Q1 2021 Textron Inc Earnings Call
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And ladies and gentlemen, thank you for standing by and welcome to the Textron first quarter earnings Conference call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time.
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At this time I'd like to turn the conference over to your host Eric Salander VP of Investor Relations. Please go ahead Sir.
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 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 with $2 9 billion up from $2 8 billion in last year's first quarter. During this year's first quarter. We reported net income of 75 per share adjusted net income on a non-GAAP measure a non-GAAP measure was <unk> 70 per share for the first quarter of 2021 compared to 35 per share in the first quarter of 2020.
Adjusted net income for 2021 excludes 6 million of pre tax special charges of <unk> <unk> per share after tax related to the 2020 restructuring plan and $15 million a pre tax gain on the sale of true Canada <unk> per share after tax segment profit in the quarter was $256 million up from 150 <unk>.
$6 million in the first quarter of 2020.
Manufacturing cash flow before pension contributions totaled $71 million up $501 million from last year's first quarter with that I'll turn it over to Scott.
Thanks, Eric and good morning, everyone. Overall, the first quarter was a strong quarter for textron.
Segment margins were up 330 basis points in the quarter driven by strong execution across all of our segments at.
At Bell revenues were up in the quarter on higher commercial revenues, partially offset by lower military revenues.
On the commercial side of Bell, we delivered 17 helicopters up from 15 in last year's first quarter we.
We saw solid order activity in the quarter across our commercial models, both domestically and internationally and across multiple end markets, including corporate private utility and emergency medical services.
Future vertical lift was awarded a contract modification of 293 million for the second phase of the competitive demonstration and risk reduction program per floor.
As we conclude final flight activity on the <unk> I think it's important to highlight the impressive performance milestones with the aircraft was demonstrated in over 215 flight hours over the past three plus years, which included 305 knots have demonstrated true airspeed level, one handling qualities and autonomous flight.
On flora bells, continuing with the build of the Invictus 360 prototype, where we were about a third of the way through the manufacturing process in anticipation of first flight in Q4 of next year.
Moving to Textron systems revenues were flat in the quarter, while the business continues to execute well with improved operating margins.
In the quarter systems was awarded a contract for up to $607 million from U S Army for the statement and monetization of existing shadow systems to the upgraded blocks reconfiguration.
So on the quarter system successfully participated in the U S Army's future tactical unmanned aircraft systems Rodeo at Fort Benning and.
We completed direct soldier flight demonstrations of our platform the <unk> HQ.
Systems is currently responding to the FTE UAS, RFID, which will help inform the next phase of that program.
Systems also delivered the first RCV medium prototype to the army customer as they look to test these vehicles and define requirements for the future of robotic combat vehicle programs.
At <unk>, we are continuing to ramp up one flight hours at the operating sites related to the three awards of U S Air Force Caf cash program.
At the end of the quarter, we had 16 up one aircraft certified for operation and deployed across our customer sites.
At aviation revenues were up so our revenues were essentially flat in the quarter was slightly lower volume, reflecting lower aftermarket revenues, partially offset by higher pricing.
We delivered 28 jets up from 23 last year in 2014 commercial turboprops down from 16 in last year's first quarter.
Order activity was strong in the quarter, resulting in backlog growth of $450 million to $2 1 billion at quarter end.
In the quarter, we delivered our 1560 <unk> based citation jet. This milestone delivery is a testament to the value of the performance of this platform as well as Textron aviation commitment to the ongoing support of the fleet.
We also announced the new C. J for Gen, two and delivered five aircrafts in the quarter.
This model upgrade is another example of our continued investment in our existing portfolio of aircraft.
While the new product front, the <unk> aircraft certification program continues to progress well.
As we work towards entry into service targeted towards the second half of this year.
Moving to industrial revenues were up from last year's first quarter, primarily driven by higher volume and price in our specialized vehicle product lines.
Our specialized vehicles, we continue to see strong retail demand across our customer end markets.
At <unk>, we saw our volume of fuel systems for hybrid electric vehicles more than double to about 9% of our total production volume in the quarter with the startup of Ford and models.
While the retail demand in industrial end markets has been improving channel inventory remains below targeted levels as we work through supply shortages and disruptions, which we expect will improve throughout the course of the year.
In summary was a great start to the year, we've seen improving customer demand in our end markets increased commercial order flow at aviation and Bell and continued solid execution of our military businesses with strong cash generation in the quarter.
I'll turn the call over to Frank.
Thanks, Scott and good morning, everyone. Let's review how each of the segments contributed starting with Textron aviation revenues at Textron aviation of $865 million were down $7 million from a year ago, largely due to lower aftermarket volume, partially offset by higher pricing.
Segment profit was $47 million in the first quarter up from $3 million of profit last year, primarily due to the favorable impact from performance and the mix of products sold.
Backlog in the segment ended the quarter at $2 1 billion.
Moving to Bell revenues were $846 million up $23 million from last year on higher commercial revenues, partially offset by lower military revenues.
Segment profit of $105 million was down $10 million, primarily due to higher research and development costs in the quarter largely related to future vertical lift programs.
Backlog in the segment ended the quarter at $5 2 billion.
At Textron systems revenues were $328 million flat with a year ago segment profit of $51 million was up $25 million due to a $27 million favorable impact from performance and other.
Backlog in the segment ended the quarter at $2 4 billion.
Industrial revenues of $825 million were up $85 million from last year, primarily from higher volume and mix as well as price at specialized vehicles and foreign exchange fluctuations.
Segment profit was $47 million up $38 million from the first quarter of 2020, primarily due to higher volume and mix price net of inflation and favorable performance at specialized vehicles.
Finance segment revenues were $15 million and profit was $6 million.
Moving below segment profit corporate expenses were $40 million in interest expense was $35 million.
With respect to our 2020 restructuring plan, we recorded pre tax charges of $6 million on the special charges lines. We also completed the sale of true Canada in the quarter and realized a pretax gain of $15 million.
Cash performance in the quarter was strong with $71 million of manufacturing cash flow before pension contributions of $501 $501 million improvement over last year's first quarter. As we continued our focus on inventory and working capital management and.
In the quarter, we repurchased one 8 million shares returning $91 million in cash to shareholders.
To wrap up with guidance, we're raising our expected guidance of adjusted EPS to a range of $2 80 to $3 per share up <unk> 10 from our prior outlook were reiterating our outlook for manufacturing cash flow before pension contributions of 600 to 700 million with planned pension contributions of $50 million.
That concludes our prepared remarks, so Brad we can open the line for questions.
Okay.
Of course in ladies and gentlemen, if you wish to ask a question again. Please press. One then zero on your Touchtone phone, you'll hear tone, indicating you've been placed in Q and you may remove yourself from Q anytime by repeating the <unk> Zero command.
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Our first question today comes from the line of Pete Skibinski with Alembic Global. Please go ahead.
Okay.
Guys at $2 1 billion in backlog at aviation it kind of seems like it's pointing to a real positive startup of cycle for you guys.
Are we just at the point, where the young used aircraft availability is just so low that customers are really force to come to you guys is that kind of what youre, what youre seeing out there.
Yes.
Well, Peter I think.
Correlation between availability.
And used aircraft and what that means in terms of new aircraft sales for sure are correlated and I think if you look at what's happened here over the last.
A period of time, we've been seeing that number come down and you are at this point, we're down below 1% of the fleet Thats out there thats under 10 years old available per sale. So without a doubt I think that's that's helping I think the overall demand environment is also more positive Frank So you've got more people that are looking to acquire aircraft.
And then we've seen in quite some time, so the level of activity the number of.
Customer interactions is certainly quite strong so when thats happening.
Again.
The small number of young used.
It is also a factor in that but I think part of it is just there is there's a strong demand in the market right now.
Yes, I mean, I think that's the biggest backlog you have in like 10 years as far as I can tell so are you force to kind of look at production increases at this point.
Look I think we will look at it through the course of the year. Obviously, if this level of demand. It keeps up we always are constantly looking and tweaking.
The production schedule. So I think we will continue to monitor it and adjust accordingly.
Yes, I guess last one for me.
Similar volume to the first quarter of 'twenty, but the margin is about five points higher so.
As aviation and you touched on pricing I don't know, if we know kind of the level of pricing Youre getting right now, but you know as.
Aviation you now a structurally higher margin rate segment at this point do you see going forward just from the cost take out or do we really need a lot more pricing to our to reach that level.
Theres two things going on one is we did take cost out but a lot of that had obviously had to do with volume so.
There is I think the business is executing stronger from a overall performance standpoint, there are some price and frankly, we're seeing a nice rebound, particularly in the parts side of the aftermarket business and that's good mix for us. So you saw some pricing contribution in and frankly some.
Some good mix as you go into Q1 and saw overall aftermarket was actually down slightly but the mix of part demand driven by increased utilization was a.
With a positive force.
I see thanks for the color.
Sure.
Okay.
Yeah.
Right.
And we do have a question from the line of David Strauss. Please go ahead with our park place. Please go ahead.
Good morning, Thank you.
Hi, David.
Good morning, Scott you touched on pricing a little bit of deviation, but can you talk about.
You know kind of across the board on all of your commercial businesses kind of the pricing environment.
Relative to raw material inflation that you might have seen.
Sure.
There's no question that inflation is out there we're seeing it.
<unk> cases, but I think our strategy has been is to try to keep pricing ahead of inflation and we've been successful doing that.
So youre right. It doesn't matter you know aviation.
Bell through the industrial businesses, we're seeing.
Positive price environment.
Right Okay.
And then can you remind us Ed at aviation.
How much of the how much of the business I guess on the new on the new aircraft side.
Is kind of fortune 501000, large corporate and what are you seeing in that portion of the market is that is that rebounding at all yet.
Oh, well, we don't usually track that specifically or give that out but it's I mean, we are seeing.
The corporate aviation departments are starting to come alive, there's more dialogue going on and I expect that will continue to increase through the balance of the year I think and again, David as the data sort of anecdotal you cant give specific breakout of this obviously the.
The number of cycles on aircraft continues to increase particularly domestically in the U S March was actually up over where it was.
In 2019. These comps 2020 are obviously kind of flaky, but if you look going back to 2019. The cycles on domestically were were up four aircraft, which is which is great. I think it's still predominantly driven by a lot of personal travel and things like that but we are clearly starting to see.
Some corporate travel coming back I mean, I just personally as I'm traveling around to our businesses in amount about the restaurants are meeting as a new supplier to starting to travel customers are starting to travel youre starting to see more of that and I think as that happens, we will see more and more corporate level flight department buying activity pick up.
Sure Frank Thanks, very much.
And we do have a question from the line of Ron Epstein with Bank of America. Please go ahead.
Yes.
Good morning, guys good morning, Robert.
What what products.
In aviation are you seeing the most interest in and your own product line latitude and longitude smaller bigger I mean.
Or are you seeing the most tire kicking going on.
The good news you Ron is it.
Virtually every model of jet and turboprop that we have.
Is this being.
Strong activity, which is good so it's literally it's across it's.
Across the entire portfolio of all of our jet turboprop products.
Got it got it got it and then.
If you could give us a quick update on kind of what you're hearing.
Seeing feeling on future vertical lift.
Future vertical lift is progressing exactly as the army said.
As I said, we obviously, we and our competitor got the contracts for phase two.
The draft RFP would come out late last year comments went back response to those questions have now come in we expect the.
Industry day, and then ultimately their real RFP to drop.
Sometime probably in that May you were sort of timeframe. So those guys are staying very much on schedule in terms of what they've told us.
We just wrapped up our V 280 flight activity, which I think was a hugely.
Hugely successful program that demonstrated everything we wanted to demonstrate so right now the.
Team is focused on the objectives of the second phase of the program, which is.
Moving to do risk reductions, obviously makes a smooth transition from the.
The average production phase into a full growth full blown program of record in.
It's kind of a parallel path of working that with the army at the same time that the.
RFP activity is going on and proposal development.
I'd say, it's progressing exactly as the army.
Photos of the wood.
Great Great and then with the Skinny budget that was dropped by the by the administration do you feel any better or any worse the same about.
The prospects for the program longer term.
I think the expectations were that we would see pretty flattish budgets and I think that's what we're seeing in India for sure can argue it's down a little bit based on inflation adjusted and such but the army has been really clear about the important of monetization.
Our top priorities are still get an enormous amount of focus they've always been very responsible about their intention on how they would pay for this they were never expecting some big topline.
Adjustments or they've always said that they would fund this by reducing legacy.
Funding so they can put their focus on monetization I think if you listen to what general Congo says every time he speaks publicly as well.
It's been very very consistent and I think that's absolutely. They are they are intense I think.
Again, we've only seen the skinny budget right, we haven't seen details.
Down below that but certainly in terms of.
The topline sport and everything that the army is talking about the focus on monetization as is.
It is continuing.
Great. Thank you very much.
Sure.
And we do have a question from the line of.
Peter Arment with Baird. Please go ahead.
Thanks, Scott Good morning, Scott and Frank.
Scott.
Scott.
You've called out some good performance in specialized vehicles, maybe you could just give us a little color on what you're seeing there what's driving that.
Look I think these guys are are executing well demand on the on all pretty much all of those product lines exception probably is.
<unk> equipment is still a little bit soft although activity is starting to pick up in that area as well, but if you look at the core businesses of golf and Ptv and then of course, all the off road the retail demand environment.
Is very strong.
We are also seeing solid pricing.
I think the business is executing well.
Look it is a struggle some days are means tactically just getting supply chain stuff worked out is.
As a kind of a battle every day, but the team is doing a nice job of working through that.
We would like to continue to drive higher volumes and get some more product out there in terms of inventory levels, but I think that just bodes well for the future.
The guys are executing well and driving improved profitability.
And just so just to follow up on the supply chain comment.
You hear about supply chain stress from other industrials, especially around the semi chips and things like that what are you seeing I guess across your businesses are you seeing the same same impacts or is it different.
We're not seeing as much impact in the in the aerospace pieces of that and I think a lot of that has to do with the fact, a lot of those businesses. Because they also have defense businesses kind of kept operating through a lot of the pandemic certainly was true of our businesses for the most part so that supply chain has come back up and is running.
Is running better and obviously many of these cases you share demand with a lot of the commercial stuff, which is still <unk>.
Down so there's capacity out there so we haven't seen a lot of challenges yet in that space.
More on the industrial side of things and those supply chains are getting back up and operating obviously, there's a lot of shipping issues. You know, there's all kinds of software, but theyre tactical challenges and the guys pretty much worked through them every day, but I think as we go forward. There is certainly opportunity to see higher volumes to.
Not only to meet that strong demand, but also get inventory levels restock.
Appreciate the color and nice quarter guys. Thanks. Thanks.
And we do have a question from the line of Seth <unk> with J P. Morgan. Please go ahead.
Thanks, very much and good morning, good quarter.
I was wondering if you guys could talk a little bit I think initially we talked about <unk>.
First quarter deliveries being startup that's asked them being sort of flattish year on year and then.
Improvement in <unk> up in the fourth quarter, So I guess sort of.
You can probably think about that.
Do you see the Q2 and Q3 numbers now up a little bit from from where you had seen him now based on based on what we've seen in backlog given that Q1 came in above expectations as well.
Yes, I mean, I think that's exactly exactly what we would expect right. I mean, there is a normal cyclicality of the business Q1 is usually a lighter delivery.
Our Q4 is obviously due to the very strong delivery quarter. The big differences, usually you don't see a whole lot of order activity in Q1, and clearly we saw that this year. So I think absolutely that bodes well for future quarters, and frankly part of our raise on our on our guide is anticipation that we will see.
Better performance than what we had guided in terms of the aviation full year number.
I guess and then and then on that point.
But putting up the first quarter margin kind of similar to what you'd expected per year, I mean, I would think with with higher volume in Q3, and especially Q4.
Is there.
Some color you can give us around where you think the aviation margin.
I'd come out now given that it seems like it should clearly be higher than the initial guidance.
Well I think youre right. It will be higher we're probably not going to go back and re guide the percentages in each one of the segments, but.
When you when you think about the guide that we put in I think you can expect low in terms of how you model with part of that.
Is our expectations that we'll see stronger margins on the on the aviation side and the other is obviously, we also had a very strong first quarter on systems and I think.
That's also part of our raising the guide is we'll probably do somewhat better on a margin rate at systems in our original guidance as well.
Okay. Thanks, Thanks very much.
Sure.
Okay.
And we do have a question from the line of Sheila <unk> with Jefferies. Please go ahead.
Thank you good morning, guys.
So my first question is on Bell can we just talk about the magnitude and timing of that future vertical lift and Beckman I'm guessing, it's all Florida now.
As the foreign investment sizable and comparable to Florida, and then on Florida are you done on the company funded R&D day.
So right now part of the challenge of the increased R&D spending in 2021 is that we have both <unk> and Flora Act.
Activities going on so the <unk> program is kind of ramp to.
Full speed ahead here, obviously, we've initiated the.
Starting to produce the first aircraft and to get the first flight in the latter part of next year. So we're seeing a lot of pharma.
Activity and Thats, all under <unk>, which is a one third cost share that we have with the government.
And then that Florida program, so that 290 or so million dollars of were just awarded.
That program sort of runs from now through next March.
And Thats also a one third company funded.
For DRAM as well so as part of the headwind we have on the R&D front right now Sheila is that you have both Ara and phase two of flora going on simultaneously.
Okay cool. Thank you and then maybe just a bigger picture question on aviation because the backlog was still guide there's.
Theres door Dash Uber Netflix you name it a technology element in every industry. So I guess with aviation as some of these charter in fractional operators mature and their technology models or whatever it might be are you seeing.
The change in your customer composition day over the next five years wherever you guys become a bigger question Mark question for you because they're emerging not only that because they've been very good day guys for a while but in general Scott are you seeing that.
Yes.
Well, we haven't seen a mix shift really at this point I mean, obviously there is a.
A good part of our business has been with wheels up on the on the fixed wing side as you know, we just announced doing the same on the on the rotorcraft side with bell helicopters going into the wheels up.
Fleet, we're continuing to see terrific strength.
Through our net just relationship I mean, I think that the.
The net you guys are also doing very well on the fractional side of the business. So we're seeing strong demand there as well.
But we haven't seen a big mixture service youre seeing strength right now in everything from.
Charter operators to the to the membership kind of providers like the wheels up through that fraction.
Fractional providers like net debt. So its it seems like the growth and the demand is across all of those different business models right now.
Well thank you.
Sure.
And we have question from the line of Noah <unk> with Goldman Sachs. Please go ahead.
Hi, good morning, everybody.
Yes.
Scott one Q is usually your seasonally lightest order quarter in aviation.
Do you expect that order number to improve sequentially as you move through the year.
Oh, well look no I think our level of sales activity is continuing to be strong. So I would expect debt when the market given the demand that we're seeing.
I expect to see continued strength through the course of the year now as we've talked about before we do expect.
To start to see more sort of those corporate flight departments in larger corporate operators as you see more business travel coming back.
And then I think we're starting to see that alright. So these folks that we're not flying in.
Corporate departments that Werent.
Frankly were largely shut down for a lot of the pandemic have started to come back and so there's more dialogue there as well.
So im not sure growth guide our book to Bill at this point, but it's the demand environment has remained strong which is.
Good.
Okay.
The end market has had.
Some head fakes in over the last few years and the data would look better and then maybe kind of stall out.
The leading indicator data right now looks looks particularly good but.
The pandemic seems have brought a new flyers, where there's maybe some questions around whether or not they go back to commercial.
Once the virus is in a better place.
Yeah overall bigger picture I mean, we see the day to you talked to the customers. How are you thinking through sustainability here versus something that could reverse on us again.
We're seeing people buy aircraft right. So that's not something that someone's likely to revert back to out of that so if someone's made the commitment.
<unk> bought a fraction of what our whole aircraft.
I think those folks are going to stay in the market or there are some people that might be using.
Charter kind of on demand stuff that might revert back to commercial absolutely but.
Over time, you see people that come into this market they can afford to be in the market and once they become accustomed to the convenience and.
The productivity of it.
I think it will most of those people were going to tend to stay with it.
Okay, and then just on the systems margin.
Ramped in the back half of last year landed where our debt in the first quarter, maybe just level set us on how youre thinking about the durable sustainable margin overtime it systems.
I think it's just a very durable I mean, I think the team has been executing really well as you know over the last.
A year, if we had a lot of investment that was going into programs like the the APAC F. One program and you had to make that expense net investment ahead of winning those contracts in order to be eligible for those contracts. So we went through a period of of.
Of having those expenses with no revenue those assets are now gainfully employed and out there generating revenue and margins. So some of those swings I think are are helping to to.
The strength in the margins in the business I think overall the performance of the business has been quite strong.
No we're transitioning.
We will see this as we go forward on the transition from the development side of the ship to shore into the production side of the ship to shore, which clearly will have better margins in the development side.
So look I think as you look at those macro things that this is a performance that has a lot of good performing elements to it and I expect they will continue to perform really well as I said earlier I think part of our.
Guide increases that we expect that we will probably have margins that are stronger than what we originally guided on the system side I'd say also that business is pursuing an awful lot of new opportunities.
That will continue to come to roost over the course of the next call.
Two or three years, so I think they're in a really good place.
Do think we'll have a little bit of headwind noisy as we get them.
The back half of the year here.
On some of our fee for service in Afghanistan.
What about wind down will take down some of our sites I think we've been very conservative about how we run that business in terms of asset values, but.
There are opportunities to redeploy those to other locations, which I think will happen, but you probably have a little bit the GAAP between the sites that are operating today and future site. So it's not a big impact, but it's enough that it will.
No.
<unk> reduced a little bit of revenue in margin here, probably in the back half of the year, but I would expect to continue to see.
Really.
Good strong margins and good strong performance in that segment.
Okay. Thanks, so much.
And we do have a question from the line of Carter Copeland with Melius Research. Please go ahead.
Hey, good morning, gentlemen.
Alright.
Scott kind of an Orthodox question, but one I really love to get your perspective on there is obviously a lot of capital out there.
Supporting VTOL EV tall investments in spec land and whatnot and I Wonder if you look at your.
Kind of technology portfolio inside Bell and all the various projects you might have in some phase of R&D and you think about.
You know what to fund and what not to find in kind of that whole relative hierarchy.
Is there a model that makes sense too.
Maybe pull some of that stuff out and put it in a in a vehicle like that and accelerate funding or take advantage of the ample capital that's out there in the market and all that sort of excitement how do you think about that.
It's a good question and I think it's a little early for us to make that call. We have some very strong R&D capability, we have a lot of technology frankly that already exists in the company obviously.
That's a space that as you know we've been looking at for a while we continue to look at it.
And look we've taken views as we actually know how to make aircraft, we know how to make VTOL aircrafts.
The architecture, you see that's likely to be the winner.
And some of those urban air mobility space, frankly are small tail rotors, and we actually know how to make total rotor so.
A lot of that technology, we obviously have on the shelf and stuff that our guys are very capable and are working on we actually know how to certify aircraft in many of these.
Categories. The issue for US is whats the right time of year and frankly, a lot of that's driven by the battery technology, we want to make sure that.
And when we make a move in the space. However, the structure of that move is that we know where the technology is around the propulsion system. This has always been hugely important in our industry. We would never go undertaking new airplane fixed wing or vertical takeoff and landing without having the right propulsion system to make sure that it's going to be successful and I think largely.
That comes down to.
So battery technology. So we've got teams, obviously that have been following that and working on that and.
We'll make our moving we think it's the right time in as to what the structure of that might look like a sort of to be determined at this point.
Is it safe to say you prefer it to be organic in and wholly owned in that regard.
I don't think we're committed one way or the other I mean, I think clearly we own the technology.
We're we know we can go do it in terms of is there a structure that.
More.
Preferable than another I mean I think.
We will look at all options at this point, we want to make sure that we have the right.
The right technology and the right ability to go make a successful.
Product and right now that's really more in the R&D phase as opposed to a worried about capital structure.
Okay. Thanks for the color Scott.
Yeah.
And we do have a question from the line of George Shapiro with Shapiro Research. Please go ahead.
Yes.
Uh huh.
Scott.
The release says that mix was a big help in the aviation profit in the quarter, but if I look at the mix I mean, it's not clear why I mean and to his core deliveries higher in <unk>.
<unk> was actually one delivery less cash.
King airs were less in the quarter Scott.
Just expand a little bit on what the favorable mix actually actually was.
So the mix favorability really has to do with within the aftermarket what's the mix of parts versus service Center labor.
Okay.
So we saw it we saw strong part demand.
Which has been rebounding from where it was and.
Yes.
That's good mix for us.
And yet you said day aftermarket was weak.
Down what I assume a couple of percent well it was down very very modestly, but more importantly, the mix within that aftermarket was more heavily weighted to parts than service.
Okay, and if I look at the implied orders this quarter and go back in time or is it pretty similar in Q1 of 19. They were actually somewhat below Q1 of 18, and then we kind of petered out.
So what's your confidence that this time, it's not going to Peter out like we saw some in 18 and 19.
George.
All I can tell you is where the level of activity, we're seeing a number of customer dialogues.
It's.
It's as strong right now I can't really represent where it's going to be six months from now or nine months from now I mean, we think that the macro environment has been we've talked about this for the last couple of quarters.
It's as strong as we've seen in.
By every metric when you look at a number of new people coming in as I said, we're seeing flight hours now that are backup over where they were in 2019, not just comparing to 2020.
The used young aircraft that are available for sale.
<unk> environment.
It's all positive.
I promise to tell you three months from now six months from now nine months from now.
Three six or nine months from now.
And then.
Last quick one why isn't the guide for the year substantially low I mean, you did 70 cents. This quarter. If you just annualize that you get to the low end of your New guide and we know that this quarter is the weakest quarter for aviation probably pretty substantially so.
What are you figuring weakens Inc.
Subsequent quarters debt offset the aviation strength, that's giving you only guided to 80 to $3.
Well George I think we're we've raised our guide because of outperformance here in Q1, and our expectations that will continue to see strength in aviation and some stronger profitability.
And systems and that's ex kind of how we're looking at it right now obviously as the year goes on.
Going to still be.
A little bit conservative here in terms of making sure that.
The economies around the world don't have any issues of the pandemic recovery continues right now everything feels.
Very strong and that's again the end market demand, whether it's in our industrial or aerospace and defense businesses feels feels.
Feels good but we will continue to keep an eye on that as the year plays out.
Okay. Thanks very much.
Sure.
Okay.
And we do have a question from the line of Jon Raviv with Citi. Please go ahead.
Hey, Thanks, good morning.
On just on Biz jet, what's the general lead time, when you guys look at production rates going higher and what could that mean for margins essentially what what needs to happen to get back to that double digit number which you didnt thinking about not too not too long ago, how much of that is in your control.
Well look I think that generally speaking we look at about a six nine months sort of lead time, obviously, there is some longer lead items in there around engines and stuff like that but we maintain an awful lot of close dialogue with those those critical suppliers to understand what flexibility we would have.
To tweak production rates up or down and Thats, a real time process right. Its not like its an annual thing we maintain that dialogue on a regular basis and that gives us some flexibility that I think is out in that.
Six to nine month window.
And then just on the margins Scott.
What would you what you gotta do maybe to get to those double digit numbers that you've been talking about not too not too long ago.
Oh, what does volume, we're still running at fairly low volumes and I think that these are tend to be pretty good gross margin products. So as we see that volume growing and the business an awful lot of that drops to the bottom line and Thats clearly the path to get back to that double digit margin.
Business.
Got it and then and then on capital deployment repo in the quarter that light.
Carrying a pretty big cash balance, how you're thinking about M&A or other capital deployment options on at this point and if M&A, where would you focus and what kind of size you're looking at.
Any M&A activity would be something that we think that comes along as appropriate. Our focus has certainly been more on the net A&D space in that area that we'll continue to look at.
As to the capital deployment, we continue to focus on stock buyback as sort of our default Opportunistically again were low conservative in Q1 just to.
You see how the economy is doing and how the businesses are doing and performing and we would expect to clearly see that ramp as we go through the year.
Alright, thanks, everyone.
Sure.
Okay.
And we do have a question from the line of Robert Stallard with vertical research. Please go ahead.
Thanks, so much good morning.
Alright, alright.
Scott Ingersoll Rand at analyst day, with selling that special vehicles basis quite recently for a pretty good price and I was wondering.
Have you seen any expressions of interest in your portfolio.
We're not going to comment at all on the specifics of any kind of M&A activity at this point.
Is this something you would be open to thinking about it.
We're not going to comment at all on M&A activity at this point.
Okay.
Maybe recent Nielsen and Frank just a couple of simple one C U.
You mentioned that I think it was other was an item.
And I think he was Ts this quarter wondering if you can give us some more cash.
Color on that and then maybe no winter satellite George but you didn't raise the cash guidance for the year and I Wonder if there's any specific reason for that thank you.
The other piece of that there is no. Other it's just the categories. The way we talk about it in the Q. So that's just part of the.
A description of that category.
So everything else was kind of clean in terms of price performance of everything. So there is no other piece in.
In terms of cash flow.
We obviously saw a very good cash flow performance in the first quarter, we expect that to continue.
We're probably leaning towards the high end of our guide or the higher end of that range.
Given the revision to earnings, but we left the cash number where it is for now.
That's great. Okay. Thanks, so much sure.
And we do have a question from the line of Cai von <unk> with Cowen. Please go ahead.
Yes. Thanks, so much so at aviation your margin was up 500 basis points, you've hit your full year target.
You mentioned after market, but could.
Could you give us some color on other factors and their relative importance for example price.
<unk>.
Aircraft pre owned profits or losses, R&D, those kind of things because you still haven't explained very well why the numbers were quite so good at aviation.
Well Cai.
Part margins as is true in all of our industry tends to be the strongest so that mix was a significant contributor.
We did see positive price over inflation, which is.
Which is good we saw positive pricing I think what we'll see going into our order book, which is good for for future quarters, I think youll start to see frankly, given the environment. That's been out there are.
Our balance of used aircraft is is dropping.
And the pricing environment in terms of what it takes to move those aircraft has been improving.
And so all of those factors are contributors to see.
Healthier margin come back into the business and as you know we need.
To see increased volume coming back into the business to get up to where we were approaching back to a 10% margin in 2019, I think as we see that volume growth through this year and into next year, that's that's where we're heading so.
It's not one spot which is actually good right. It's been good mix, it's good pricing on product.
And most importantly, it's going to as a result of strong book to bill lead to higher volumes.
So if that's the case I mean, basically you are clearly going to blow away. Your five 5% margin target for the year and you said that ABS debt.
Systems is kind of better than you thought so.
Guide looks low, but what am I missing is there something else, that's going south to offset the obvious goodness in aviation and systems.
No there's not I think things are good.
And we'll continue to keep an eye on it through the course of the year is as your friend George noted, we never know what the order rate is going to be 30 days 90 days 120 days downstream so.
If we continue to see the kind of strength that we're seeing in the end market and the demand I'm sure there's opportunity for us to.
To further raise that guide.
Thank you and our last one to follow up to Carters question.
<unk>.
People are throwing money at people, who have never built planes before you guys actually have some technology that's relevant.
To you know the whole urban mobility issue and you have clients, who clearly are oriented that way.
What's it going to take I mean.
Do you feel that you could miss an opportunity by not moving and taking some money and kind of getting into the fray quicker because I assume the guy who is a reasonable product can get.
<unk> certified first is going to have a first mover advantage.
Okay Im not worried about missing anything here I think our ability to execute on the design and development of an aircraft and the certification of an aircraft.
Is is quite proven we've done this many times.
We're sitting on.
Enormous amount of technological capability in terms of what we've done in the past and obviously the technology of our teams I mean, it takes some really talented people to go design and build and certify and aircraft be fixed wing or.
Or VTOL.
We do think there is a potential for a very very large market out there net urban air mobility, but you have to make sure that all the technology you need to have in place.
To have a useful aircrafts is there and as I said earlier I think in my mind that largely comes down to.
Around the battery technology. So we have a great team of people as you know we created a.
Sort of a breakout of a group called the aviation the Roadshow was running for me right now in Poland.
Pulling together the efforts in technology and engineers from across both the fixed wing aviation doses at Textron aviation as well as at Bell.
Some key resources out of our systems business. So we are actively working on this but again you have to have the right propulsion system.
To make this work and thats really going to be the gating item and thats. It.
It's one that we're working on and we're keeping an eye on it so but you know look am I worried about some of these guys that have never certified in aircraft.
All of this is going to dominate a market.
I'm not worried about that at all we are working on this but we don't need to be.
Wildly public are out there, making crazy claims at this stage of the game were.
Were executing in <unk>.
We'll take our time and place to do it and I think we can have a very successful business in that space.
Thank you very much.
Yeah.
And our last question comes from the line of Kristine <unk> with Morgan Stanley. Please go ahead.
Hey, good morning, everyone.
Thanks.
Scott following up on these Oh a question.
It's clear that you have aircraft technology and certification down but a lot of these new entrants are planning a vertically integrated solution, where they also own the direct to consumer access point.
Operations and manufacturing should you go into this industry.
What's your appetite to expand into the other parts of the value chain and provide your own vertically integrated solution versus staying within manufacturing.
Well, that's very much to be determined okay to be honest with you I personally don't understand it.
We've we've been in this game for a long time.
Why someone who produces in services and sells aircraft needs to also operate the aircrafts I mean.
I'm not opposed to the idea but.
There is there's a difference between designing and building and certifying aircraft and operating aircrafts day in and day out I think maybe people don't fully appreciate.
What that business model is and how you have to run such a business.
Look we looked at people like wheels up we'll get people like.
Net just you know I mean look operating big part 135 operations is.
It's not easy it's a.
Yes.
It's a big business, it's a complex business and that's totally different than designing and building and certifying aircraft. So.
I'm, not saying that the existing <unk> someone who is totally vertically integrated can't exist, but I don't know why.
Oilstone why it has to be that way, where frankly I guess my view would be why its exclusively one way or the other so we're working as you know with with with guys like wheels up I mean, Kenny and our companies have a really good relationship.
He's obviously, a master of providing that on demand lift in aircraft and aviation today and running a big complex 135 operation.
And I think there is probably as much opportunity to help accelerate these kinds of end markets through working with the expertise.
Thats out there as opposed to trying to reinvent the wheel frankly.
That's helpful and then Scott if you want to think about when the earliest.
Yeah, It would be where we would see a fully operational.
I am even total.
Slight revenue passenger flights.
So customers when do you think that would be.
Well look this is why we haven't put a date out there right because I think it's got it's going to be gated largely around.
Whats the battery technology, that's there to support Mickey a useful vehicle and when I was useful vehicle I mean, something that can have the kind of range perhaps.
Practical in terms of.
What we know needs to be there from certification standpoint, what needs to be there in terms of.
Margins and that's that's.
That's the piece that frankly is why I say thats in my mind, the pacing item and what will drive that day now does that mean, you can't fly something sooner than that of course, you can fly something.
Through that but to certify it and really put it into an actual real part 135 passenger carrying operation.
That's the piece that's the question Mark and Thats why again I'm not worried about the timing of this I think you would do the work.
And you pull the trigger when you think that youre going to have something thats a.
A certified will practical useful air vehicle.
Great. Thank you.
Yeah.
Okay Brad.
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