The Textron Third Quarter 2024 Earnings Call, led by David Rosenberg, Vice President of Investor Relations, discusses future estimates and risks. Key participants include Scott Donnelly, Chairman and CEO, and Frank Connor, CFO. The earnings for the quarter were $3.4 billion, an increase from $3.3 billion the previous year. Adjusted income was $1.40 per share, down from $1.49 per share last year, and manufacturing cash flow was $147 million, down from $205 million. During the quarter, a strike at the Aviation division affected production and services at Wichita facilities but ended with a new five-year contract ratified on October 20 after a four-week strike.

In the third quarter of 2023, Aviation experienced growth with the delivery of 41 jets and increased aftermarket revenues, despite a decline in commercial turboprop deliveries. The backlog expanded to $7.6 billion with strong demand and new orders. Aviation celebrated the delivery of the 400th Cessna Citation Latitude and announced updates for other aircraft models. Bell's revenues grew to $929 million, aided by significant milestones like Milestone B approval for the FLRAA program, which increased its backlog to $6.5 billion. Bell also saw a rise in commercial orders and delivered 44 helicopters, a significant increase from the previous year. Textron Systems reported slightly lower revenues and profits compared to the prior year.

In the reported quarter, Systems achieved important progress with the Army's FTUAS program by completing evaluation and demonstration milestones, and is advancing to the next program phase involving prototype delivery. They also expanded U.S. Navy operations and delivered Ripsaw M3 prototypes to the Army. In contrast, the Industrial segment experienced decreased revenue and profit due to weak Specialized Vehicles markets, prompting cost adjustments. In eAviation, the Nuuva 300 underwent integration testing and is preparing for its first hover flight, while the Nexus eVTOL program is progressing with assembly and testing plans for 2025. Additionally, Textron announced executive changes, with CFO Frank Connor retiring in 2025, to be succeeded by Dave Rosenberg.

Dave, with over 24 years in the aviation industry, has been appointed to a new role, while Scott Hegstrom succeeds him as Vice President of Investor Relations, effective March 1, 2025. Frank Connor acknowledges Dave, Scott, and praises Frank for his contributions. In Textron Aviation's third quarter of 2024, a $50 million revenue and $30 million profit dip occurred due to delayed aircraft deliveries and an IAM strike, despite flat revenue of $1.3 billion compared to 2023, with a backlog increase to $7.6 billion. Bell's revenues rose to $929 million, credited to higher military and commercial activities, with a profit increase of $21 million, lifting the backlog to $6.5 billion.

In the third quarter, Textron Systems reported a revenue decline to $301 million and a segment profit drop to $39 million due to lower volumes. The Industrial segment saw revenues fall to $840 million with a $19 million decrease in profit, primarily due to lower volume in the Specialized Vehicles line. Textron eAviation had $6 million in revenues with a reduced segment loss of $18 million. The Finance segment reported revenues of $12 million and a profit of $5 million. Additional financial details included corporate expenses of $20 million and various other financial provisions. The company repurchased 2.4 million shares, totaling $215 million returned to shareholders in the quarter, and 10.1 million shares year-to-date. Textron revised its full-year outlook, anticipating lower adjusted earnings per share and reduced manufacturing cash flow due to an aviation strike.

The paragraph discusses the financial outlook for various segments of a company, including Aviation, Bell, Systems, Industrial, eAviation, and Finance. Aviation is expected to generate about $5.5 billion in revenue with an 11% segment margin. Bell's revenue outlook remains unchanged, but its segment margin is expected to improve to between 10.5% and 11%. Systems' revenue forecast is stable, with a segment margin anticipated at the higher end of 11% to 12%. Industrial is projected to have revenues of about $3.5 billion with a 4% segment margin. eAviation expects $35 million in revenue but maintains a segment margin loss of around $75 million. Finance is projected to have $50 million in revenue with a $30 million segment margin. Corporate expenses are expected to be approximately $135 million, interest expenses about $85 million, and the tax rate at 17.5%. The paragraph concludes with a transition to a Q&A session, where David Strauss from Barclays asks about Aviation's production restart and revenue assumptions, to which Scott Donnelly responds that production ramp-up is underway following a contract ratification, with a return to full workforce representation expected soon.

The paragraph discusses the impact of a recent strike on a company, resulting in a $0.5 billion revenue drop, described as more akin to a five-week strike due to the time needed to ramp up operations in the fourth quarter. The focus is on recovery, with a new five-year deal benefiting employees and the company in place. The company is working to ensure supply chain stability and efficiency improvements. Frank Connor indicates a lower forecast for free cash flow, attributed to reduced earnings and capital expenditures, with additional impacts from inventory headwinds due to a slower production recovery. The inventory is expected to be utilized and sold in 2025. Finally, Sheila Kahyaoglu from Jefferies joins the conversation, congratulating Frank.

The paragraph discusses the company's financial outlook and challenges in its Industrial and Aviation segments. The EPS cut, influenced by a $0.30 headwind in Industrial offset by a $0.10 benefit from Bell, highlights ongoing softness in the Industrial sector. The company plans to reduce production volume to align with market conditions and interest rates, aiming for a more stable perspective. The Aviation division faces delays, causing increased inventory through Q4, but these are anticipated to be temporary as sales are expected to resume. The company foresees revenue growth in 2025, with improved workforce stability and supplier part availability, though recovery will take more than one quarter.

In the paragraph, Scott Donnelly discusses the company's approach to managing costs related to a new wage increase, stating that it was mostly anticipated and integrated into their plans. While the wage deal was slightly more than expected, labor costs account for only about 10% of their expenses. The company aims to enhance productivity and efficiency to offset these costs and believes the wage deal helps retain a valuable workforce. Donnelly emphasizes the importance of having the best jobs in town to attract and keep good employees. Meanwhile, Robert Stallard inquires about the company's approach to supply chain management, highlighting that the company has proactively maintained operations and built up inventory despite ongoing component shortages. Donnelly acknowledges that while shortages have improved, some remain problematic, leading to inefficiencies, and that the company continued efforts to address these issues during a strike.

The paragraph involves a discussion between Robert Stallard, Scott Donnelly, and Peter Arment regarding the business and industrial outlook of a company. Scott mentions that they are optimistic about moving forward with their workforce returning, which will help with efficiency despite some inventory costs, as these will eventually convert into airplanes. They acknowledge challenges in the Specialty Vehicles and European auto markets, particularly at Kautex, but are managing well through productivity and pricing. Peter Arment highlights strong bookings following the NBAA event, with over $1 billion in Q3, traditionally a weaker quarter. Scott is positive about recent product updates and new model introductions, indicating a favorable demand environment.

The paragraph discusses the aircraft industry's positive demand environment and the impact of updates, especially the Autoland feature, on driving demand. While pricing remains favorable, price inflation is compressing, meaning that significant gains over inflation are not expected. The focus is on enhancing productivity and efficiency to maintain performance. Frank Connor notes that lower volumes this quarter, partly due to a strike, are impacting the ability to offset inflation with pricing, resulting in a net zero effect on price over inflation. This pattern is expected to continue into the fourth quarter.

In a conversation with Noah Poponak from Goldman Sachs, Scott Donnelly discusses the impact of a recent strike on Cessna jet deliveries, noting that they haven't disclosed the number of jets but have reported a significant revenue adjustment of $0.5 billion due to the strike's five-week duration. Looking ahead to 2025, Donnelly assures that they expect to return to normal productivity and smooth operations by January 1, with no anticipated disruptions carrying over from the strike. Additionally, he indicates that any delayed aircraft from 2024 may not necessarily add to 2025's production but will instead smooth out over time.

The paragraph involves a discussion about future revenue and growth expectations for a company, as articulated by Scott Donnelly and Noah Poponak. The company anticipates healthy revenue growth in 2025, surpassing initial 2024 projections, despite current issues affecting 2024. Donnelly suggests a long-term revenue conversion rate of over 20% remains appropriate for their business, indicating stable margins. Myles Walton inquires about the System segment's growth potential, highlighting two critical contracts, FTUAS and the Robotic Combat Vehicle, which could significantly drive future growth given their prolonged investment. Donnelly acknowledges these programs' importance but also notes other successful business areas mitigating adverse impacts like the Machado service discontinuation.

The paragraph discusses the performance and future prospects of a company's systems team and their programs, highlighting the progress in flight testing for the 525 aircraft. Scott Donnelly mentions that although flight tests are ongoing and relationships with the FAA are good, he anticipates the certification might slip into 2025 due to the extensive documentation and approvals needed. The company continues its work on flight tests and is preparing additional capabilities for the aircraft. Myles Walton asks for confirmation about the timeline, and Seth Seifman brings up the company's aviation margins, noting they were lower than expected when excluding the impact of a strike.

The paragraph is a discussion involving Scott Donnelly and Seth Seifman about the financial performance and challenges faced by a company due to strikes affecting production and costs in Q3 and the full year outlook. The focus is on the growth and profitability of the FLRAA program, which has a lower margin mix but is expected to grow significantly next year. Donnelly emphasizes the importance of driving profit dollar growth despite margin pressures. The commercial market remains strong, and the win in Nigeria is expected to boost H1 original equipment volumes over the next few years. The conversation ends with Seth Seifman thanking Donnelly and the operator moving to the next question.

In this conversation, Doug Harned inquires about the future focus of investments in Aviation R&D and capital expenditures over the next five years. Scott Donnelly responds by saying that their strategy will largely remain unchanged, with a mix of upgrading existing products and occasional new product developments. He notes that R&D spending should remain stable or slightly increase as a percentage of sales, unless unusual circumstances like a strike affect revenue. He also mentions that their main challenge is not demand but supply chain issues, which they've been working on improving.

In the paragraph, Scott Donnelly discusses supply chain bottlenecks, primarily related to internal resourcing, staffing, and production ramping. Despite disruptions in 2024, he expresses confidence in their expansion plans and anticipates revenue growth by 2025. Jason Gursky congratulates individuals on their new roles and questions Donnelly about labor productivity, seeking insights into improvements since the pandemic and strategies to enhance it back to or beyond previous levels.

In the paragraph, Scott Donnelly discusses two main factors contributing to inefficiencies in factory productivity: supplier parts issues and labor challenges. He explains that missing parts cause production disruptions, but efforts during a strike period have improved on-time supplier deliveries. Additionally, labor inefficiencies arose due to high turnover and training needs post-COVID. Donnelly believes that the new labor contract, including significant general wage increases (GWIs), will make jobs more attractive, aid employee retention, and stabilize the workforce. He is optimistic that addressing these issues will lead to better productivity.

The paragraph features a discussion between Jason Gursky and Scott Donnelly regarding the ideal backlog duration for the aviation business. Donnelly explains that having an 18 to 24-month backlog is beneficial as it allows customers to manage and sell their aircraft effectively, and gives the company sufficient time to specify aircraft details and manage customizations. This timeframe also enables smooth operations by allowing consistent communication with suppliers about volumes and delivery dates. The conversation then moves on to Gavin Parsons from UBS, who congratulates Frank and Dave.

In the conversation, Gavin Parsons asks Scott Donnelly about the impact of restructuring on the Industrial segment and its current status. Donnelly acknowledges ongoing restructuring due to continued softness in certain business segments, aiming to maximize performance. Parsons then inquires about potential margin impacts related to aircraft costs delivering next year. Donnelly explains that the performance line includes various elements like factory inefficiencies and manufacturing variances, making it complex. Pete Skibitski asks about revenue expectations for FLRAA following its Milestone B approval. Donnelly confirms $900 million as a likely revenue figure for the current year, with expectations for a significant increase next year.

In the discussed paragraph, there's an anticipation of a potential budget increase of $100 million to $200 million for the next year, tied to what is currently in the appropriations process, though the budget hasn't been finalized yet. The Army and other stakeholders seem committed to securing this additional funding, recognizing its importance for ongoing projects. Pete Skibitski inquires about the risks associated with in-sourcing the cabin from Spirit, to which Scott Donnelly responds that it was a low-risk process due to its early development stage and effective collaboration with Spirit. The operator then notes the availability of a recorded replay of the conference call.

The paragraph thanks participants for their involvement and informs them that they can now disconnect.

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