strong, and volume is strong, which is critical.

[Peter Skibitski, Analyst at Alembic Global Advisors]

I was going to say your exposure to Europe is still fairly limited like it used to be. I think it was only, I don't know, 20%, 25% of your citation volume. Is that still the case?

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

Yeah, it is. I mean, look, we're seeing kind of relatively normal from what we've seen historically. Jets are probably 80% roughly U.S., 20% international. The King Air turboprop lines are typically the other way around, and that's what we're seeing. We're seeing maybe like 40% U.S., 60% international. So, in terms of -- the good news here is that demand across pretty much all the models is strong. And we're seeing mix in terms of international versus domestic fleet operations that are kind of what we've normally seen historically.

[Peter Skibitski, Analyst at Alembic Global Advisors]

Okay. Great. Thank you.

[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]

Hey, good morning, everyone.

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

Hi, Noah. Good morning.

[Noah Poponak, Analyst at The Goldman Sachs Group]

Sorry, Scott, so what are you now planning for 2022 assessment of jet units?

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

Look, no, we never give a specific number. I think from the top line, you're looking at probably about $300 million off of our original guide. And virtually, all of that is jet deliveries really. So...

[Noah Poponak, Analyst at The Goldman Sachs Group]

Okay. Okay. So, we can back into that. And then you're saying -- do I have it correct that you are saying -- think about that growth rate in units that that implies for '22 repeating in '23 approximately?

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

Yeah, that's good.

[Noah Poponak, Analyst at The Goldman Sachs Group]

Okay. And then how much visibility do you have beyond '23?

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

Well, pretty good visibility. I mean it's -- most of the aircraft, I mean, we have larger aircraft, frankly, are out in 2025 right now, and the mix of lighter and midsize are certainly through '23, well into '24 towards the end of '24. So, this backlog is obviously very helpful to us in terms of having the kind of the visibility we need to run the operations. And obviously, we'd like to do a little bit more efficiently without some of the supply chain challenges, but I think we're in a pretty good place as we've had in a very long time, obviously, in terms of the visibility of the business.

[Noah Poponak, Analyst at The Goldman Sachs Group]

Okay. So, I guess that's all positive and really kind of major structural change in the business. But where the bookings are running if they hang around in the zone that they're in now, you'd continue to run the bookings pretty far in excess of the revenue and just -- which would build the backlog even further. So, when do you get to the point where that's going too far, and customers are going elsewhere or have to way too long? Or is it just with the macro level supply chain bottlenecks? Everybody is in the same boat and every OEM kind of asked to do the same thing.

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

No, I think you just said it, everybody is in the same boat, right? I mean, so I don't know where that equilibrium point is, right, when it gets out too far, but this is not -- there's not like some other supplier or OEM that says, "Hey, I've got aircraft sitting around." So, I think this is an industry dynamic as opposed to just being unique to us. I mean, obviously, I feel great about how our guys performed from a profitability standpoint. I mean, look, this business is in fabulous condition, right? It's got great backlog, good visibility. It's generating very strong margins. It's generating very strong cash flow. I don't think there's a whole lot [Technical Issues] every day is hard with these supply chain issues and stuff like that. But our guys are fighting through it every day. I mean I'm not sure we'll be apologetic for these kind of margins and this kind of cash and strong backlog. And the guys I'm not sure what else I would ask them to do. They're driving our heart every day and performing really, really well. So...

[Noah Poponak, Analyst at The Goldman Sachs Group]

Great. Just lastly on price in the business. Are you actually now increasing price more in terms of a year-over-year rate of change than you were 12 to 18 months ago when the market first strengthened? I get the sense that the price increases early in this strong demand environment weren't that big because you wanted to build the backlog and now that you've done so you can actually accelerate the pricing. Is that a fair assessment?

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

Well, I guess, yeah, and we're not sure we would do [Technical Issues] first derivative on the pricing every day, but look, I think for sure, this market has changed over the last 18 months or so as it's gotten stronger and it's competitive market obviously. So, pricing and what competition is doing matters. But I think everybody, I mean, the whole industry has seen stronger pricing. So, again, we look at this kind of on a model-by-model basis and what's going on with the competitive environment and it's not a -- I'm not sure I can give you a simple answer on the slope of the curve, but it's strong. And I would say we continue to obviously very much focus on making sure we're getting price in advance of inflation. We think about this a lot, when you start thinking about, obviously, we're taking contracts on aircraft that are in '23 and '24 and '25. And so, you've got to make appropriate assumptions in terms of inflation between here and there, and make sure pricing accordingly and I think that we are.

[Noah Poponak, Analyst at The Goldman Sachs Group]

Okay. Thank you.

[Operator]

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

[Peter Arment, Analyst at Robert W. Baird]

Yeah. Thanks. Good morning, Scott and Frank.

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

Good morning, Peter.

[Peter Arment, Analyst at Robert W. Baird]

Hey, Scott. You've been talking about supply chain disruptions obviously all year. And you've had a lot of -- you have a ton of experience in engines. Is engines for you still in Aviation, the biggest shortage? Or are there other components like chips or other things that you would call out? And just maybe any color you could provide on the engine shortfalls?

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

Peter, it isn't, I mean, look, engines are strained. And as everybody knows, there's one particular model, it's important to us that had -- had an issue that kind of stems back to these Russian-Ukrainian sanctions, but I think that's in recovery mode. So, we feel good about that bouncing back. But I think the frustrating part for our folks, Peter, is just a sort of everywhere, right? Stuff happens. It's -- I'd say that overall, our avionic suppliers have done a really nice job. Garmin is critical to us. They've been able to meet deliveries. So, they're managing the way. That would be the area probably most highly concentrated in terms of semiconductor risks. So, I think they've done a nice job. But it's -- this is the problem in this business, right? Every part is important. So, it's -- there are certainly some things like the engine was an issue. I think that will resolve itself here in the next six, nine months or so. But these things pop up every week. It's just where we live in. And our guys are kind of used to it, they just keep working it and they go manage each thing that pops up.

[Peter Arment, Analyst at Robert W. Baird]

That's helpful color. And just, Frank, just quickly, could you tell us what the aftermarket was up in the quarter? And any comments on pricing? Thanks.

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

Yeah. Aftermarket remained strong. It was up 18% year-over-year, 37% of total volume for the quarter. So, really we kind of continued, as Scott said, to see strong flying activity and therefore, strong volumes in the business.

[Peter Arment, Analyst at Robert W. Baird]

Terrific. Thanks.

[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. So, how much of the goodness in cash flow, that $300 million came from deposits on aircraft? And thinking about next year, you've had such a big [Indecipherable] from that source this year. How should we think about cash flow, if book-to-bill goes back to about 1.0?

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

Well, we're not going to kind of break out separately the cash items. I mean offsetting the deposit activity as we have seen a little bit of inventory growth as we've had these supply chain issues, and we've seen some kind of slowdown in our ability to deliver. So, there has been some offset. But kind of with a book-to-bill above 1 and strong commercial -- and Aviation, strong commercial demand at Bell, we benefited from that. Frankly, we benefited also from the strong cash performance on the military programs at Bell. So, it hasn't been all that. We've talked in the past about kind of generally the business over time wants to be around one-to-one cash flow to profitability, right? So, we certainly have benefited kind of this year and last year from strong cash performance relative to that. And Cai, it will depend on lots of factors, kind of when we get to a slower kind of booking rate, but it will migrate back towards that one-to-one as we do that.

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

Look, Cai, I guess I would emphasize that we're conscious of this, right? I mean, I think that you enjoy a benefit here with strong commercial deposits at Aviation and some of you also in Bell's commercial business, which has also seen very strong demand here. But you don't change anything else to do in terms of managing the business and making sure that you're fundamentally managing working capital and capex and all those things. So -- for sure, you're getting a benefit of this, but I think we're delivering well over one-to-one, and that's because the businesses are doing a good job of managing their cash and then enjoying the benefits of customer positive activity on top of that. So, that's the nature of where we are right now.

[Cai von Rumohr, Analyst at Cowen]

Terrific. And given this extra cash goodness, how are you thinking about deploying the cash?

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

Well, the same as we talked about, we -- as we said, we've been an active repurchaser of stock. We bought about $640 million year-to-date. That's up from last year's year-to-date number. Last year, we ended up kind of below $900 million of share repurchase. And so, we would expect similar types of rates kind of for the year and at least as we sit here today on a go-forward basis. We've been buying back about 5% of our stock on an annual basis. And so kind of that type of rate is a good rate to be thinking about.

[Cai von Rumohr, Analyst at Cowen]

Thank you very much.

[Operator]

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

[Rob Spingarn, Analyst at Melius Research]

Hi, good morning. Just wanted to turn to a couple of the other segments for a moment. But in the past, you've talked about Systems being a low double-digit margin business, but it's been outperforming that last year and this year. So, can we talk a little bit about the trend there? Is it going to stay more in the mid-teens?

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

Yeah. Look, it's a good question. And again, we're not quite ready to guide for next year, but I think that that business performs really well. I mean it always has some components of it, for instance, I think you'll see this everywhere, right, where there's fixed price government contracts, you can't reprice those. So, there will be some pressure on inflation on that front. But there's also a constant flow of new programs. And I think overall strong execution, which has helped us deliver strong double-digit margins, and I would expect that to continue.

[Rob Spingarn, Analyst at Melius Research]

Okay. And Scott, sticking with these other businesses, Industrial was clearly strong, and I think you called out Specialty Vehicles. Could we talk about the forward trends there?

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

Well, sure. I think that the Specialized Vehicle business is doing well. There's the -- obviously, there were some segments of that business that took real hits through the COVID period around support equipment and things like that, that are seeing robust order activity come back into those markets as well, also achieving strong pricing our golf and specialized PTVs and whatnot is very strong. I think we have a great product lineup, and that team has done a nice job. Obviously, in that business, we also see supply chain challenges all the time, but the teams work through it, and I think we'll continue to see that on a steady improvement.

[Rob Spingarn, Analyst at Melius Research]

And you haven't really seen any evidence of this recessionary fear hitting that business. I would imagine that business is somewhat sensitive.

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

Some are more sensitive than others. So -- but absolutely, I think particularly when you look at the powersports world, we keep a very close eye on that. Inventory levels are still very much lower than they typically are in those channels because of supply chain challenges. So, I think you need to get those to a healthy level. But absolutely, we watch it very, very carefully because I think that that particular piece, which is a relatively small piece for us, obviously, is very recession sensitive. But I think when you look at a lot of the municipal stuff and ground support equipment, golf, these things have historically been pretty resilient in terms of how they perform even in a recessionary period. And I think we're well positioned in those markets, which are a much larger piece of the business for us.

[Rob Spingarn, Analyst at Melius Research]

Of course. Thank you very much.

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

Sure.

[Operator]

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

[George Shapiro, Analyst at Shapiro Research]

Yes. Good morning. Scott, on the supply chain issues, it seems like it's affecting your business more than, say, like Gulfstream at the high end. Is there any differentiation you can say as to why?

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

I haven't, George, I have a list of all of the parts we're missing right now. I could call Mark, I guess, and see if he has some extra ones. But the -- no, I don't. I mean again, guys, look, I think this is a world we live in, right? We have the challenges. I think our guys have done a nice job through this. I think we will have a strong fourth quarter. It's not without some risk on a part popping up here and there, but it's -- I don't know how to explain the difference between the commentary with some of the high-end stuff versus where we are. But it's something we're going to manage our way through. It will be fine.

[George Shapiro, Analyst at Shapiro Research]

Okay. And Frank, can you provide some comments on what you see for pension next year given the big changes we're seeing in DR and asset returns?

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

Yeah. We don't expect it to be a headwind. We're -- obviously, we've got a lot of work to do in the fourth quarter and calculating the numbers and everything, but it should not be a headwind for us.

[George Shapiro, Analyst at Shapiro Research]

Okay. And then one last one. Scott, you've been saying that the delay in FLRAA has been a cost to you in terms of carrying all the people. Can you quantify at all how much of a cost it was to Bell in the quarter because the margin at Bell still looks pretty good this quarter?

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

Yeah, look, Bell had a very strong quarter on the commercial side. And I think we'll continue to see strong commercial business. And we talk a lot about Aviation. Obviously, you guys asked, but the commercial helicopter business is also seeing very robust demand, and those guys are performing well. And it's obviously offsetting the historical military programs, which continue to ramp down a little bit. But look, I think on the FLRAA, George, it's -- obviously, it was in our original guide. That's why we're certainly seeing lower absorption. We expect it to be kind of under contract at this stage of the game, but it's something we're managing our way through. And like I said, I think we can't quantify or wouldn't quantify exactly the number, but suffice to say that we can live within our guidance based on, I think, where we are and our expectations for the announcement toward the latter part of this year.

[George Shapiro, Analyst at Shapiro Research]

Okay. Thanks very 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, on Aviation, you mentioned a pretty strong orders and incremental interest you're seeing from corporate buyers. And book-to-bill was pretty solid at 1.5 times. So, from your conversations with your customers and potential customers, what's the key emphasis for the incremental order? Is it replacement, capacity increase for new customers to biz jet and how sensitive are they from the financing environment?

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

Well, it's a bit of all of the above, Kristine. And so I mean, obviously, we have some corporate customers out there that in the quarter who placed orders because they're going to replenish, turn over their fleets of aircraft. As you know, the corporate -- they're used to sort of looking out in that 18-month, two-year or so time frame, as they plan their fleet refreshes. So, the lead times that are there right now aren't something that they're not accustomed to and that kind of fits in their plan. So, we are seeing that activity. We are still seeing some new activity. And again, we continue to see a lot of -- there are certainly new people who are coming in more than normal that are buying a whole aircraft. But we also see just the demand of new people coming into the market that are using either a fractional or charter operations. And so, we continue to see strong demand from those customers as well. So, it really is across the board, which is, I think, again, very healthy for the industry.

[Kristine Liwag, Analyst at Morgan Stanley]

Thank you for the color. And maybe switching gears, Scott, in the past, your Sensor Fuzed Weapon exposure, albeit only support in the past few years and no longer production, it had limited the European owner of your stock. Now that you're completely out of the Sensor Fuzed Weapon business, and it looks like you're completely out of support too. And you have the only electric aircraft certified for passenger use. It seems to me that the portfolio is more attractive on an ESG basis. So, are you seeing any recognition of the portfolio shift, and are you seeing incremental interest from European asset managers and ESG investors? And how do you think of that evolution?

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

Well, it's a good question, Kristine. And I don't know specifically those funds that have historically not wanted to invest in the Company in large part because of the SFW exposure. And as you know, that doesn't exist anymore. So, I think that's not an issue, on -- look on the overall ESG front, without a doubt, there -- you're going to see certain funds out there that are going to be more oriented towards companies they think are investing in that future in terms of particularly electric transportation. And I think we have a very good story. I mean obviously, aviation is an area we're investing and frankly, particularly as a result of the Pipistrel deal, are a leader in that field. And we're also very strong on the electric side in terms of our vehicle businesses, right? I mean we've pioneered over the years a lot of that electrification. And frankly, that's spreading out across that business in a big way, including ground support equipment and turf care equipment. It's -- that trend is going to continue to happen. So, I can't speak specifically to the European funds, but I absolutely and consciously -- obviously on our part, we think we're engaging in strategies that will help make us more attractive to funds that have ESG criteria.

[Kristine Liwag, Analyst at Morgan Stanley]

Great. Thank you, Scott.

[Operator]

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

[Ronald Epstein, Analyst at Bank of America Merrill Lynch]

Hey, good morning.

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

Hi, Ron.

[Ronald Epstein, Analyst at Bank of America Merrill Lynch]

There have been a ton of focus on FLRAA for obvious reasons. But could you walk through some of the opportunities beyond FLRAA and then the Navy is looking for some helicopters down the road as is the Air Force. You guys talked about it a bit at USA, but not everybody was there. So, I was wondering, if you could kind of walk through some of those other opportunities that are beyond FLRAA?

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

Sure. Absolutely, Ron. Look, I mean, you're right. We -- everybody asked a lot about FLRAA. We're obviously very interested in the outcome of FLRAA, but Bell is hardly a one-trick pony, right? I mean there's a lot of other stuff going on. I think when you think about the maritime strike and overall, there's active AoA activity going on right now in the in the Department of the Navy thinking about what they do with their future of aircraft replacement programs. Obviously, we think that our offering, which is that tiltrotor space is very attractive to them. I mean, these are services that obviously today operate V-22s and they need aircraft and assets that can keep up with V-22. So, it's -- I think we feel like the tiltrotor solution is a good answer in that space. These programs are relatively early on. They say they're doing their analysis for alternatives and that will lead to more acquisition activity here in the next couple two, three years. So, we're very close to those programs, obviously. The Air Force, as has been fairly public, is talking about what they want to do for frankly higher speed VTOL, right? So, even beyond the kinds of speeds that we see today in a V-22 or in V-280 class of aircraft, we're highly engaged with the Air Force on those sorts of programs. So, I think there's no doubt that what we're seeing with the Army, and obviously, that's a huge opportunity to replace that sort of the Blackhawk class of aircraft that you will see similar programs in the Navy, Marine Corps and in the Air Force in one form or fashion, and our guys are highly engaged in those program opportunities.

[Ronald Epstein, Analyst at Bank of America Merrill Lynch]

Got it. And then maybe shifting gears back to Cessna, a bigger picture question. When you look at the portfolio of Cessna airplanes, is there any place that you think you need to do a refresh or not? And how are you thinking about new product development, given that the business is in a healthier place than it was just a couple of years ago?

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

Yeah. Look, I think we have a very robust set of refresh programs. We've launched a couple of these Gen2, Gen1 [Indecipherable] programs. We have more of that in the works. We think it's really, really critical to be rolling those out on a fairly regular frequency. So, we have a couple that are in the works right now that we haven't yet announced, but obviously the work is going on. On the clean sheet front, we have the Denali program, which is still under development. So, I think if you look at both jet and turboprop, there's a robust level of activity. I mean I love our product line up right now. I think the longitude, latitude, obviously, have been home runs in the market, the SkyCourier is just getting -- kind of getting to a rate in production with great demand. I think that's going to be a home run product. Denali will similarly, I think, be a great product for us. And the line is -- will be sprinkled with a couple of these refresh programs here in the coming years.

[Ronald Epstein, Analyst at Bank of America Merrill Lynch]

Got it. Thank you.

[Operator]

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

[David Strauss, Analyst at Barclays]

Thanks for taking the follow-up. I just wanted to ask about the H1 and how that kind of rolls off from here and what sort of headwind we should be thinking about to Bell as that program runs off. Thanks.

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

Sure. Look, H1 is about to wrap up its program of record in terms of the U.S. sales. We have some FMS programs that are still under production, but those clearly will be ramping down here over the next couple of years. Service programs continue to run. But no question, David, that program will continue to ramp down here in the next couple of years.

[David Strauss, Analyst at Barclays]

And Scott, could you quantify how much in revenue in H1 currently accounts for?

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

No, we don't break out the individual programs, David, but look, obviously, our plan is largely based on the fact that you'll see a ramp-up in FLRAA program activity that will largely replace what we're seeing in the ramp down on the H1 program.

[David Strauss, Analyst at Barclays]

Got it. Thank you.

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

Okay. Brad, that completes the call.

[Operator]

And ladies and gentlemen, this conference will be available for a replay after today at 11:00 AM Eastern through January 24, 2023. You may access the AT&T replay system at any time by dialing 1 (866) 207-1041 entering the access code 2659646. International parties may dial (402) 970-0847 and those numbers again are 1 (866) 207-1041 and (402) 970-0847, again, entering the access code 2659646.

[Operator Closing Remarks].