Textron Inc. (NYSE:TXT) Q3 2023 Earnings Call Transcript

Textron Inc. (NYSE:TXT) Q3 2023 Earnings Call Transcript October 26, 2023

Textron Inc. beats earnings expectations. Reported EPS is $1.49, expectations were $1.27.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Q3 2023 Textron Earnings Release Call. [Operator Instructions]. I would now like to turn the conference over to Eric Salander, Vice President of Investor Relations. Please go ahead.

Eric Salander: Thanks, Leah, 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 $3.3 billion, up $265 million last year's third quarter. Segment profit in the quarter was $332 million, up $60 million from the third quarter of 2022. During this year's third quarter, we reported income from continuing operations of $1.35 per share.

A shot of a prototype aircraft taking to the skies, the symbol of the companies innovation in aerospace & defense.

Adjusted income from continuing operations, a non-GAAP measure, was $1.49 per share compared to $1.15 per share in last year's third quarter. Manufacturing cash flow before pension contributions, a non-GAAP measure totaled $205 million in the quarter compared to $292 million in the third quarter of 2022. With that, I'll turn the call over to Scott.

Scott Donnelly: Thanks, Eric, and good morning, everyone. The third quarter was a strong quarter for Textron with revenues up at Aviation, Industrial and Systems, while revenues were flat at Bell versus the prior year. At Aviation in the quarter, we delivered 39 jets, flat with last year and 38 commercial turboprops, up from 33 in last year's third quarter. Aviation solid demand across our jet and turboprop products resulted in our strongest order quarter of the year with a 12% increase over the third quarter of 2022. Backlog grew $521 million, ending the third quarter at $7.4 billion. In the quarter, Aviation announced a new fleet agreement with NetJets, extending our 40-plus year relationship and giving NetJets the option to purchase an additional 1,500 aircraft, including the Citation Latitude and Longitude for the next 15 years.

As part of this agreement, NetJets will also be the Fleet Watch customer for the newly announced Citation Ascend, which is expected to enter into service in 2025. Also in the quarter, Aviation received a special missions order for 17 King Air 360 to be used for flight inspection. Aviation also announced [indiscernible] favorability finalized its initial order for 20 grand caravans during the third quarter. On the new product front, Aviation wrapped up a successful NBAA show last week, where we announced 2 new product upgrades, the Citation CJ3 Gen 2 and the Citation M2 Gen 2, continuing our strategy of modernizing our existing aircraft portfolio while also investing in clean sheet aircraft. Moving to Bell. Overall, revenues were flat in the quarter with improved margin performance.

Bell had higher military revenues in the quarter, largely reflecting the continued ramp on the [indiscernible] program. On the commercial side, Bell delivered 23 helicopters, down from 49 in last year's third quarter. The lower deliveries reflected manufacturing disruptions related to supply chain shortages. During the quarter, a rock order 15 505 aircraft to replace their pilot trading fleet, continuing with the success of Bell 505 as a military trainer throughout the world. Textron Systems, we saw higher revenues and margins in the quarter. During the quarter, Systems Aerosan Hybrid Quad was 1 of 2 competing unmanned aero systems that was awarded the second option agreement for the Army's Future Tactical Unmanned Aircraft System or FTUAS program.

Onto the second option agreement, the 2 remaining competitors will work with the Army towards a critical design review, which includes establishing final system design and initial product baseline. Also during the quarter, Systems was 1 of 4 competitors to build light robotic combat vehicle prototype for the army. Prototypes are expected to be delivered in 2024. Systems also expanded its Aerosonde SUAS operations with the U.S. Navy with an award of additional 3 C-based systems aboard total combat ships. Moving to Industrial. We saw higher revenues in the quarter, driven by higher volume in both Specialized Vehicle and Kautex. Specialized Vehicles, we continue to see strong demand in the fleet gulf business. Within Kautex, we saw increased volumes year-over-year driven by the recovery in the North American auto market.

Moving to eAviation. Pipistrel Alpha Trainer continues to gain momentum with Mesa Air ordering 25 additional alpha train aircraft in the quarter, for use in the pilot development program. Also the first [indiscernible] prototype, our hybrid electric unmanned cargo vital aircraft is currently undergoing systems integration and has completed the initial installation of the battery and motor systems. We expect the prototype to enter vehicle ground testing phases by the end of the year. With that, I'll turn the call over to Frank.

Frank Connor: Thanks, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.3 billion were up $171 million from last year's third quarter, reflecting higher volume and mix of $89 million and higher pricing of $82 million. Segment profit was $160 million in the third quarter, up $29 million from a year ago, due to favorable pricing net of inflation of $39 million and a $23 million favorable impact from higher volume and mix, partially offset by an unfavorable impact from performance of $33 million, largely related to supply chain and labor inefficiencies. Backlog in the segment ended the quarter at $7.4 billion. Moving to Bell, revenues were $754 million, flat with the third quarter of 2022, with lower commercial helicopter volume largely offset by higher military volume.

Segment profit of $77 million was up $3 million from last year's third quarter, primarily due to favorable platform performance of [indiscernible] million, largely reflecting a lower research and development costs, partially offset by lower volume and mix of $16 million. Backlog in the segment ended the quarter at $5.2 billion. At Textron Systems, revenues were $309 million, up $17 million from last year's third quarter, largely reflecting higher volume. Segment profit of $41 million was up $10 million compared with the third quarter of 2022 primarily due to a favorable impact from performance of $8 million. Backlog in this segment ended the quarter of $2 billion. Industrial revenues were $922 million, up $73 million from last year's third quarter, largely due to a higher volume and mix of $45 million at both product lines and an $18 million favorable impact from pricing.

Segment profit of $51 million was up $15 million from the third quarter of 2022. Textron eAviation segment revenues were $7 million and segment loss was $19 million in the quarter, primarily reflecting research and development costs. Finance segment revenues were $13 million and profit was $22 million, up $15 million from last year's third quarter, largely due to a recovery of amounts that were previously written off related to one customer relationship. Moving below segment profit. Corporate expenses were $38 million. Net interest expense was $11 million, LIFO inventory provision was $26 million. Intangible asset amortization was $10 million and the non-service components of pension and postretirement income was $59 million. In the quarter, we repurchased approximately 3.1 million shares returning $235 million in cash to shareholders.

Year-to-date, we've repurchased approximately 12.5 million shares, returning $885 million in cash to shareholders. To wrap up with guidance, we are increasing our expected full year adjusted earnings per share to be in a range of $5.45 to $5.55, up from our prior range of $5.20 to $5.30. We're also continuing to expect full year manufacturing cash flow before pension contributions of $900 million to $1 billion. That concludes our prepared remarks. So we can open the line for questions.

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