Q2 2022 Textron Inc Earnings Call
Okay.
[music].
Hi, and welcome to the Q2 2021 Textron earnings release conference call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session. If you should have questions. During the call today. Please press one followed by the <unk>.
Oh.
As a reminder, today's conference is being recorded I would now let's turn the conference over to 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, 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 2 billion essentially flat with last year's second quarter segment profit in the quarter was $303 million up $14 million from the second quarter of 2021.
During this year's second quarter, we reported net income of one dollar per share compared to 81 per share in last year's second quarter manufacturing.
Manufacturing cash flow before pension contributions totaled $309 million in the quarter down $200 million from the second quarter of 2021 and with that I'll turn the call over to Scott, Thanks, Eric and good morning, everyone Avs.
Aviation had another solid quarter with higher revenues and strong execution, resulting in a 12, 1% segment profit margin.
We continue to see strong demand solid pricing and increased deliveries for our citation jets commercial turboprops and higher aftermarket volume from increased aircraft utilization.
We delivered 48 jets up from 44 last year and 35 commercial turboprops up from 33 in last year's second quarter.
Order activity was strong in the quarter, reflecting continued order momentum that generated 700 million of backlog growth, resulting in $5 8 billion of backlog at aviation at the end of the second quarter.
During the quarter Aviation defense business was awarded a $91 million contract for 86 aircraft spares and related support services dyskinesia.
At Textron Aviation Defense earlier this week the 86 Wolverine received military type certification from the U S Air Force paving the way for continued global sales of light attack aircraft.
On the new product front, we delivered the first social Sky Courier to our launch customer Fedex and also delivered the first <unk> Gen two aircraft.
At Bell revenues in segment profit.
Down in the quarter, primarily reflecting lower H one program volume.
On the commercial side of Bell, we delivered 34 helicopters down from 47 in last year's second quarter.
While commercial order activity was strong across all models supply chain headwinds impacted Q2 results as several commercial helicopter deliveries slipped out of the quarter.
Overall, the strength in commercial demand, which included South Korea selecting the Bell 505 aircraft for use of this next military trainer.
Two an increase in bell backlog of $500 million in the second quarter.
During the quarter Bell announced a contract award of $518 million to upgrade candidates fleet of <unk> hundred 46 Griffin aircrafts. This upgrade program is expected to be completed by 2028.
Moving to future vertical lift we now expect our Florida contract announcements sometime in October .
Following the USA conference as a result, we anticipate continuing our investment on this program, which will be incremental to our original segment guidance.
Moving to Textron systems revenues were down in the quarter on lower volume, primarily reflecting the impact of last year's withdrawal of U S Army from Afghanistan on our fee for service <unk> support contracts at.
At <unk>, we continue to see increased flight activity on our U S Navy and Air Force <unk> contracts.
During the quarter, we delivered El cap 104 to the U S. Navy and continued progress through the build process of the remaining E&E craft on the ship to shore connector program.
Last week the U S. Army analysis systems was awarded a $354 million firm fixed price contract for.
<unk> for the production and delivery of the XM tool for Topotype munition and anti vehicle system. This is neither IQ contract with an estimated completion date of 2027.
Moving to industrial we saw higher revenues in the quarter, driven by higher pricing and volume at specialized vehicles, mainly in our personal transportation and golf product lines.
At Caltech the auto market remains challenging as we again experienced order disruptions related to the global auto OEM supply chain shortages and Covid mandated factory shutdowns in China continued to directly impact our production schedules.
In April we closed the acquisition of pivotal pioneer and global leader in electric powered aircraft.
Beginning in the second quarter of 2022 pivotal became part of Textron Aviation a new reporting segment that includes pistols operating results at R&D expenses related to the development of sustainable Aviation solutions.
In the quarter, we announced that <unk> bolus electro received the U K Civil Aviation Authority certification.
<unk> remains the only type certified electric aircraft in the world.
Overall, it was a solid quarter with strong cash generation and growth in earnings our teams executed well in a difficult environment, where we continue to experience supply chain disruptions labor supply shortages and COVID-19 related impacts across our businesses.
While these challenges drove manufacturing inefficiencies and delayed product deliveries at many of our businesses our financial performance demonstrates the resiliency of our operations.
Looking forward, we anticipate these headwinds to continue through the remainder of the year with that I'll turn the call over to Frank.
Thank you Scott and good morning, everyone.
To review how each of the segments contributed starting with Textron aviation.
Revenues at Textron Aviation of $1 3 billion were up $123 million from the second quarter of 2021, largely due to higher aircraft and aftermarket volume.
Segment profit was $155 million in the second quarter.
Up $59 million from a year ago due to the impact from higher volume and mix of $25 million, a favorable impact from performance of $19 million and favorable pricing net of inflation of $15 million.
Backlog in the segment ended the quarter at $5 8 billion.
Moving to Bell revenues were $687 million down $204 million from last year due to lower military revenues of 170 million primarily related to the H, one program and lower commercial revenues of $34 million.
Segment profit of $63 million was down $47 million from last years second quarter, reflecting lower volume and mix, partially offset by a favorable impact from performance, which included lower operating expenses, partially offset by an unfavorable change in net program adjustments backlog in the segment ended the quarter at five.
$3 billion.
Tetra Textron systems revenues were $293 million down $40 million from last year's second quarter due to lower volume of $44 million, primarily reflecting the impact of the U S. Army's withdrawal from Afghanistan on our fee for service and aircraft support contracts.
Segment profit of $42 million was down $6 million from a year ago, primarily due to lower volume and mix.
Backlog in the segment ended the quarter at $2 1 billion.
Industrial revenues were $871 million up $77 million from last year's second quarter, primarily due to a favorable impact from pricing and higher volume and mix principally at specialized vehicles.
Segment profit of $41 million was up $9 million from the second quarter of 2021, primarily due to the higher volume and mix.
Textron Aviation segment revenues were $5 million and segment loss was $8 million in the quarter.
Finance segment revenues were $14 million and profit was $10 million.
Moving below segment profit corporate expenses were $12 million in interest expense was $28 million.
Our manufacturing cash flow before pension contributions was $309 million in the quarter down $200 million from last year's second quarter.
The second quarter of 2022 included significant cash tax payments as a result of the 2022 change in R&D tax treatment.
In the quarter, we repurchased four 4 million shares returning $282 million in cash to shareholders.
For the full year, we are reiterating our earnings per share guidance of $3 80 to $4 per share and we are increasing our cash flow from continuing operations before pension contributions guidance to be in the range of 800 $900 million.
Up $100 million from our prior outlook.
That concludes our prepared remarks, so Brad we can open the line for questions.
Of course, and our first question today comes from the line of Sheila Gallo with Jefferies. Please go ahead.
Hey, guys and impressive nine minutes today.
In terms of your guidance for the year you read reiterate it.
Several companies are missing on supply chain. So maybe can you talk about are you seeing some of the supply chain headwinds for the second half of the year and Scott in your prepared remarks, you mentioned flora the push out to mid October how does that impact results in additional investment there.
Sure Sheila.
I think if we look at the sort of across the company first and foremost I think Textron aviation performance will continue to be very strong in the in the second half. We are trying to ramp production, we expect to try to continue to ramp production through.
It was a 2023 given the very strong demand environment supply chain headwinds are causing.
Some disruptions are obviously, so I think we will probably be a little light on revenue will probably missed some deliveries as things push into.
Into 2023, but I think that from a performance standpoint from a margin standpoint, the business will continue to excel aftermarket remains very strong obviously and thats an important part of the financials in the business. So I think that that business will be a strong performer in the second half and be really well positioned for us going into 2023 as well.
The industrial segment.
Our our vehicle business continues to perform well it continues to improve first half was pretty tough in the automotive world again, mostly supply chain and the Covid shutdowns in China, I, certainly expect that to improve in the second half so we'll see better performance.
From from Caltech, some in the back half of the year. So I think continued.
Improvement there will probably be towards the low end of margin just because of the first couple of quarters on the automotive side, but otherwise strong performance.
Our systems in the second half, we should get back with her these negative revenue comparisons driven largely by the Afghanistan pull out and the impact it had on our fee for service business.
Those comps go away in the third and fourth quarter. So I think we get back to stable, even showing some growth probably towards the end of the year, resulting from some new some new wins and again very strong performance I think in terms of segment profit.
And bill will be the one that's a bit of a challenge.
Really strong performance on the commercial side the demand environment is good we will certainly have a lot more deliveries in the back half of the year.
But they are fighting through supply chain issues and inefficiencies, we know and fully expect we're going to see lower volume, particularly on each one aftermarket.
This has been lower demand lower flying in that side of the house.
But the big issue. We will also have to face into is obviously the flora program, which we continue to feel good about our teams are working really hard on it.
But.
That's probably a three or four months slipped from where we thought it would be when we when we gave our guidance originally so.
Obviously, we have a big team and we're going to retain that to even keep pressing on but certainly that will result in.
Some more investment in our in our in our program before we get to a contract award so that will weigh on on Bell for the for the total year. So I think we'll probably get there on revenue but.
It will be on the lighter side of margin.
Given that transition.
And maybe just a follow up on thousands you just mentioned that.
22% decline, how much of that or 23% how much of that was due to supply chain now and how.
How much of a decline should we expect in the second half is it still 3 billion feasible in terms of revenue.
I think <unk> 3 billion is still feasible and really like I, even split is going to be part again lower aftermarket on the military side, which is down and that's kind of lumpy. It was actually pretty strong in the first quarter. It was it was pretty weak here in the.
In the second quarter by do think we'll see softness in that aftermarket side.
But we will see I think strong deliveries on the commercial side of the helicopter business that will partially offset that here in the third and fourth quarter.
Great. Thank you very much.
And our next question comes from the line of Ron Epstein with Bank of America. Please go ahead.
Yeah.
I'm sorry.
One moment.
Brad.
Sorry about that please go ahead with your question.
Hi, Elizabeth can you hear me.
Yes, we can hear you now okay great.
Im on for Ron This morning, and we noticed on your finance segment slide in your presentation that the 60, plus delinquency more than doubled quarter over quarter from $2 million to $5 million is there anything to worry about there.
The finance segment has been performing very well as you can see from kind of the earnings for finance. So we continue to see good performance out of the portfolio.
Kind of things come up from time to time, where things move around but the overall portfolio is performing well.
Great. Thank you very much.
And our next question comes from the line of Peter Arment with Baird. Please go ahead.
Yes, Thanks, good morning, Scott and Frank.
Hey, Scott.
Your backlog continues to swell in aviation can you maybe talk a little bit about.
Just how do you think in managing that ramping that production and you've obviously, probably well into 2023, when you're thinking about kind of delivery slots, just maybe a little color there that'd be helpful.
Sure Peter I'll look I mean, obviously the demand has been really strong that backlog is continuing to grow it gives us really good visibility, which is terrific. So we didn't have for a long time as you know so yes, we continue to work to.
To be able to ramp and we're continue to do that through the course of the year and obviously, we will be needing to do that as we go into 2023 were.
We're working really hard on hiring on our end of things to bring staff onboard in and.
And working with suppliers.
To be able to meet that ramp so we're we're.
We're making sure we're.
Cautious about how we're committing to customers who want to deliver on the dates that will say, we will deliver but.
It is a headwind and like I said I think it will impact us this year on some deliveries that we would've originally had little push off into the beginning of 2023, but.
Our teams are obviously working every day on this stuff and we are making progress with with growing our workforce in house and we continue to work with our suppliers to help them meet that ramp as well so.
I don't think its going to be easy, but clearly I think we have line of sight to continue to increase our our production rates as we go through the balance of this year and through 2023 as well.
Great and Frank do you have the what the aftermarket growth number was in the quarter.
Yes. It was it was 18% on aviation, 18% and 33% of the revenues.
Terrific. Thanks again have a result.
Thanks, Rob.
And our next question comes from the line of David Strauss with Barclays. Please go ahead.
Okay.
Great. Thanks, good morning.
Yes.
Okay.
Scott.
Laura.
<unk> confidence that we're actually going to see a decision here in October .
<unk> seen several slips now I guess.
What color can you give us around that.
Your comments are we're actually going to get a decision here come the fall.
Well, obviously we've had.
Ongoing interaction with with the acquisition side of the Army everything is all obviously very quiet from a pulse evaluation stage the indications we get from the acquisition side or that.
They're going through their process and.
There haven't been data requests or proposal related activity here for some time. So we know they are in their.
Theyre detailed evaluation phase.
Sure.
No.
Secretary Bush, who we saw last week.
<unk> indicated that and he has said this publicly in several forums that he expects that they are on track to make an announcement after the USA conference Thats, what the 10th or 11th or so of October so.
When he says that we're customizing that means sometime in that mid to late October .
Timeframe so.
That's what we're currently trying to factor into our plans and what we need to do to make sure that our team.
Assembled which are currently working obviously on the risk reduction program. We will continue to have activity in key progressing. This thing will they finished their valuation, but the data I'm quoting or again kind of publicly.
Secretary Bush's has made those statements.
Again, there is no indication from him and we met that Theres anything other than just working through their process.
Okay.
Brian a couple of questions.
How do you see you raised the free cash flow guidance, but how you see working kind of pieces of working capital mainly inventory and advances.
From here the rest of the year and then.
Any initial thoughts on pension.
For 'twenty, three given given asset returns and discount rates.
Pretty big income item for you guys. Thanks.
So on the cash flow side kind of work consistent with where we had been we continue to see good working capital performance.
The supply chain issues and kind of potential delays in deliveries, obviously creates a little bit of pressure on the inventory side.
But I don't expect that to be at all significant as we go into year end, but.
But we obviously raise cash flow guidance anticipating continued overall good working capital performance and that's bolstered by strong order activity.
And customer deposits.
Frankly, both at aviation and Bell on the commercial side as well. So overall good cash flow performance, so far year to date and expect that to continue through the remainder of the year.
Look on the pension side, it's kind of too.
Too early I guess right now if you snap the line.
The interest rate impact would more than offset the impact from on the asset valuation side in terms of kind of creating any headwind associated with pension. So we we have the potential for some additional tailwind.
Given where things are right now as we move into 'twenty three from pension.
Great. Thank you.
And our next question comes from the line of George Shapiro with Shapiro Research. Please go ahead.
Okay.
Good morning, good morning.
Quick one.
Finally, corporate expense so low in the quarter.
That has to do with the <unk>.
Share price impact.
That kind of flows through corporate for our equity related comp program. So.
Unfortunately, we we saw tough overall market and tough share price performance for us in the quarter.
So that impacts that number.
I'd say in terms of overall for the year.
Kind of given where the overall market environment is we're probably $10 million ish better we expect on corporate expense from an overall cost for the year.
But that hopefully that number four is not a sustainable quarterly number because the share price performance.
And then you had also mentioned that in Bell there was an adjustment.
Unfavorable adjustment.
May can you quantify that.
Yes, we don't talk about that kind of by segments.
But.
The comment related to we did see some unfavorable program adjustments this quarter and when you compare that to a year ago, we had some favorable program adjustments so that.
The overall <unk> between the two years.
Created more negative program adjustment. Therefore, so that's the nature of the comment.
Overall expenses are down at bell anticipating the.
The reduction in volume.
But frankly the item is has come out a little faster than we anticipated and so it did have some negative impact on performance.
Okay got it.
As for Scott in terms of the General Aviation demand did you see any change as they went through the quarter and is April July continuing to be strong.
George So far the market feels about the same demand is strong.
It continues to be.
Strong business jet market in North America.
In the quarter, we saw a significant pickup in international activity, particularly in our turboprop business. So.
Strong international demand on King airs which certainly helps.
We see some more of the corporates coming back in as corporate flight activity.
<unk> picks up but still seeing a lot of new entrants into the market as well. So I think that as we looked at sort of how Q2 played out in <unk>.
Now on the beat in Q3 as.
As indicative of really strong demand across the entire portfolio of products.
Okay. Thanks very much.
Sure.
And our next question comes from the line of Noah <unk> with Goldman Sachs. Please go ahead.
Good morning, everyone.
No.
Scott how how are you going about deciding exactly where to lay the Cessna production and deliveries for the remainder of this year and next year.
All of you for the most part in all of these are pretty well booked so we know what tremendous commitments, we've made to customers in terms of delivery dates.
As you know unlike it was for a long time. This is this is pretty well booked business. So we know the model as we know it makes we know the interiors and colors I mean, it's.
We know we know what we got to go do that's not a problem. The challenges is getting our people and suppliers to.
Deliver the parts and get the stuff in there and get it get.
Yet it produced so it's okay. It's a good problem to have but it's still a problem right. So we're working our way through that and like I said I think the performance of the business. Despite.
A lot of those interruptions and disruptions or they are largely getting it done I do think we'll have some aircrafts slip out because of some particular supplier issues that were not.
We just know their delivery dates arent going arent going to get there, but it's a relatively small number of aircraft in.
Again, thats offset by a very strong aftermarket the utilization of the aircraft is very high that drives a lot of service business, which is great.
And just overall I think the business is performing really well.
You've had you've had.
Bookings in excess of revenue by about 50% several quarters in a row.
The backlog isn't as an all new build but just the implied bookings, it's running about $2 billion a quarter.
Do you try to take the production system and the revenue to our place.
That would match.
Some assumption of that order rate slowing down and try to get the revenue and the orders to land in the same run rate or do you want the orders to keep exceeding revenue and keep growing the backlog from here or can you just not even do that because it is customer dependent.
So theres a lot of moving parts here right, but I mean, the reality is that Youre dreaming of a one to one right.
Building and keep selling and everything would be great. So obviously right now demand is stronger than that and we don't which leads to that backlog going out further in time.
That's certainly not all bad, but it gives us visibility and we will plan.
Our production rate and again, we are increasing our production rates. We will continue to increase those rates into next year, but we keep a close eye on that because in the end. This is about matching supply and demand and.
I think as we've talked about before this is a business that should run off backlog right. I mean, it's better for our customers. It's better for US I think the whole market is in a better place when there's adequate time for people who have the aircraft to sell their aircraft and do their upgrades and to have a better flow in manufacturing and customization.
So look a one to one is a healthy place to be.
You can't build backlog forever, obviously, right I mean, you get to a point, where somebody is not going to order aircraft. If it is not available for three.
Three or four years.
<unk>.
There is more customization and longer lead time, probably in order cycle around some of the larger aircraft and smaller aircrafts. So that you have that dynamic in there, but look I think we're in a really good place obviously, we want to maintain our backlog and we need to balance it where it's a good spot for both ourselves and our customers and I think thats, where we are right now so they'll demand.
Demand continues to grow and so we will grow our production rate but.
There's really no objective to try to get this back to where you are not working off of a backlog I don't think thats good for the business or the overall market.
Yes, no I meant it more.
Anticipating a slowdown in the order order rate and therefore, keeping the supply.
But well look the good news I mean, we're out foreign off that if you do see a slow down at some point you can you can adjust that right.
And.
Manage abusers are serious amount, yes, absolutely.
And then just on the margin.
It's another incremental that's well above that sort of longer term framework you have in the segment.
Can you give us some color on how much of that is price versus absorption versus mix and then where do you see that for the remainder of the year.
Well look I mean, I think we're still coming out of some highly disruptive times. When you look at the year over year right. So we saw in the first quarter as well.
<unk>.
Over inflation is good I mean, we've needed that in this industry, obviously for a long time.
So I think that obviously is a positive contributor but I still think if you think about the long term.
The gross margins the mix between original equipment and aftermarket that this is a business that generally you should expect to see sort of about 20% to 25%.
Conversion were a little stronger than that coming off some pretty extraordinary times.
As we go forward I think thats a reasonable expectation.
Generally we will see somewhere in that 20% to 25% range.
Okay. Thank you.
Sure.
And our next question comes from the line of Cai von <unk> with Cowen. Please go ahead.
Yes, thanks, so much for taking <unk>.
Question. So Scott could you talk a little bit about supply chain, specifically at aviation and also labor availability in the Wichita area, you seem to have obviously done pretty well.
What kind of a challenge is it and is it getting better or getting worse.
It's kind of flat right I mean on the labor front, we are making progress, but if I look at the ramp as we think about this year going into next year, we're looking to add.
100 people or so a month. So that's we are running a hiring fairs, we are seeing people coming back into the workforce.
We're working that hard it's that it's the entry level, bringing new people in and and obviously, you've got training and development. So there's only.
So fast we can do it but we are working in which toll has always been a great place for us in terms of available labor and people that have good work ethic and stuff. So we're we're continuing to work that but it's it's a sizable number of people that we need to bring on board to support that ramp every month. So.
With regard to the supply chain <unk> look I think the.
A lot of our smaller suppliers continue to struggle with little Covid thing here and there.
When we have an issue and so people can show up to work, we're big enough that we can kind of try to move people around and sort of keep things going not easy, but our drives to a pretty good job of that when you've got smaller suppliers and they lose a chunk of their workforce for a week.
Can they slip a week on part availability. So again, our guys do everything they can to.
To manage those inefficiencies and do at a station work in.
They're constantly work on this so I don't think it's getting worse.
But it's.
Unfortunately haven't seen to get dramatically better and then you always have a couple of suppliers were.
What the lead times are if they've had an issue or a problem we talked last time about some.
Resourcing out of Russia, and the U S manufacturers, that's a that's a discontinuity.
We will get caught up on some of that but I do think it will impact us.
Pushing some things into 2023, but again net of all of that.
The business is performing really well despite those those challenges.
Terrific and you've owned <unk> now for a little over a quarter.
Could you give us some thoughts on where you plan on taking the products here specifically.
Before pipistrelle you had.
<unk> designs do you hope to take their technology and pursue that area you have the new you've got a number of potential opportunities maybe give us some color in terms of where you're thinking of taking sure.
Sure absolutely look the new Bill you just mentioned, we're very excited about that thing and so they've done some good work in the past that is one of the areas that we're adding R&D to try to accelerate that and get the aircraft. The first aircraft flying.
I think when you think about unmanned I actually think unmanned cargo.
Is probably something that's.
A reasonable expectation for acceptance in the marketplace and growth in that <unk> is kind of a 1000 pound.
<unk> kind of a craft the guys are working hard on that right now and again Thats an area.
Accelerating some of our investment to bring that to market.
You talk about Nexus and sort of the EV tall.
Base, you are talking about higher I think that when we look at our company, we feel great about our aero and fatigue and structures and flight controls guys. Obviously.
These things look like at least in our view is sort of a mini.
Tilt rotor kind of a technology, we actually do that we have the right technical talent to pull that off or weak spot in terms of organic capability was around the powertrain and electric propulsion in the industrial guys are fantastic at that this is what they do and so in that particular area on the VTOL absolutely we are.
That team now engaged in adding some resources to help our team in Wichita.
<unk>.
To deal with the battery storage better journey, and what propulsion trains that would support the vitol. So I'd say so far we've only owned them for a couple of months here.
They've they've got some great current product line, you've got things like Pantera that had been sold previously under sort of experimental tickets.
I think we have a great pathway for that to be a great airplane part of our portfolio as a certified ifr.
Aircrafts. So again areas were the teams that do that kind of work in and which are now helping the team.
In Slovenia on how do you lay out a product certification for <unk> aircrafts. So so far I'd say the integration is really going really really well.
Sure.
The purposeful folks have a fabulous.
Engineering and technical base and then we're just growing that so.
Okay terrific. Thank you very much.
And our next question comes from the line of Robert Stallard with vertical research. Please go ahead.
Thanks, so much good morning.
Morning.
Scott a question for you.
Obviously concerns out there about a slowing global economy.
I'm wondering if you've seen any sign of this industrial division and if this were to occur and switching over to aviation how would you say the setup here differs from what you saw back in say 2007 2008 peak in the last cycle.
Well, Rob it's a great question I mean look we haven't seen it yet.
I think we all kind of keep an eye on things and everyone sees some softness in some of the.
The let's call it lower and retail sort of side of things I think that makes a lot of sense people are obviously, putting a lot more cash into their desk tank that takes some of that discretionary spending away, but we keep a very close eye on this in terms of demand, particularly in some of that in the industrial world but.
We're still seeing very strong demand environment, we continue to be gated more by supply chain issues.
And just getting product out there dealer inventories are still at very very low levels.
So we'll continue to keep a very close eye on it obviously, but.
We're not seeing that.
Change.
Just yet on the.
On the on the GI side, Robert Ashley we have the situation today, having lived through that 2008 nine.
It's just a totally different dynamic right you had.
Our liquidity based financial crisis.
Today I would argue we have absolutely the opposite of that rate. The world is awash in and money and I think again, if you go on the aviation side, you had political overhanging back in 89 right.
It was bad to have a business jet and today, you see a situation where.
Good better and different.
Commercial airlines and the whole network of commercial travel is struggling and you see fuel.
Moving and be incentivized to move into the business.
The aviation World. So the dynamic is just wildly different I think the underlying economics are just totally different right. You went from a liquidity problem to a world with.
It's just a washington in money, so totally different dynamic.
That's great. Thanks, Scott.
Yeah.
And our next question comes from the line of Pizza Kubicki with Alembic Global. Please go ahead.
Hey, good morning, guys.
Pardon me.
Question on system, sorry, if I missed this but I used to expecting a $1 3 billion for the full year and if so which programs are going to ramp in the back half.
Well.
I think that will I'm not sure it's.
It's probably going to be one two or something in that Peter I think the.
The.
We continue to see growth in our in our services business on the on adversary Air.
We're continuing to see growth in our in our weapons and munitions business as Gvhd continues to ramp we just mentioned.
An award on the XM tool for a program we've been working on for a very long time, that's okay.
Obviously very important milestones here that will start to contribute growth to the business. So.
It's across all of the other segments. The comparatively we've struggled with really has been the soft Denison withdraw and I think youll again youll start to see this doesn't pick up and go back into a growth mode. Here in the latter part of the year driven by those those programs.
Okay, and just last one for me.
Much smaller program, but I'm just curious if you guys are tracking the SOCOM armed Overwatch program.
Just because it seems like the type of thing that can be maybe leverage internationally and you just got to 86 certified. So just wondering if you think that might be awarded this year and if it is going to be meaningful to you or not.
Look it would be viewed or I think that the armed Overwatch, our expectation is that that could be announced any any day of the week here.
Again, the air forces in there.
Proposal valuation so all is quiet there, but theyre going through their process. So yes, absolutely I think that's something we'll be.
Announced in the in the in the.
Pretty near future.
But regardless the fact that we did get the military type certification on the 86 is a big deal for us on the international markets. As you know we've already taken our first orders for that customer as expected we would get the.
The type certain we have a large installed base and a very successful product in the T. Six on the trader side of things. So an awful lot of customers have been in dialogue with us around their desire to go.
<unk> transitioned from <unk> into an 86 for there.
For their light attack aircraft. So I think that we see a bright future for that product now that we have the mtc.
We were to win the armed Overwatch program that would obviously be a huge opportunity for us.
But either way I think we feel really good about where the 86 position going forward.
Great. Thank you.
Sure.
And our next question comes from the line of Seth Sigman with Jpmorgan. Please go ahead.
Okay. Thanks.
Thanks very much.
Morning, everyone.
I was wondering if you could talk a little bit more about about bell.
And just kind of.
And sort of the pace of recovery through the year, but also with each one ramping down.
Just the extent to which the EBIT level that we saw in Q2, even though.
Yes.
There are some one time aspect to it.
To what extent is that does that become kind of.
A preview.
'twenty three 'twenty four as H, one goes away and we think about the transition.
Potentially into Interflora.
Well.
I think what we saw this quarter is probably kind of where <unk> is going to be here for a little while as we see those lower aftermarket military volumes.
Again, we will see commercial kicking in here.
With some increases on the on the revenue side.
Obviously, a lot of this will depend on where fargo's right. So obviously, we're optimistic about the program with the army. It's their decision and hopefully we will see that happen here in that October sort of timeframe.
Because thats clearly that's really important for us for the future in terms of that program moving from the investment phase, which is which has it has been now for almost a decade and moved into.
A real a real program so.
Okay. Okay. Thanks, and then I apologize if you mentioned it but I think you said a few deliveries might might slip at data supply chain issues in any of the.
If we thought that the target was kind of to get back to 2019 level of two O six excuse.
Should we still be thinking about let's say 200 deliveries and <unk>.
<unk> supply chain issues have much impact on the quarterly cadence in the second half.
Look I think it's going to be.
South of the numbers you are talking about here, we don't we've never given the exact number but like I say I think you can expect that our original guide on the revenue is probably going to be short a couple hundred million dollars.
But on the margin side, it's it's going to be north of our guide because yes, I think the business is despite all these disruptions is performing really well very strong aftermarket frac.
Frank mentioned really strong growth again in the in.
During the quarter. So as you look through the balance of the year I think <unk> will continue to perform really really well but.
For sure these supply chain issues are going to have.
Of course, a few aircrafts out of the end of the year.
Okay, great. Thanks, very much sure.
Sure.
And our next question comes from the line of Robert Spingarn with Melius. Please go ahead.
Hey, good morning good.
Good morning, good morning.
Scott on the slippage.
The deliveries that we're just talking about here as you mentioned, there's a lot of small suppliers, but our engines involved at all is there a <unk>.
Engine shortfall sure.
Yeah.
So is that is that the dominant factor again, it's across the airplane.
It's across airplanes I mean, the the engine impact on one particular model is probably our single biggest impact.
And again, that's one where I think they are working really hard at.
Trying to get the step back in and I think the good news is the <unk>.
In that particular case, the Resourcing is well defined it's well understood. It's someone who's built the part before I think there is a good path to getting back on track.
Don't see that getting itself resolved and not impacting deliveries. This year, but those are those are a couple move into in the 2023 and again financially, we're we're going to be fine.
Again, the business is performing really really well the bigger issue for me is frankly I got some customers obviously that want their aircrafts that are going to get pushed into the into next year.
Result of that but I think the path to get that resolved.
Is quite clear and it's been it's being worked really hard so.
Other craft Theres a couple of here a couple of small theres just a lot of suppliers a lot of issues and it's a it's a bit of a fight every day so.
Right and it looks like your pricing is outpacing inflation.
But if inflation continues to stay where it is against worse are there any protections built into the newer contracts.
No look we I mean, most of our our aircrafts you know these deals are negotiated I mean, we know what the delivery dates are and our guys are quite inappropriate.
Pricing associated with what our expectations are on the inflation side. So.
When we have.
The few deals we have that are kind of out there in time and.
Pre negotiated and take into consideration market pricing at the time so.
I think we feel like we have adequate protection and adequate.
Corporation of.
Inflation going forward.
Okay. Thanks, so much sure.
Yeah.
And our next question comes from the line of Christine The Wag with Morgan Stanley . Please go ahead.
Hey, Scott back on our Textron Aviation I mean, you reported margins of 12% the highest we've seen since 2008.
We look back it's really been 14 15 years since we've seen a real light mid size Biz jet up cycle at this point used inventories in your favor you are getting pricing you are getting orders.
We continue to see sustained demand and the supply chain issues. He's are there any structural differences in the business today that could prevent margins from going back to that mid to high teens that we saw in <unk> seven or eight at some point it may not this year clearly, but at some point.
Look I think the way we look at the market right now in the performance of the business and the mix of aftermarket in aircraft and all of the programs.
The new models I mean, obviously, we have a very different portfolio of product today than we than we did back then as well I think the key.
Cost structure of the business is really really well managed its well aligned to what the volumes are and so.
Certainly our expectation is that we'll continue to see positive margin progression as we go into the into the future. That's absolutely our plan and look we've as you said, it's been a long hard fight from back in the 2008 days to get to where we are today, but.
This is kind of back to where you've got a business running the way it is supposed to be running and with a strong backlog like it's supposed to have in.
The dynamics as you mentioned used aircraft available for sale or are at record lows versus being a real problem for quite a number of years. So so look I think the business 12% margins. This is this was a spectacular business and I do think we can continue to improve those margin rates as we go into future years.
Great. Thanks, Scott sure.
And with that there are no further questions for today's call.
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<unk> you may now disconnect.
Thanks, Brad Thank you everyone.
Yes.
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