Textron reported a strong second quarter with revenues up $270 million from the same quarter the previous year. Segment profit was up $71 million and income from continuing operations was $1.30 per share. Adjusted income from continuing operations was $1.46 per share compared to $1.11 per share in the second quarter of 2022. Manufacturing cash flow before pension contributions totaled $242 million in the quarter. Eric Salander, the Vice President of Investor Relations, and Scott Donnelly, the Chairman and CEO, are on the call.

Aviation delivered 44 jets and 37 commercial turboprops in the second quarter, with solid demand for both products. Aviation received an order for 11 Special Mission King Air 360s and delivered the first passenger configured Cessna SkyCourier to Lāna’i Air. Bell began ramping activity on the FLRAA program and added $1.2 billion of backlog related to the FLRAA contract. Bell delivered 35 helicopters and Textron Systems delivered Craft 107 to the U.S. Navy and Aerosonde Hybrid Quad UAS to the Army.

Textron Systems was selected as a manufacturer for the next phase of the U.S. Army's XM30 program, Team Lynx. Industrial revenues increased due to higher volume in Kautex and Specialized Vehicles. Aviation saw higher revenues from higher pricing and Bell saw higher revenues from higher pricing and lower military revenue. Performance included unfavorable manufacturing performance related to supply chain and labor inefficiencies. Backlog in the segment ended the quarter at $6.8 billion.

In the second quarter of 2023, Textron reported overall revenues of $6.2 billion and segment profit of $181 million. Textron Systems reported revenues of $306 million and segment profit of $37 million, and Industrial reported revenues of $1 billion and segment profit of $79 million. Textron eAviation reported revenues of $11 million and a segment loss of $12 million, and Finance reported revenues of $18 million and profit of $12 million. Corporate expenses, net interest expense, LIFO inventory provision, intangible asset amortization, and non-service components of pension and postretirement income totaled $131 million. Textron also repurchased approximately 4.2 million shares, returning $273 million in cash to shareholders, and year-to-date have repurchased approximately 9.4 million shares, returning $650 million in cash to shareholders.

Textron's Board of Directors recently approved a new authorization for the repurchase of up to 35 million shares, and the company has increased its expected full year adjusted earnings per share to a range of $5.20 to $5.30. Additionally, the company is expecting full year manufacturing cash flow before pension contributions of $900 million to $1 billion. The market is still strong in terms of demand and pricing, but the biggest challenge is still on the supply chain side, which is not getting worse but is only modestly getting better.

The Navy has been deploying CMV-22s for some time now and the program was originally designed to replace the C2 COD mission. The House Appropriations Bill includes $700 million for potentially five B-22s, which could add legs to the program and transition to FLRAA. Scott Donnelly states that this will result in a number of aircraft that is sufficient to replace the C2 COD mission.

The Navy's appreciation for the versatility and performance of the CMV-22 has led them to consider acquiring more of these aircraft. This is reflected in the House Appropriations, which has proposed five CMV-22s above the program or record. Frank Connor and Scott Donnelly discussed their capital allocation strategy, which includes investing in R&D and CapEx, as well as returning free cash flow through share repurchase activity.

Scott Donnelly provided an update on the general aviation market, explaining that the company is investing heavily in new products, such as Latitudes and Longitudes, SkyCourier, and the Ascend, as well as the FLRAA program. He also noted that the company is making strong profits and cash flow, allowing them to allocate funds for the share repurchase program.

Scott Donnelly talks about the strong demand for general aviation aircraft from top to bottom, ranging from Cessna 172s to Pipistrel electric aircraft. He also mentions the demand for aircraft from flight schools and airlines in order to train and get pilots qualified. He states that the market is robust from small aircraft all the way up to Longitude.

Frank Connor discusses the progress of Bell's FLRAA program, which is ramping up quickly with the help of engineering talent and authorizations from the Army. The program is expected to reach $800 million to $900 million in revenue each year, and will continue to grow until 2023.

Scott Donnelly and Bradley Barton of the company are discussing potential M&A activity, but they decline to provide any commentary. Noah Poponak then inquires about the aviation margin, which is currently one of the highest levels in a while. Scott Donnelly notes that the margin is very good, but that there are still labor and supply chain inefficiencies that need to be addressed. He also avoids giving a long-term forecast for the margin.

Scott Donnelly and Frank Connor discuss the pricing of the industry, noting that there is still inflationary pressure and that the rate of inflation is decreasing. They note that they have done a good job responding to market demand and creating a more appropriate pricing environment, but there is a lag effect associated with their contracts. They state that they feel good about the pricing net of inflation but there could be a lagging impact on some of the cost inputs. Noah Poponak then asks if the rate of change in price is decelerating or if it is holding steady, to which Scott Donnelly responds that he has not run a first derivative on the price at this point.

Scott Donnelly stated that the US consumer is still holding up resiliently, with strong demand across golf, turf and consumer products. Frank Connor mentioned that the increase in EPS guidance of $0.10 reflects the strong performance in the first half of the year and the earnings reported.

Scott Donnelly states that the number of deliveries for the year will be lower than originally guided, but the margins and contribution to earnings will remain as expected. Bell is still tracking according to their guide and is seeing good execution on the production side. The FLRAA program is helping to drive the top line.

Scott Donnelly stated that industrial will have higher revenue than aviation to offset the light revenue and will result in a higher margin. This increase in revenue and margin is part of the reason for the raise in EPS guidance. Kautex is seeing strong demand in automotive manufacturing and golf and turf markets, which is helping to contribute to the higher revenue and margin.

Scott Donnelly is asked about the pricing benefit of the Aviation industry, and he responds that their pricing is enough to overcome the inefficiencies caused by the supply issues. He does not provide a specific number for the top line, but suggests being light by a couple of hundred million dollars. Cai Von Rumohr then asks a strategic question about their Aerospace and Defense business, and Scott responds that they would like to increase it, but do not have specific plans for acquisitions to bolster it.

Scott Donnelly of Textron talks about the company's strategy of investing in their existing businesses to drive growth, with a focus on making the right investments to drive organic growth. He also mentions that Textron is open to acquisitions if there is a right opportunity, but they don't want to have to do a deal. Cai Von Rumohr then asks if Textron looks at potential acquisitions from a holding company perspective or if they look for specific skill sets that would make them a stronger player in helicopters and other areas.

Scott Donnelly believes that the sustained demand and pricing for business jets and general aviation is driven by people who have experienced the benefits of private aviation, such as efficiency, productivity, and the ability to travel on their own time. He also believes that the COVID-19 pandemic has exposed more people to the market, creating even more demand. The company offers a range of products across various price points and performance levels.

Scott Donnelly of Cessna discussed the company's focus on the light, medium and large cabin aircraft. He noted that the large cabin market is already well-served and that Cessna is better off focusing on the super midsize Longitude aircraft. He also mentioned the Denali aircraft that is in development and will be a homerun for the company, as well as the electric aircraft that the company is developing with Pipistrel and eAviation.

Scott has informed Kristine Liwag that R&D efforts will be focused on a particular area, and the conference will be available for replay from 10:00 a.m. Eastern Time on July 27, 2024 until midnight. Dialing 18662071041 or 402-970-0847 with the access code of 8467989 will allow access to the replay.

This summary was generated with AI and may contain some inaccuracies.