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Textron is a multi-industry company that designs, manufactures, and services aircraft, defense systems, and industrial products. Its business segments include aviation, specialized vehicles, and defense technologies. Textron serves commercial, government, and military customers around the world. Its brands span sectors such as aerospace, automotive, and finance.

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Q4 2024

Textron (TXT): Company Profile, Stock Price, News, Rankings

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

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

Thanks, Beau, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We go next now to Robert Stallard of Vertical Research.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Textron (TXT) Q4 2024 Earnings Call Transcript

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