Q4 2021 Textron Inc Earnings Call
Okay.
Ladies and gentlemen.
Okay.
Ladies and gentlemen, thank you for standing by welcome to the Q4 2021 Textron earnings release Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
If you wish to ask a question. Please press one then zero on your telephone keypad you may withdraw your question at any time by repeating the London Zero command.
If you should require assistance during the call. Please press Star then zero.
As a reminder, today's conference is being recorded I would now like to turn the conference over to your host Mr. Eric Salander, Vice President of Investor Relations. Please go ahead.
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 were $3 3 billion down from $3 7 billion in last year's fourth quarter. During this year's fourth quarter. We reported income from continuing operations of <unk> 93 per share in the quarter, we recorded $5 million in pre tax special charges related to our 2020 restructuring plan or <unk> <unk> per share after tax.
Excluding these special charges adjusted income from continuing operations, a non-GAAP measure was <unk> 94 per share for the fourth quarter of 2021 compared to $1 six per share in the fourth quarter of 2020.
Segment profit in the quarter was $310 million down $14 million from the fourth quarter of 2020 manufacturing cash flow before pension contributions totaled $298 million in the quarter.
For the full year revenues were $12 4 billion up $731 million from last year adjusted income from continuing operations was $3 30 per share compared to $2 seven per share in 2020.
Manufacturing cash flow before pension contributions was $1 1 billion up from $596 million in 2020 with that I'll turn the call over to Scott.
Thanks, Eric and good morning, everyone, our business closed out the year with another solid quarter.
At aviation, we continue to see favorable market conditions, including improved aircraft utilization low pre owned inventory levels and strong customer demand.
Order activity remained very strong with backlog growth of 655 million in the quarter and $2 5 billion for the full year, resulting in a $4 1 billion backlog at year end.
As a result, we delivered aircraft on a more linear trend through the year, which improved manufacturing efficiency and cash flow generation.
Reflecting this improved operating environment strong execution of our teams aviation achieved say margin of 10, 1% in the fourth quarter.
For the year, we delivered 167 jets up from 132 last year and 125 commercial turboprops are 113 in 2020.
Also in the year, we saw sequentially higher aftermarket revenue on a quarterly basis driven by increased aircraft utilization.
Moving to defense Aviation was awarded a $143 million contract for 86 aircrafts graphs for equipment spare parts and training for the Royal Tire Force.
This contract establishes Thailand as international watch customer for the U S Air Force's latest light attack aircraft.
On the new product front, the Beechcraft Denali completed its first flight in November Washington started the flight test program.
At Bell revenues were down slightly in the quarter largely on lower military revenues as expected, reflecting the continued wind down of the H one production program, partially offset by higher commercial revenues.
<unk> completed the first and saw improvement modifications on an Air Force C V 22 Osprey.
FERC as part of part of an ongoing process to upgrade therefore source briefly.
January the Bell Boeing program office was awarded a $1 $6 billion contract over the next five years support the V 22, Osprey currently in service with youth culture.
On the commercial side of Bell, we delivered 156 helicopters in 2021 offer 140 <unk>.
20.
We also source. We also saw solid commercial order activity for the year, reflecting broad based demand.
Moving to Textron systems, we saw another strong quarter of execution that contributed to a full year margin of 14, 8% up 320 basis points from 2020.
During the quarter, we delivered the fourth ship to shore connector to the U S. Navy after successful completion of acceptance trials.
On the Shadow program systems was awarded an $82 million logistics support contract for 2022.
On a common unmanned surface vessel platform, we completed final testing related to the unmanned and full suite system program.
Setting up the potential for a production contract award in the first quarter of 2022.
Moving to industrial revenues were lower in the quarter as we continued to experience supply chain challenges, including order disruptions at Caltech related to go to global auto OEM production schedules.
At Textron specialized vehicles, we continue to see a strong pricing environment and steady retail demand. Despite the ongoing supply chain challenges both businesses saw sequential revenue improvements for the quarter.
And so my summary, there are many items to highlight in 2021 across our segments.
At aviation strong order activity and customer demand throughout the year drove $2 $5 billion of backlog growth.
On the new product front, we continued our product refresh strategy with the introduction of the citation <unk> and CJ for Gen. Two aircraft.
<unk> completed a flight test program with 'twenty 100 hours of flight test activity and we expect FAA certification in the first half of 2022.
Bell, we continued our work on the FPL programs, we submitted a proposal for the Flora program in September in the U S. Army is expected to work before a program contract in 2022.
On <unk>, we made significant progress on the 360 Invictus prototype build with 75% of the effort complete at year end.
We opened manufacturing technology center, and innovative proving ground to test and refine technologies and processes Cross bells core production capabilities.
Textron systems, a tech continue to grow its fleet of certified iPhone aircraft in support of increased demand on U S Air Force Navy and Marine Corps <unk> programs.
We continued our innovation and development activities with the rollout of the Ripsaw M fire prototype vehicles with U S Army and the Commonwealth RV for the Marine Corps.
Textron specialized vehicles, we entered into a strategic collaboration with GM, which will assist our ground support equipment business and the electrification of baggage tractors cargo tractors and belt motors for use in airports globally.
We also introduced the Liberty the industry's first ptv you'd offer for forward facing seats in a compact railcar size platform powered by lithium ion battery.
Our capex in 2020 , one we were awarded eight contracts on new vehicle programs for our hybrid and electric fuel systems.
Looking to 2022 at aviation, we are projecting growth driven by increased deliveries across all product lines and higher aftermarket volume.
At Bell 2022 represents the beginning of a transitional period as we expect lower revenues related to military production programs, while awaiting a down select an award on the far program.
At systems, we're expecting flat revenue with growth on ship to shore in tactical air programs offset by lower fee for service volume.
In industrial we are expecting revenue growth and margin improvement.
Within <unk>, we expect increasing volumes from improving OEM order production, while at specialized vehicles, we anticipate improving supply chain conditions and increasing volumes across our products.
Earlier in 2021, we launched our aviation initiatives to leverage the resources and expertise across our aviation businesses to develop new opportunities in aircraft utilizing electric propulsion systems in.
In 2022, we plan to expand these efforts and increase our investment in developing technologies to accelerate the shift to sustainable flight, including EV tall and fixed wing aircraft.
With this backdrop, we're projecting revenues of about $13 3 billion protection on 2022 financial guidance, we're projecting EPS in the range of $3 80 to $4 per share Manny.
Manufacturing cash flow before pension contributions is expected to be in the range of $7 million to $800 million.
With that I will 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 $1 4 billion were down $201 million from a year ago, largely due to lower aircraft volume, partially offset by higher aftermarket volume.
Segment profit was $137 million in the fourth quarter up $29 million from last year's fourth quarter, largely due to favorable pricing net of inflation of $21 million and improved manufacturing performance.
Backlog in the segment ended the quarter at $4 1 billion.
Moving to Bell revenues were $858 million down $13 million from last year, reflecting lower military revenues, partially offset by higher commercial revenues.
Segment profit was $88 million of $88 million was down $22 million, primarily due to lower military volume and mix.
Backlog in the segment ended the quarter at $3 9 billion.
At Textron systems revenues were $313 million down $44 million from last year's fourth quarter due to lower volume, which included the impact from the U S. Army's withdrawal from Afghanistan on the segments on the segments fee for service contracts.
Segment profit of $45 million was down $4 million from a year ago, largely due to the lower volume backlog in the segment ended the quarter at $2 1 billion.
Industrial revenues were $781 million down $85 million from last year, reflecting lower volume and mix of $133 million largely in the fuel systems and functional components product line, reflecting order disruptions related to the global auto OEM supply chain shortages, partially offset by a favorable impact.
Pact of $50 million from pricing largely in the specialized vehicles product line.
Segment profit of $38 million was down $17 million from the fourth quarter of 2020, primarily due to lower volume and mix, partially offset by favorable impact from performance.
Finance segment revenues were $11 million and profit was $2 million.
Moving below segment profit corporate expenses and interest expense were each $29 million or manufacturing cash flow before pension contributions was $298 million in the quarter and $1 1 billion for the full year.
In the quarter, we repurchased approximately $4 5 million shares returning $335 million in cash to shareholders for the full year, we repurchased approximately $13 5 million shares returning $921 million of cash to shareholders.
Turning now to our 2022 outlook I'll begin with our segments on slide eight of the earnings call presentation.
At Textron aviation, we're expecting revenues of about $5 5 billion, reflecting higher deliveries across all our product lines and increased aftermarket volume segment margin is expected to be in the range of approximately 10% to 11%, reflecting higher volume favorable pricing and increased operating leverage looking.
Looking to Bell, we expect revenues of about $3 billion, reflecting lower military volume primarily related to lower H one production.
We're forecasting a margin in the range of about 10% to 11% largely due to the lower military volumes and continuing high levels of R&D investment.
At systems, we're estimating revenues of about $1 3 billion with a margin in the range of about 13 five to 14, 5%.
And industrials, we're expecting segment revenues of about $3 5 billion on higher volumes at <unk> and specialized vehicles.
We're estimating industrial margins to be in the range of about five 5% to six 5%.
At Finance, we're forecasting segment profit of about $15 million.
Moving to slide nine on a consolidated basis, we are expecting earnings per share to be in the range of $3 80 to $4 per share. We're also expecting manufacturing cash flow before pension contributions to be about $700 million to $800 million, which includes an approximately $300 million impact from a change in the R&D tax law beginning.
In 2022.
Looking to slide 10, we're projecting about $150 million of corporate expense, which includes $30 million of investment in aviation.
We're also projecting about $120 million of interest expense and a full year effective tax rate of approximately 18%.
Looking to the other items and turning to slide 11, we are estimating 2020 to pension income to be about $120 million up from $30 million last year.
Turning to slide 12, R&D is expected to be about $585 million down from $619 million last year, we're estimating capex will be about $425 million up from $375 million in 2021.
Our outlook assumes an average share count of about 219 million shares in 2022.
That concludes our prepared remarks, so Brad we can open the line for questions.
Of course, and once again, if you did was to ask a question. Please press London zero on your telephone keypad.
And our first question today comes from the line of Peter Arment with Baird. Please go ahead.
Good morning, Scott, Frank Eric and Nice results, Hey, Scott, maybe you could just describe kind of the level of where you think.
Production jet production is going to win in 2022.
In the fourth quarter did you have any any kind of challenges from the supply chain and agents move into the 2022.
Sure Peter So as we've talked about we have we have been ramping up the production rate. We continue to do that and expect to continue to do that throughout.
The course of 2022, the backlog has been very strong we still see.
Robust.
Demand in the marketplace. So I think it remains very favorable from a market condition.
We haven't had problems like I shouldn't say, we haven't had problems with you guys always have to work through supplier issues here and there, but but no we do not have that impact our production rates.
Or impacting the 2022 deliveries the ramp rate continues.
We're bringing people on board every month and training and continuing to.
To bring them on our human resources in our own business, we continue to work with suppliers as they meet those ramp rates as well.
I think as we look forward you.
You kind of look we were coming out of the year was.
Somewhere around 12 months.
Backlog, we like that I think thats very healthy for us and I think it's very healthy for our customers right. So it's really how the business should run. It gives you much better visibility it allows customers the opportunity to sell their used aircrafts.
For many of them.
We're upgrading an aircraft.
Gives them a lot more time to specify options in interiors and paint some.
All of the things involved in that.
Process and it allows us to cut all of those things into the production line in a very efficient way rather than having a bunch of rework and changes towards the end to accommodate a customer needs. So.
So I think keeping an eye on that 12 months against other kind of for our class of aircraft that makes a lot of sense to us and I think it makes sense to our customers.
So as the year goes on and obviously, we will keep a close eye on on the demand environment and we will continue to make adjustments.
We see fit but I think we're very happy with where we are at the backlog levels that we have I think gives us it works for us it makes for a much more efficient cleaner easier to operate more linear.
Business in Asia, and I think it's been good for our customers as well so.
Okay.
A follow up to that Scott.
Are you back now do you think to get back to the 200 plus jet level on production or should we not really look at it that way just given the mix, yes, no I think I think Sean I think as we've been saying, we think we'll be back to those levels, where we were at <unk> 19.
We're probably a little early to guide on our 2023 volumes, but we will keep an eye on it but yes for sure.
We feel good where we are on track to get back above those.
219 levels and I think you see that in our in the revenue guidance.
And just lastly on just CR if it goes in full year have you quantified it.
The impact.
Thank you Danny.
Peter we really haven't I mean, we're still kind of growing on the basis that the CRM is going to resolve itself here probably in India in February into March.
If it ends up being a full year thing.
We have any.
One specific thing we point out, but it's not healthy for the industry, it's not healthy for the government I hope it gets resolved, but we kind of continue to fight through it every day.
I appreciate the details thanks Scott.
And our next question comes from the line of Sheila <unk> with Jefferies. Please go ahead.
Good morning, guys.
Good morning.
Unbilled revenues are down, 8% and margins contracted 100, David.
Or do we think about pension given it would be additive to that as well as R&D and lowering how does <unk> factor into that.
Well, probably will go to all the constituents parts like Theres no doubt that there is some margin compression in Berlin.
Operationally, that's driven by the fact that we're going to continue to see the H one program winding down so you're losing.
What's been important production volume for us and we will have some offsets there obviously I think we'll have a good year in terms of commercial.
Aircraft deliveries I think the commercial aftermarket will continue to be better, but I think we're going to see some pressures.
Military aftermarket is always a little bit lumpy, but.
<unk>.
It probably will be a bit of a challenge, but most importantly here as you know we've been investing very heavily on the R&D side, particularly around Florida and Florida.
And we do expect given what we're seeing that the U S Army customer.
As staying on track with what they've said publicly about.
Florida evaluation process, it's a huge proposal it's a lot of work on both sides, but there I think it appears they are making good progress. So I think there are probably.
On track to make announcements towards the middle of the year as they've been saying, but I will say, what we've put in our numbers is.
I think a reasonable expectation that this is a huge program and it's going to take a little while for to actually get under contract.
And turned into something that has revenue associated with it right. So I think we're going to continue to see a pretty high level of R&D.
In support of that program throughout the balance of most of this year. So.
That's really what's going on operationally, where we are without a doubt seeing a mix shift from.
Good margin production volumes, particularly.
Associated with.
H one ramp down.
With continued high levels of R&D and sort of a slow transition here even in the event of a floor win to revenue recognition on that program.
Great. Thanks.
Yeah.
And our next question comes from the line of Cai von <unk> with Cowen. Please go ahead.
Yes. Thank you so much so you mentioned the.
Florida, a down select in 2022 my understanding was the expectation was they were going to make that decision by mid year is that still your understanding.
It is high.
All I was saying and kind of the the response to <unk> question was that I think they are on track from what we see in evaluation notices and that process that you would normally.
Working through on a proposal of this magnitude I think it's.
I think it is heading in that direction, so, but there's a difference between announcing who the winner is.
And actually getting under contract right. I mean, this was a big program and I think it's going to realistically. It takes some time and so therefore, I'm expecting that even though the announcement might come.
Quite possibly at the end of Q2, let's say that.
Transitioning that into actual.
Being on contract.
Going to take a little bit of time and our assumption is we're not going to go to disband that team. So we're going to have to continue to.
I'll do part of the cost share funding to retain that team until such time as we get under contract.
Got it and then at Textron I mean, I know that pricing you mentioned is strong but did pricing improve in that quarter versus Q3, and maybe if you can tell us how many price hikes.
Do you have in 2021, and where have you had one in 'twenty two.
Well I guess the dialogue really how should we use around price realization right. So we've for a long time youre negotiating these deals so yes pricing certainly continued to be strong in Q4.
Youll see that in our indicators right about $29 million of positive price.
And so well ahead of inflation.
Yes, we're still continuing to improve on our on our realized price.
And I expect that to continue this year as well.
That's great and then Frank one for you, so and kind of reading through the release I think you mentioned that your cash flow numbers assumes a $300 million hit from R&D credit amortization. So so you're basically assuming that furthers, whereas Lockheed and <unk>.
<unk> did not is that correct.
Yes, I mean, it looks like different folks are handling this differently there.
Kind of some dialogue around the interpretation of what might be capitalized and what might not be capitalized I'd say that kind of we are on we've taken an approach that is on the more conservative end of things I think in terms of looking at the cash impact.
And have included it in our guide so it's $300 million as I said.
And that would be the kind of the full impact with the kind of larger range of <unk>.
Impact associated with how these people are.
Now looking to assess how this gets implemented.
And our next question comes from the line of Noah <unk> with Goldman Sachs. Please go ahead.
Hey, good morning, everybody.
Good morning.
Hey, Frank just to stay there for a SEC.
I understand if you're being conservative in laying out a forecast.
To all of us, but what did you think of what Lockheed said there because they had originally been talking about an impact similar in percentage terms is what you've laid out here, but now they are saying that it only applies to where they've had R&D tax credit in the past do you think thats incorrect or its just still being evaluated and that may be correct.
I think theres, there is dialogue and the tax community as I understand it around the interpretation of this I think we're all hoping it gets fixed is the real answer that.
There's a lot of dialogue around this is this is not good for.
The company is investing in R&D and <unk>.
The focus of the.
The nation on continuing to invest for the future and so we're all hopeful it gets fixed but there are different interpretations that are being discussed and attached community around the application of it I.
All we're trying to be as well, we're trying to be as transparent right. So.
If they do the right thing.
This is ridiculous right through the whole purpose of the R&D tax credit.
To incentivize R&D and by not allowing you to do that that's sort of.
The whole purpose for this thing so.
We're going to more transparent, we're giving you guys the numbers the daily.
Bill passes that appeals that are removed it or some interpretation will immediately add up.
Our guidance.
But it can still be considerably smaller even without a bill that actually changes the law and where it's just a different accounting interpretation.
I think you'd have to that would have to get resolved you know as we look at what our cash tax payments are and how we would like how we would handle that and the risk associated with that so I would say that kind of as we sit here today, our expectation is that if the R&D tax credit does not get changed complete.
Leave it this way if this will be our approach to the implementation of what is the law today.
And our next question comes from the line of Robert Stallard with vertical research. Please go ahead.
Thanks, so much good morning.
Morning.
Scott or Frank this I don't show that is useful.
What you said so far about the aviation has been pretty positive.
Margins not just in <unk>, but in the future year as well in terms of pricing and a steady production rate longer lead times whats your latest prognosis on incremental margins maybe over the say two to three year period.
Hello, Robert We've always said that these conversions always somewhere in that 2% to 5% and I think thats what were realizing so.
If you look at the guide you're getting a nice revenue increase and good leverage to the bottom line associated with it.
So we move towards the top end of that range. You say is a fair assumption with this pricing coming through well.
I think as time goes on we will continue to see the margins expand if we continue to see this kind of revenue growth because I do think we will be able to convert.
And those 225% Incrementals.
There's new programs coming in like Sky Courier, and Denali overtime and things like.
That have impact on things. So there is some variability.
As we look at mix, but generally as Scott said, it's consistent with what we've been talking about.
And then as a follow up on the in the industrial Division.
Relative to what you said three months ago have things gotten any better on the supply chain.
Oh.
I think.
They're kind of where they were I think we're expecting that we'll see a little bit of a.
The bad news of this all Mcallen is the if you looked into our factories, our supplier factories. The last week or so of December into January you saw this crazy high.
Spike, which clearly has impacted operations. It's the good news here is we are seeing that.
That line of cases come down just as dramatically as it went up but I think realistic speed you will see some of the impact of that trickle through here in the in.
In the first quarter or so, but I think as we progress through the year. It's certainly our expectation that we'll see that improve and that's what we've reflected in the guide so you'll have a probably a slower.
Realization of that certainly in the first quarter going into the second but.
All in all we'll see improvement as we go through the year.
And our next question comes from the line of David Strauss with Barclays. Please go ahead.
Good morning. Thanks.
Alright.
Alright.
You touched on.
And the pressure there from a from the military.
You wanted to.
Happens do not win.
Our Uh huh.
What is the longer term outlook for the military business and Bell.
Well, if you don't win any new military programs, that's a challenge for the military program for sure.
But look we've talked a lot about Florida, and I, certainly don't want to underestimate the impact and the importance of Florida. The future Bell that's something we work very hard at and we think we're in a good place, but obviously, it's a competitive program, but as you noted we were also working on Farro we've got.
Speed VTOL I mean, there is a number of investments that we're making.
There are obviously, you've got maritime strike in the in the Navy.
Our programs the Marine Corps, there's certainly a lot of other opportunities.
On flora, but.
<unk> is an important program for us for sure.
Okay. Thanks.
Great.
Yes.
The R&D impact.
What is what is.
Your working capital assumption kind of underlying that $7 million to $800 million.
Free cash flow forecast and then got it.
I guess it looks like capital deployment, you're talking about maybe buying back by $600 million in stock, but yeah.
Based on that Youre going to be kind of five times levered by the end of the year. So how are you thinking about kind of longer term capital deployment, and where you want the balance sheet.
Yeah sure so from a working capital standpoint, we're we're looking at kind of flattish working capital ex <unk>.
Tax number which does impact working capital, but kind of as you look at the other elements from an inventory payables receivables things like that.
Yes, we think we.
We will likely see a little bit of inventory growth associated with ramp and the commercial businesses.
But we think we can offset that in other places.
And.
So kind of continued good working capital performance.
In terms of cash flow cash.
Cash deployment remains the same certainly you know kind of we look at obviously R&D and investment back into the business. We outlined that so we've modeled in kind of some number for acquisition activity that we always do.
But the rest of the free cash flow would go towards share repurchase activity.
That number in our model in terms of share count actually has our share repurchase a little bit backend loaded so.
We're roughly thinking about share repurchase that is in line with the from a dollar standpoint with the amount of repurchase activity that we undertook this past year.
And our next question comes from the line of George Shapiro with Shapiro Research. Please go ahead.
Yes, good morning.
Hi, George.
Scott last year at this point you had projected aviation revenue at 45. So you guys are quite good on that but you projected profitability of five 5%, we wind up with eight 3% in the incrementals effectively like 60% four year.
Current projection you in line with what you're saying, 24% incremental but my question is what caused last year to be so good, particularly the fourth quarter, where revenues were down in profit was way up and so is there upside to that 10% to 11% margin guide for this year.
Oh sure.
The comparable is going back to 2020, obviously.
It was a pretty extraordinary year. So you would expect to see a lot better overall performance in the 'twenty want us to use kind of returned to normal so.
That's why I think we're back into that world, where youre talking about these kind of 20% to 25% incrementals on the on the business. We continue being a strong pricing environment. We are in a strong pricing environmental year, which obviously is helpful.
And again as I mentioned, having the strength of our backlog and we haven't seen in a very long time and it really has helped to run the plants much more efficiently and effectively.
So I think we have all of those things are tailwind to us look real.
We've got our way into 2022 here and keep our heads down and keep delivering and now if we can drive additional margin. Obviously, we have a reason the world to do that.
Okay and one just one quick one Frank how much was aftermarket actually up in the quarter.
Aftermarket on a year over year basis was up at aviation, 20% year over year and sequentially was up 6%.
Okay. Thanks, very much good numbers.
And our next question comes from the line of Pete Skibinski with Olympic Global. Please go ahead.
Hey, good morning, everyone.
Okay.
Scott just wanted to tease out how much visibility you have right now in the business jet marketplace.
With the incredible backlog growth you've seen this year and you're kind of delivery skyline that you have planned.
Do you think you could work any of that backlog down this year by the end of the year or could backlog stay flat or to grow do you have any sense of how hot the market is.
Well I would say the market is pretty hot but and Youll see that again in Q4, where we got kind of a.
One seven sort of numbers so.
That's good all I would say is I don't think we liked that visibility of kind of being able to look out over months and understand that skyline of deliveries by models.
And again, it's so important to us to be able to work in an efficient way.
But look our salespeople are out there selling hard every day and so.
If we get visibility when we start looking at.
Yeah.
Out even further into the future then we will look at continuing to increase production rates, but.
I don't think we want to do something stupid and try to go.
Radically accelerate production rates and then burned down backlog and then you back where you were where you don't have that visibility and don't have those efficiencies again I don't I don't think its healthy for.
For the industry. The customers are you know our company so I think thats.
That's sort of what will keep our eye on is that those timelines are have kind of come back to normal historical in terms of what our customers' expectation is from the time that they.
Ill start a process of buying and when they want to take a delivery for the aircraft and I think we're in a good place right now and we should keep it there.
Okay I appreciate the color and just one last one can you just where are we in the in the commercial helicopter cycle and.
Well the 525 certified this year.
Well look I think the commercial helicopter as we've seen similar to what we've seen in aviation we've seen a nice.
Solid demand we saw a good delivery increases we'll see that again in what we've guided you in the 2020.
Two numbers.
5% to five clearly has been a disappointment for us in terms of our ability to get that through.
Certification I think theres been a lot of good work done this year I think we're on a good path you've probably seen some of the stuff that's been out there in the.
In the press release in addition to working the basic.
We're starting to the ice certification because so many of our customers will need that capability. So we're we're paralleling those tasks right now and yes, certainly we expect to get the certification done this year.
And our next question comes from the line of Robert Spingarn with Melius. Please go ahead.
Good morning, Scott.
Would you be able to parse out the demand within the aviation perhaps across the portfolio, where you see the strength and then also talk about the.
The different types of customers that corporates versus the individuals versus the fleet operators.
Well I think I guess the color I could give as to say that jet leads the way that's been the strongest demand environment.
I would say that the demand is very robust in both the individual buyer, whether that's corporation or high net worth individual as well as obviously the fractional market is very strong right now so we're seeing a lot of demand through our.
Through our partnership with <unk> so.
Again look jets virtually across the board in terms of jet models from entry level, all the way up through longitudes, it's quite strong.
Turboprops is also strong but not as strong as jets and I would say part of that reason is as you guys know that are.
Our jet business is usually the biggest chunk of that market is North America, where we see very robust demand.
Smaller part of that market is outside the U S. There is still a little bit behind.
There is demand there, but it's not quite as robust as North America.
When you look at turboprops and specifically when you look into the King airs for instance, that's a market that for US historically is stronger outside the U S than inside the U S.
So it's strong but frankly, it's marginally led right now by North America, because again, the North American recovery has been so strong. So we have seen that that outside of the U S market picking up and are seeing that demand but.
And so it's a it is better than one to one it's good but I would say in terms of color Jets is certainly leading the way.
Okay, and then just quickly on the specialty vehicle side wanted to ask how the inventories are I think you touched on it but with the supply chain issues. It gets a little obscure. It is the takedown or the sell through of snowmobiles has been good this season and whats the outlook for the dirt market. Yes. It is like the demand environment is very strong guys. The only challenge we have is just.
Fly changed if I could if I can get more parts and build more machines.
The staff sells through the market. It's our only frustration right now is being able to get more stuff out there to dealers.
I'd say, if you look on a year over year basis, we actually.
It's all improved volumes through talked through the tracker channel, which is terrific, but it could have been even better if we can get more.
More machines out there. So this is this is most certainly not a demand problem. It's a it's a supply chain problem.
And our next question comes from the line of Christine The Wang from Morgan Stanley . Please go ahead.
Hey, good morning, guys good morning.
Backlog.
Could you talk about how you're managing potential inflation risk, especially if we see.
Raw materials and labor.
The elevated level I mean, how much of the straightforward path there in terms of escalation clauses and how much would you try to offset with lower cost.
Obviously, our intent here is to keep pricing.
Inflation, a positive number and so we do certainly see inflationary pressure I think everybody in the world is seeing that come through to one degree or another.
Some businesses have more long term agreements and others, which helps Christian that a little bit some are more exposed to logistics and transportation costs, which are virtually media, but we've responded a lot of that were you know in the businesses, where that's a problem. We we put freight surcharges out there right away. So we're very very conscious of.
Inflationary pressures and have I think good plans and actions around prices and surcharges to to try to more than offset that.
Thanks Bill.
Program roll offs and with Lora.
Contract upside is really farther down the line.
Is there a path back to that 12% margin.
The next few years.
So because I don't know I won't go beyond probably 2022 guidance, but we've been saying for a very long time that we expect sort of a 10% to 12% margin business. We've obviously been well above that as we had a lot of strong multi year production programs, where we can drive efficiencies in and gain the benefits of that.
But we noticed side of that coin when you see some of the ramp downs.
It's more pressure to it.
To be in that range, and Thats, where you see us today so clear.
Clearly some of these programs, even when you're talking about AMD programs of a magnitude like Florida.
Or is there still pressure when you when you unwind some of these large production programs, but.
And I think it's too early obviously to think about how we would guide to.
23, or 24, it'll depend a lot on mix do you theres still opportunities out there for increased production on some of our military programs. We don't know what the aftermarket is gonna look like on some of those programs.
We got to kind of adjust every year, but I think 10% to 12% is what.
What we said for a long time, and I think thats, probably the reality of where that business will be.
And our next question comes from the line of Ron Epstein with Bank of America. Please go ahead.
Hey, good morning, guys.
Scott I was wondering if you could share some of his thoughts on an EBITA.
We've seen some of the publicly traded if you talk companies just get crushed.
<unk> just dropped about half a billion dollars into risks.
I mean, arguably you're probably one of the more experienced companies at this given that you do have a vertical lift business you do.
With you know kind of smaller vertical lift aircraft and I was just curious what your sense is on that market and how you think about it for textron.
Well look Ron I think that I think we're in a better position than anyone to go execute on these market opportunities. We're doing that I think the advantage for US is that we have already in the company the infrastructure and the talent to do these sorts of things.
So I.
I don't need to make.
<unk> announced a half of $1 billion investments I think we've indicated you guys are going to probably have $30 million that we're putting in this year, but I can spend my money on actual engineering capability in designing stuff.
Stuff I don't need to be building hangars and office spaces and test laboratories, and all of us have all that stuff right. So.
We have a lot of technology leverage that comes out of our flight controls side of Bell that's been doing until rotor, which is kind of what these guys look like or our baby until rotors, we know how to design and build and certify part 23 aircrafts. So.
I just think our approach here is spend money, we need to spend to invest in the technology.
We've talked before the <unk>.
Batteries or battery density issues.
To have a practical product and so we're working with a lot of different angles and batteries cell suppliers to try to understand this thing theres a number of things we're looking at to strengthen frankly that part of our business I don't know, how we don't really need to strengthen that part of our business that knows how to do tilt rotors that knows how to do.
Fixed wing aircraft and that weight class in that certification.
Type, but we do need to strengthen our capability on the on the battery electric propulsion side of things. So we're doing all of that.
I just don't think there's a reason for us to come out and through dates around around win win this business model happens and frankly look I think there is.
Every reason to believe that that EV toll in the urban air mobility could be very big business and I think we'd love to.
Supply assets into those.
That business, but I think I think electroplate frankly is a lot more than that right I mean, there is.
Theres trainers are six wing stuff, it's not just all about.
E VTOL I mean that could be a monster market that would be great, but I don't think its the only market. So we're taking a probably a more pragmatic approach in.
Making the right investments I think in looking at opportunities for us to be a big player in that I think I think we should be the winner in that space, but I think we can do it with.
Relatively modest investments in and leverage the technology that we already have in our company.
Yeah that makes a ton of sense. Thank you.
Okay.
And our next question comes from the line of Seth <unk> with J P. Morgan. Please go ahead.
Okay, Thanks, very much and good morning, everyone.
I guess.
Scott.
Totally sure, but I want a guest that youre, probably at least three quarters of the way through.
The net jets agreement on latitudes and so how do we think about where that goes from here and.
The demand level as you sort of approach the end of that.
It does 200 aircrafts out given their importance as a as a latitude customer.
Look thats a good question and I don't recall exactly.
The numbers I mean, it was a huge order as you guys know we've put those into backlog as we work with Netjets every quarter on forecasting that sort of 12 to 18 months.
Window that's out there.
I don't think were close enough that we started to have to negotiate another deal to provisions of how to manage that through the lifecycle.
A lifecycle of a couple of hundred aircrafts were already already defined and we're executing to that.
I guess I would say is I think that the performance of that airplane.
For net just for their customers has been has been terrific. The relationship is very strong it's very healthy.
We enjoy working together and I think when we get to the point, where we got to say.
Alright, guys were.
Term of that contract in terms of the number of aircraft and we will.
Who would have a reasonably we negotiate an extension to it and keep on keep on.
Rowan.
Right Okay. Okay.
Very good and then.
Maybe.
Following up on Christine's Bell question.
I understand that there is now a 23 guidance at this point, but I mean with a with a floral win.
Can we assume that 2022 is an EBIT bottom at bell.
Well again I don't want to guide 2023, just yet.
There's a lot of stuff that will happen here through the course of 2022 in terms of other programs in commercial aircraft and aftermarket and all those sorts of things. So there's a lot of it.
Theres a lot of moving parts in the mix that goes into what our EBIT levels look like it at Bell.
Uh huh.
We certainly haven't.
Delved into that at this point.
Okay, alright, great. Thanks, Thanks very much.
Sure.
And we do have a follow up question from the line of Noah <unk> with Goldman Sachs. Please go ahead.
Scott you first projected.
You would recover half of the decline from 2019 to 2020 and Cessna deliveries in 2021, you're essentially just reported exactly that maybe actually slightly light of it.
And you first projected 2020 to get back to 2019 for assessing units with the fourth quarter of 2020 report.
And now you're guiding to pretty much exactly that but.
But it seems like the market has strengthened considerably since you first provided those targets that span a two year period.
About a year ago, and so it's sort of.
The market strong and I understand you want to be prudent about how you were.
Where do you go with the production rates here and this has been cyclical in the past, but it sort of seems like the strength the incremental strength over the last 12 months is not really coming through in those delivery numbers.
Well look I mean, we've we've tried to provide a guidance and try to.
The expectations on that guidance.
We will look at how the market plays out through the course of the year and what the order rates look like and what we can do.
That we think we can if we think we can do additional aircraft in other words, if the market demand is there the supply capability is there at all.
We work that every day so.
If there is an opportunity for us to to improve upon that in service from the rollovers.
No.
Obviously, we'll go down that path, but I think that the guide is appropriate for what we've said is supported by the backlog and.
That's the plan that we're looking at today.
Okay.
And do you anticipate seeing.
Bookings in excess of revenue at a rate through 2022 that was similar to what you saw in 2021.
Oh look no I don't I don't know I mean, we're looking at are awfully strong ratios here.
In 'twenty one.
So.
That would be another awfully big backlog build.
Look I'd love to see Us continues.
You know some backlog buildup.
Reasonable to expect that to say is that hot through holding of the year I don't know I mean, if it does great and if it does obviously, we will continue to tweak our production levels up and in our delivery levels off but that's something I think we'll just keep an eye on that as we go through the course of the year.
Wouldn't.
I would just be making stuff up to.
It's going to be that strong for a whole another year.
How it plays out certainly it's it has remained robust.
Yeah.
And we can sell more and we'll do it.
And our last follow up question is from the line of George Shapiro with Shapiro Research. Please go ahead.
Yes, Scott.
The fourth quarter deliveries, there being three and less in the third quarter I know you've talked about wanting to level load in this year, but I would've expected the fourth quarter to be a little bit bigger than the third so are there any deliveries that get pushed into 'twenty. Two as a result of that or if that's just Alex sell out and that is what we expect in the future.
No no thats just how it fell out George I mean, we're going to have it's not going to be the same number every quarter, obviously, but I think but we like the fact that there was a lot more linearity.
Contrast that to going back and having a lower third quarter and then you've got this big spike of tons of deliveries right at the end of a four quarter again, it's not a very healthy way to run a business. So.
Yes.
I'd like to be totally flat or a little bit better on sequential.
Okay.
I think at this point in the game where we're.
We are delivering to the customer need dates and that's where we're going to continue to do is as we go forward.
Okay, and then what is the lead time, where you'd have to make a decision too.
Delivering more planes.
This year.
You had the first half of the year to be able to do that or what kind of lead time do you need.
Well George I mean, we've always talked about these being sort of 12 to 18 months kind of thing on some of the longest lead obviously, we work with those suppliers.
Try to go.
Go down another level or two levels in some cases to look at one of the longest lead times.
And their supply chains and try to mitigate some of those things. So it gives us a little more flexibility.
In ramping as we go through but I mean, there are obviously limits to that.
<unk>.
So when we say, it's kind of a 12 to 18 months is where we'd like to be obviously, we've tried to mitigate some of those longest lead items. So that we have we have some flexibility inside of that window, but look it's really hard to make much change inside of a six month window right, but we are a little bit of wiggle room.
That three year timeframe.
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