Q3 2023 Textron Inc Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the Q3 'twenty twenty-three Textron earnings release call. At this time all participant lines are in a listen only mode. Later, we will conduct a question and answer session. If you would like to ask a question. Please press <unk>.

One zero you may remove yourself from Q by repeating the same one zero command as a reminder, this conference is being recorded I would now like to turn the conference over to Eric Salander, Vice President of Investor Relations. Please go ahead.

Thanks, Leah and good morning, everyone before we begin I'd like to mention we will be discussing future estimates and expectations. During our call. Today. These forward looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release on the call today, we have Scott Donnelly, Textron's, Chairman and CEO and Frank Connor, our Chief Financial Officer.

Our earnings call presentation can be found in the Investor Relations section of our website.

Revenues in the quarter were $3 3 billion up $265 million from last year's third quarter segment profit in the quarter was $332 million up $60 million from the third quarter of 2022 during.

During this year's third quarter, we reported income from continuing operations of $1 35 per share adjusted income from continuing operations. A non-GAAP measure was $1 49 per share compared to $1 15 per share in last year's third quarter.

Manufacturing cash flow before pension contributions a non-GAAP measure totaled $205 million in the quarter compared to 292 million in the third quarter of 2022 with that I'll turn the call over to Scott.

Thanks, Eric and good morning, everyone.

Third quarter was a strong quarter for textron with revenues up at aviation industrial and systems, where revenues were flat at belvieu versus the prior year.

At aviation in the quarter, we delivered 39 jets flat with last year at 38 commercial turboprops up from 33 in last year's third quarter.

<unk> solid demand across our jet turboprop products resulted in our strongest order quarter of the year with a 12% increase over the third quarter of 2022.

Backlog grew 521 million ending the third quarter at seven 4 billion.

In the quarter Aviation analysis of New fleet agreement with Netjets, extending our 40 plus year relationship I mean, giving not just the option to purchase an additional 1500 aircrafts, including the citation latitude and longitude over the next 15 years as.

As part of this agreement and it just will also be the fleet watch customer for the newly announced citation ascend which is expected to enter into service in 2025.

Also in the quarter Aviation received a special missions order for 17, <unk> hundred <unk> to be used for flight inspection.

Aviation also announcements or favorability finalized its initial order for 20 Grand caravan during the third quarter.

On the new product front aviation wrapped up a successful let me double a show last week, where we announced two new product upgrades. The citation C. J three Gen. Two other citation M. Two gen. Two continuing our strategy of modernizing our existing your core portfolio, while also investing in clean sheet aircraft.

Moving to Bell overall revenues were flat in the quarter with improved margin performance.

Bell had higher military revenues in the quarter, largely reflecting the continued ramp on the far program.

While the commercial side Bell delivered 23 helicopters down from 49 in last year's third quarter.

Lower deliveries reflected manufacturing disruptions related to supply chain shortages.

During the quarter, Iraq Order 50, 505 aircraft to replace their pilot trading fleet continuing the success of the Bell 505, as a military trainer throughout the world.

Textron systems, we saw higher revenues and margins of the quarter.

During the quarter system zero saw in hybrid Quad was one of two competing unmanned aerial systems that were awarded the second option agreement for the Army's future tactical unmanned aircraft system or <unk> program.

Under the second option agreement the two remaining competitors will work with your army towards a critical design review, which includes establishing the final system design and initial product baseline.

Also during the quarter. So this was one of four competitors selected to build white robotic combat vehicle prototypes for the army prototypes.

Prototypes are expected to be delivered in 2024.

Systems also expanded this aerosol UAS operations with the U S Navy with an award of an a.

Additional three C based systems aboard talking about ships.

Moving to industrial we saw higher revenues in the quarter driven by higher volume at both specialized vehicles on capex.

Specialized vehicles, we continue to see strong demand in the golf business.

Within <unk>, we saw increased volumes year over year, driven by the recovery in the North American auto market.

Moving to aviation purposeful Alpha trainer continues to gain momentum with Mesa Air ordered twenty-five additional output trainer aircraft in the quarter for Houston, a pilot development program.

Also the first move a prototype or hybrid electric unmanned cargo VTOL aircrafts is currently undergoing systems integration as completed the initial.

The initial installation of the battery and motor systems.

We expect the prototype to inter vehicle ground testing phases by the end of the year.

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 3 billion were up $171 million from last year's third quarter, reflecting higher volume and mix of $89 million and higher pricing of $82 million.

Net profit was $160 million in the third quarter up $29 million from a year ago due to favorable pricing net of inflation of $39 million and a 23 million favorable impact from higher volume and mix, partially offset by an unfavorable impact from performance of 33 million largely related to supply chain and labor inefficiencies.

Backlog in the segment ended the quarter at seven 4 billion moved.

Moving to Bell revenues were $754 million flat with the third quarter of 2022 with lower commercial helicopter Barbara volume largely offset by higher military volume.

Segment profit of $77 million was up $3 million from last year's third quarter, primarily due to favorable impact from performance of $23 million, largely reflecting lower research and development costs, partially offset by lower volume and mix of $16 million.

Backlog in the segment ended the quarter at $5 2 billion.

At Textron systems revenues were $309 million up $17 million from last year's third quarter, largely reflecting higher volume.

Segment profit of $41 million was up $10 million compared with the third quarter of 2022, primarily due to a favorable impact from performance of $8 million.

Backlog in this segment ended the quarter at $2 billion.

Industrial revenues were $922 million up $73 million from last year's third quarter, largely due to a higher volume and mix of $45 million at both product lines, and an 18 million favorable impact from pricing.

Segment profit of $51 million was up $15 million from the third quarter of 2022.

Textron Aviation segment revenues were $7 million and segment loss was $19 million in the quarter, primarily reflecting research and development costs.

Finance segment revenues were $13 million and profit was $22 million up $15 million from last year's third quarter, largely due to a recovery of amounts that were previously written off related to one customer relationship.

Moving below segment profit corporate expenses were $38 million net interest expense was $11 million LIFO inventory provision was 26 million intangible asset amortization was $10 million and the non service components of pension and post retirement income was $59 million.

In the quarter, we repurchased approximately $3 1 million shares returning 200.

$235 million in cash to shareholders.

Year to date, we've repurchased approximately $12 5 million shares returning $885 million of cash to shareholders to wrap up with guidance. We are increasing our expected full year adjusted earnings per share to be in a range of $5 45 to $5 55 up from our prior range of $5 20 to $5 30, we're also.

To expect full year manufacturing cash flow before pension contributions of $900 million to $1 billion that concludes our prepared remarks. So we can open the line for questions.

Ladies and gentlemen, as a reminder, if you'd like to ask a question you May press. One then zero on your telephone keypad.

First question comes from Sheila <unk> with Jefferies. Please go ahead.

Good morning, guys. Thank you.

Maybe we could talk about aviation bought competitors on pricing or mix.

Aviation Starbucks seven points of credit Suisse. Please go ahead did not price.

What are you seeing in your backlog in terms of pricing and I know.

Everyone wants to net pulp on your backlog, but it was still up 15% how much of that included net debt.

Sure sure look I would say that the price environment continues to be strong.

Aircraft that are going into backlog continue to do so at good pricing. So we feel good about where that is in the marketplace.

In terms of the Netjets, obviously, the extension of the contract that we've had with Netjets for long time for 500 additional aircrafts with a huge deal for us, it's really important to the future of the business.

As you know that's a very diversified customer base the business. The partnership that we have with Netjets is very very important to us in terms of the impact in the quarter. It wasn't material as you know the way we treat the netjets in terms of backlog is that.

Working with Netjets, all the time and looking about a year out.

Which is the timeline, where they firm up the tails and put down deposits and we commit the delivery dates to those aircrafts. So.

Every quarter, we sell aircraft to Netjets, and we add additional jets up into the.

Into the backlog so generally speaking it's right around that one to one range. So.

Again huge of really important thing for the future of the business, but not something that materially impacted the backlog in the quarter.

No. That's helpful. And then if you could talk about bell margin for postpaid another 10% margin what's going on there maybe in particular on the R&D side with Lora and bar now that you have.

So look I think bell performance in terms of their numbers and getting volume coming in particularly as the Florida program ramps up is helpful. R&D is certainly a tailwind for us and that is helping us on the performance line largely driven by the fact that a year ago, we were still spending a good deal of our own our red money in programs like Florida, which are now.

And the fully funded category so.

We do still have work going on obviously with far as you mentioned, we did get the engine. This week, which is great. Our team will proceed now to to get that installed and start running full.

Preliminary integration tests, we will need to be waiting for the army to give them. The ground test released for that and then ultimately the flight just release.

Hopefully youll get better craft flying in 2024.

Performance was strong and yes for sure part of that is reduced I read spending as we now have more funded R&D under the far program.

Thank you.

Sure.

Definitely moved on excuse me, we move on to David Strauss with Barclays. Please go ahead.

Thanks, Good morning, good morning.

Sure.

Scott could you just made.

Maybe give a little bit more color on the supply chain issues at at aviation.

The performance hit I think was the biggest that we've seen there so our arc are things getting better or worse than it.

Is it is it engines or.

What other color can you give.

David I guess the color I would give is that obviously.

Obviously, the business pays a lot of attention and tracks.

Sort of trend data and I would say that.

From our standpoint is it getting better the trend data would say, yes, it is getting better.

The number of parts to come in late to Po is has been declining through the course of the year or they look at labor activity.

Efficiencies that has been getting modestly better as we're going through the year, but it's still a problem right. So.

I wouldn't say, we have any one big engine that is driving this.

As you get towards the end of a quarter, if youre missing parts for aircraft.

Can't deliver that aircraft so it.

It is getting better from a context of how many parts are late to Po, but parts are still late <unk> and as we often say David every part is important on an airplane. So we're continuing to see that that challenge across the number of aircraft types.

I think it will continue to hope, we certainly expect it to get better as we go through time, but it's going to be something we're going to be fighting our way through but I.

I guess, the only thing I'd point out David Despite all that I mean, we obviously, we'd like to have delivered some more aircraft in the quarter.

In particular, we have customers that would like to see us look those aircraft in the quarter.

But despite all of that and the challenges and the headwinds around labor and supply were still posting.

Strong growth in the business and good strong margin expansion in the business. So I think despite a lot of these headwinds.

Business performs very.

Very well, it's growing and it's continued to drive improved profitability.

Okay, and maybe Scott you could just level set us what we what we should expect for full year deliveries are we looking more kind of $1 75.

100, <unk> in that range.

Well, we're not going to.

But we're probably not going to give exact aircraft numbers, David but it's going to be in that neighborhood I would expect.

Alright, great. Thanks very much.

Sure.

Next we move on to Noah <unk> with Goldman Sachs. Please go ahead.

Hey, good morning, everyone.

No.

Scott maybe you could just spend another minute on the demand environment.

Pretty.

In aviation and in the business jet market. It is a pretty strong bookings number with.

A decent amount of uncertainty out there. So what are your customers, saying how much of that is just.

The replacement so they they have to do it kind of.

In a wide range of macro scenarios.

How is October.

Would just love to hear some more color from you on that.

Look no the demand environment continues to be strong I mean, this is a really strong.

Our book to Bill is very strong and as an absolute dollar flow of order activity in the quarter. So we just haven't seen a slowing down people are or are buying aircraft and are they are they are replacing older aircraft absolutely or in some cases are expanding.

<unk> capacity absolutely.

We continue to see strong demand, obviously part of the rationale behind the.

The <unk> program as they continue to see very strong demand in the fractional side. So it's really across this.

It's really across the board it's in its typical what we've been seeing for a while it's very strong Jeff.

Jets in the U S. Although there are certainly some good order activity with jets outside the U S is very strong across the turboprop.

Product lines in both the King airs obviously with Sky Courier and caravans continue to perform well so it's.

It just continues to be a strong demand environment.

Okay.

And then just on the margin in aviation recognizing your point that it has expanded quite a bit from the trough.

It's down sequentially in the incremental year over year incremental I think is a little light of what you normally look for.

Despite healthy units and price so anything to note there and I guess, what do we look forward for the aviation margin to finish the year and maybe into next year, well look I think we're going to continue to see strong margin performance.

Without a doubt are still being impacted by performance issues. Just the amount of inefficiencies that are driven by those parts that are showing up late and labor turnover, which I think everybody is experiencing its a challenge in the industry still and we're going to continue to fight our way through it but I think we will continue to do that with <unk>.

Healthy margins.

Can you be through that in full year 2024 numbers or are you likely to still be battling that into next year I think we're in a battle that into next year or so.

Fourth quarter is traditionally a very high delivery quarter I expected it will be a high delivery quarter and we will see.

Conversion it'll it'll give us some additional margin as is typical for us in Q4, and I would certainly expect that.

I think we're going to continue to fight this as we go into next year, but again I mean, obviously, we're not.

We're going to get the guidance just yet on 2024, but I think as we've seen in 2023 people should expect the business to deliver solid growth and strong margins.

Okay. Thank you.

Next we go to Doug Harned with Bernstein. Please go ahead.

Hi, good morning, Thank you.

I wanted to continue on the on the strong backlog topic, when and when you started the year. It. It looked like I think you were thinking kind of a one to one book to bill for the year and clearly it's been much better than that can.

Can you can you talk about how.

At your expectations have changed over time.

And as the mix shifted at all.

No. It really hasn't look I mean, we did sort of set our base plan expecting kind of a one to one.

Look I think eventually.

Industry has to get the one to one it's not I don't really think it can continue to exceed that much for that long, but obviously our sales teams are out there in customer demand is what it is so if it's greater than one to one obviously that's terrific for the business and as you note we have seen that through the course of the year. So.

We'll continue to kind of plan and look at production volumes.

Adjust accordingly, as we go forward, but the.

The mix is the mix isn't markedly different as I said, we're still seeing strong jet demand, we're seeing across all of the turbo product lines.

We're seeing it virtually across all of our different aircraft types. Obviously, it's helped by having some new aircraft like the like the Sky carrier out there. It is helped by having some of these upgrade programs.

We have this and announced out there. So there's a lot of things, we're obviously doing to invest.

And the product lines to kind of continue to help drive that demand in the market but.

For sure versus our estimation at the beginning of the year one to one end market continues to be stronger than even we would've expected, which is obviously a positive.

Yes. It is a positive but I'm also I'm interested in how you deal with this because you have plays a supply some delivery delays with the supply chain. You've got this huge backlog I mean, how far out are you scheduling deliveries down do you do you start to run into an issue here. If this if this were to continue because as you say.

Ultimately be at one to one at some point, yeah, well look we obviously continue to work with our supply chain to try to make necessary adjustments and as I said I think that the trend line is improving but it still comes down to a park. So I missed a few parts I can't live in aircraft from Mr. One part I can't delivering aircrafts. So it's you know it.

It is still a problem, but I do think it's trending in the right way, obviously as we adjust and think about our production rates going forward, we're working with those suppliers.

Kind of forecast to them, how we're going to adjust our rates and into the future.

But that's a real time activity that's going on all the time so.

I kind of indicated earlier I think we will we will expect to see.

First deliveries again in 2024 versus 2023, and that's partly the stronger demand and it's partly getting some of these supply chain issues resolved and getting back to where we can make it.

Generate additional volume out of the factory.

Okay very good thank you.

Next we'll go to the line of George Shapiro with Shapiro Research. Please go ahead.

Hi, yes, good morning.

George George.

Maybe this one.

Frank the increase in guidance I mean, this quarter you got a big benefit from finance somewhat offset I guess aviation being worse than what I would've expected and a lower tax rate.

Yes.

What was their operational benefits in that EPS increase you got it was mainly these items I just mentioned.

We're seeing as Scott said I mean, we're seeing strong.

Performance across Bell and so kind of I think bill is going to come in at higher margins than we would have originally guided we're seeing strong performance at systems.

There'll be at at least the top end of our original.

Original guidance range, we're seeing frankly, better volumes and solid and strong margin performance in the industrial segment and then at aviation.

Also seeing despite some of the volume headwinds, we're seeing strong profit growth and strong overall year over year growth. So that's that.

Those are certainly the operational aspects TFC as an operational thing.

Recovery from a write off for many years ago. So good solid performance out of the businesses.

Okay.

Scott on the <unk>.

<unk> quality.

I think you have with a comment that maybe deliveries would be higher.

Closer to somewhere in the <unk> from what we saw this quarter. So I assume that's all supply chain I mean.

Is that going to continue in the fourth quarter as well, so we'll see strong deliveries but.

Maybe less than what we would have thought six months ago.

That bode for next year being a lot bigger than what you might have thought before.

Well.

I would say George that for sure we are delivering fewer aircraft than we originally expected and that is as a result of these issues and challenges we're still seeing in the supply chain.

We have forecasted and just the way we run our manufacturing operations. Obviously, we took down some of the units to accommodate that.

Did we have aircrafts that moved from Q3 into Q4 this year absolutely.

Do I think we will have aircraft that will move from Q4 to Q1 absolutely.

Again, how much of that is.

Our aircraft that you would add on to what we were originally planning in our 2024 guide versus where we'll be.

I mean, that's that will all be incorporated into what we guide when we get into 2024 doors. So.

And again, we're not we're not at a point to do that we're still working through all those those kind of numbers, but the only color I would give you is expected you certainly we would expect to see good.

Good growth in over the 2023 number so for sure it will be it.

Overall demand or things that are moving from 'twenty to 'twenty four 'twenty four should be a strong year for us.

Okay. Thanks, very much sure.

Next we move on to Cai von rumor with TD Cowen. Please go ahead.

Yes, thank you so much and good quarter.

Frank could you maybe talk a little bit about.

Do we see do you get any benefit out of our latest IRS clarification of section 174.

Should we be concerned about pension being a significant headwind next year.

On the 174, we had.

We had been following kind of what the guidance clarification resulted in so we there is no change to from a cash tax standpoint.

With regard to pension.

We will go through our.

Our year end process around that I would not expect it to be a headwind.

No I think that kind of we shouldn't have a problem with pensions and from a headwind standpoint, as we move into 'twenty four.

Got it Okay, and then Scott strategically I mean, you've announced a couple of new.

Updates.

But.

Haven't done a major new clean sheet.

In a while and not the rest of your competitors have done anything, but but what's your thinking looking out a couple of years, obviously you've got.

Good demand now you've got some nice smaller new products coming.

But do you think that.

Need to start something.

Bigger.

For the next three to five years.

Well I think where we are right now I mean, obviously, we've just come off the Sky Courier program, we have Denali, which is in certification thats coming along very nicely I think that'll be a spectacular product.

For us we did just announce the ascend which is a pretty big program.

So I think I guess strategically.

Strategically I think where we are on the <unk>.

Sort of that latitude longitude family are in really good shape those are both relatively new aircraft.

Certainly there will be upgrades and enhancements to those programs as we go down the line.

But we sort of have turned from.

A long period of time, a decade really are making major investments in those.

Mid to Superman aircraft and have gone back now and.

Made some pretty good investments.

Some of the turboprop family and.

Again that light to mid sized jet ascend I think is going to be a fabulous product for us that that kind of fits that space, where the <unk> has lived in the X L. Before that for many years homerun product for us.

And I think you said, there's going to be kind of filling those shoes. So.

We're really excited about that and again, there's always going to be a great product that's.

Doing well here and going through the certification process right now so.

Look we're always as you know, we there's always stuff on the drawing board and ideas and plans that we're always working on but thats.

We don't have we don't have any new announcements for you beyond.

First off we're pretty we're pretty full up right now actually.

Thank you very much.

Next we move on to Robert Stallard with vertical research. Please go ahead.

Thanks, so much good morning.

Good morning.

Scott, there's some concerns yet again.

Our outlook for the economy in time interest rates and all that and I was wondering in the aviation Division have you seen any of your customers starting to get a little more concerned about their ability to take jets in trying to define things.

No, we really Havent, Robert it's Ben.

If theres going to if theres been a cancellation here or there.

None that I'm, even aware of here lately I think the demand is.

Strong and what people are thinking about what could you be.

12 to 18 months softness in the economy. The reality is right now people are talking about deliveries that are outweigh beyond that is just because of the nature of the backlog. So I don't think we certainly have not seen any impacts of this short sighted kind of hey, you guys, what's going to happen in the economy in the next.

18 months window. The deliveries people are taking their aircraft, we haven't seen any problems there and again from a from an order perspective.

They are out way beyond that period that might be of any concern.

And then similarly on the industrial side of things.

Or was it a demand pull you're getting from your customers.

Thanks.

Right.

Well look we've been seeing a very strong year.

<unk> side of things North American in particular has been growing Europe has been growing so we're seeing nice increases in.

And volume growth here in 2023.

I expect we'll see that continue into 2024, obviously, everybody was a little bit worried about the UAW situation see this morning was going forward has got a tentative agreement which is great.

We haven't seen much impact from that yet and hopefully this will get resolved before it has any kind of material.

Impact to us we're pretty diversified in terms of the Oems that we serve and particularly in North America a lot of the.

Toyota is in the Bmws Mercedes involved.

Southern part of the country. So.

Anyway, the volume does continue to grow at Caltech.

We've seen nice volume growth in the vehicle business as well so for sure we pay close attention to sort of the high end consumer if you're going to have a slowdown adjust accordingly, but all in all.

The golf market the commercial market.

It's staying strong even the consumer market, which.

It's not as strong as it was a she most people and say 'twenty one 'twenty two but its volumes are still quite strong.

On a historical basis, so I think the business.

A lot of the.

The intersection of all those things is what's been driving nice growth for us.

That's great. Thanks, Scott.

Next we'll move on to Kristina <unk> with Morgan Stanley. Please go ahead.

Hey, good morning, everyone.

Alright.

Scott.

Thank you no leverage on the balance sheet is pretty low at less than one turn of EBITDA.

Free cash flow is pretty solid you've mentioned the demand environment is strong I guess looking at the stability and the strength of your business is what's your appetite for either an incremental outsized capital returned to shareholders.

<unk> of your existing share repurchase plan or some sort of transformative deal.

Well.

Clearly our R. R. Our focus and what we've communicated and what we've been executing on it did again here in the third quarter is really focusing on our capital returns around share buyback.

Continue to do that here in the third quarter. So it was another quarter of strong.

Turns obviously.

We agree I mean, I think our balance sheet into the place we are generating.

Strong cash flows and we will continue to use that on the share buyback in terms of any acquisition opportunity that we're always keeping an eye out for things and if there's something that makes sense.

For us obviously, we have a balance sheet and ability that we can do that obviously we'd have to.

Convince ourselves that that's something that's good for our shareholders.

There had been a couple of deals out there, where we concluded that wouldn't be the right thing but.

We certainly always keep an eye out and contrast that versus just continuing the share buyback program, which I think has been very successful.

Great and maybe following up on what we've seen in the industry Amber Air signed a 20 year licensing agreement with Cerberus, Brad CTF engines, including the Airbus <unk> hundred 20, Neo considering your strength.

And services.

Our business jet, what's your appetite to join that.

Engine, MRO ecosystem and expand your addressable market.

Yes.

I don't know all the details of that I mean, we're obviously, we work very very closely with our.

Engine suppliers and making sure that there is great MRO capability for them, obviously, there's engine programs, which we.

<unk>.

Promote with those suppliers, but we love our service business our service business has been growing.

As you know over the last decade, we've taken a lot of us and do a lot more direct service around our aircraft.

We used to do and that's been a big success for us, but getting into the engine MRO business is not something that I think would make any it.

It would make any sense for us.

I will talk a bit about the Indian world the value in an engine overhaul is in the parts and those parts come from those.

Those suppliers. So I think that's probably best left to to them to manage.

Next we'll go to Jason Gursky with Citi. Please go ahead.

Yes, good morning.

Scott I'm wondering if I could get you to just put aside the.

Supply chain issues for a moment and just assume that they.

Worked there and talk a little bit about what youre hearing from your customer in aviation.

And how long.

Customers seem like they are willing to wait for.

Yes.

And if you all could just kind of wave a magic wand and get your.

Production to the right level for the REIT wait time for those customers what would that wait time.

But for two plus years today.

We were.

Less than 12 months prior to the pandemic, what's what's the right level that we should all be thinking about as things kind of settle out.

Well.

It's a good question.

Theres no way to know totally the answer to that I mean, there is no question that right now we have customers, who would like to see us have delivery dates earlier than what we're able to promise them I mean, that's that's true.

I think that obviously the <unk>.

Adjustment that's going on is that I think for obviously for a decade or so customers knew they could come in when they wanted to get a new aircraft and get something delivered in a very short.

Period of time that wasn't true historically as you know and its certainly not true today. So.

I do think that we've gone through some challenging phase with customers, we're kind of accustomed to say well geez I should be able to get that.

Three months or six months and say no. Our guide is actually it's a couple of years.

But I think the market is adjusting to the right customers know what the order backlogs look like in the industry.

And people now realize that if.

Youre thinking about your fleet planning Youre thinking about your card aircraft and when Youre going to want to do an upgrade that you need to be thinking about that being a couple of years out not something that you just could come in and inside of a quarter or even inside of a year and get a transaction done so.

I think we're probably on the <unk>.

Certainly at a point, where customers would like earlier delivery dates and what we can promise them, but.

I think our customers are getting our customers. The fact that this is a couple of year kind of a timeline and they need to plan Accordingly, which frankly is not all bad for them either because they can figure out how they plan the sale of their used aircraft. It's a much more.

It's a better market environment for everybody, including those buyers because so many of them.

Currently own an aircraft.

Mhm I don't know if that helps you because I mean, it's there's not really a specific answer.

Two years is.

That's a long time, but people have to kind of plan accordingly at this stage.

Yeah, Yeah, I think what a lot.

A lot of US are trying to figure out is you know once the supply chain issues work their way through.

You know how much we might see production rates across the industry come up over time.

There two years now is the sweet spot 18 months and we can kind of back into what that would mean from a production rate perspective, I think that's what we're all trying to.

To better understand.

Yes.

Math is too sophisticated for me.

Okay.

So maybe an easier one then.

Can you talk a little bit about the margin and the margin opportunity in that business over the longer term based on new.

New product offerings.

Yeah.

Development things that Youre working on today, just whether there's any structural opportunity for margins in that business over the longer term. Thanks, well look I mean, I think we still have margin opportunity.

This business should be a high single digit margin I mean, it's got a lot of auto in there.

<unk> is a good business it generates good cash to generate good margin, but we're obviously right now as you are.

Still trying to get some of the auto volumes.

Back up around the world and we have obviously capacity to do that so better utilization more efficient utilization of some of that capacity would be would obviously be helpful. And that's part of what's driving the margin improvement. This year. The same is true in the.

In the vehicle business.

Strong demand across most of those product lines. Some of them are still recovering from some of the post COVID-19. Some of them still are struggling with a lot of the same kinds of supplier and labor challenges that we talk about in aviation.

And that's we're still.

Have a fair bit of inefficiencies in some of those factories as we manage our way through that so I do think there is still some upside in terms of margins in the future.

Okay, great. Thank you very much.

Next we move on to Myles Walton with Wolfe Research. Please go ahead.

Thanks, Good morning, Hey, Scott It was going to lead off on on the Netjets agreements and I realize it's not in backlog.

So maybe this is a little bit of the cart in front of the horse, but when you sign up to deliver.

Deliver a grip on 500 jets over 15 years, and our pre inflationary market I imagine that's.

Probably a little bit more straightforward, maybe I just wonder how do you do that in a very volatile potentially inflationary backdrop, how do you put the constraints and guardrails in place on those realized sale prices and just to confirm does this start to fold in in 'twenty five.

So look I want it probably won't go into all of the the gory details of the arrangement, but we've always worked with.

There's always been a factor in how we work with Netjets that casing consideration market pricing.

So it's not something that's.

Our fixed price 15 year thing.

What he could do that.

In the industry so.

Frankly.

Fair equitable deal because again, you really have to think of.

Net jets I mean, they're out selling aircraft into this marketplace. So we.

You think about just almost as a.

Sailing right of these aircrafts to Netjets and then the.

They have a.

Spread for covering their costs and sales and running their business. So there is a market adjustment scheme. That's incorporated into this thing. So nobody is trying to sit down and imagine what pricing is 15 years from now.

And then in terms of the initiation of the contract as it had 25 start deliveries with the last one running through 'twenty four.

Yes, I think thats about right I mean, it's again, it's an add on rates. So were it didn't extend the agreement we already have and we sit down obviously every quarter and sort of what's the.

Deliveries that are a year out so, but yes, I think if you looked at how many aircraft are left on the old agreement was new agreement. It's just kind of phasing kind of 'twenty four 'twenty five time frame.

And then Frank just to clean up can you level set us on interest and tax rate for the year at this point given we only have a quarter left.

Yes interest as expense is going to come in a little better than we had originally guided just given the.

Given what's going on with frankly, our investment in our cash.

Balances.

And tax is probably going to be a little bit better also than we had guided maybe a point better than our original guidance. Okay.

Okay, Alright, thanks, guys.

Next we move on to Peter Arment with Baird. Please go ahead.

Yes, good morning, Scott and Frank Nice results.

Scott.

On systems. The performance there continues to be really really good and there was obviously a bullish tone down to the USA around just a lot of the modernization efforts. How are you feeling about the kind of visibility of that business going forward.

Peter I think they are in a very good place I mean, a lot of the things that we've been working on for a very long time or.

Starting to kind of come to roost.

Have a nice strong growth in the quarter, that's driven by things like X and $2 50, which as you know we're sort of decade long investments and I read for some of these new munition systems, which are doing well.

The Sentinel program, obviously, we're one of the.

Partners with.

Northern <unk> that program continues to grow nicely.

We had some very important down selects here just in this quarter around the RCV program with the army. The ARV program with the with the Marine Corps of the U S down select with the army. So.

I think the business.

<unk> is performing well the margins are strong word we've got this business back into a growth mode and we have several additional opportunities out there that are material.

Do you win all of them are not I don't know, but I mean, we have.

Four five pretty significant opportunities that will well.

Closer over the next couple of years. So I think the businesses is executing well, they're delivering on their existing programs very well and I think they've got a lot of pretty significant growth opportunities that we've been on.

Are clearly in the pipeline.

I appreciate that color and then just Frank just a quick one on do you have the.

What services growth was for an aviation for the quarter.

Revenue for the quarter.

I appreciate it thanks guys.

Next we go to Ron Epstein with Bank of America. Please go ahead.

Okay. Okay.

Good morning, good morning Rod.

Yeah, excuse me the industrials business.

Did well so my question is this.

In the past it's got it thank you.

Intimated or maybe maybe more direct and that it's not core is that still how youre thinking about it or not I mean, how do we think about the industrials business in the context of.

They're kind of greater textron, which seems to be evolving quickly towards.

A bigger A&D company.

The way we're looking at industrial right now is is providing good growth and strong performance improvements in.

Generated good cash.

That's how we think about it.

So you just did it so I guess the core is an awkward.

We've never defined core or noncore I, certainly have never said that.

Well without giving you what we have said Ron is when we think about M&A activity in the company we certainly.

We view that the places that we would additionally, or add additional capital would probably be in our aerospace and defense portfolio and that's kind of how we look at the.

The M&A world as opposed to thinking that we should increase the size of our industrial business, but certainly to the extent that we can drive organic growth in these businesses.

Smart investments and generate good returns for shareholders I think that's.

The best thing, we can do for the shareholders is to make sure those performance of those businesses are performing as well as they can perform.

Yeah fair enough.

And then on the M&A front like you mentioned.

Sure.

What's it like out there right now are there opportunities.

Our the direction that you want to go in terms of A&D and you're more of a focus there defocused or agnostic.

Yeah, probably agnostic we've done some small deals here in recent times largely around expanding some of our.

Our services footprint, obviously, we did the <unk> deal, which has turned out to be I think a great acquisition for us to help.

Grow our focus in the future for our aviation business.

Obviously, there are some opportunities there that could be massive opportunities in the future or not we don't know, but I think thats a nice acquisition, that's given us some real additional capability in the company.

And again as I said most of what we look out in terms of any material M&A isn't that A&D space.

As you know Ron Theres only deals when they come along so often so you kind of keep an eye out and.

Look at look at things as they come down the pipe. So we will.

That's what we've been doing and will continue to do that and if something makes sense that we think so a great deal to be good for our shareholders and we would certainly.

Be willing to participate in that we obviously have the capacity to do a fairly material deal, but it has to be something that financially make sense.

Got it all right cool thank you sure.

Our next question is from Pete Skibinski with Olympic Global. Please go ahead, yes.

Yes, good morning, guys.

Just wanted to follow up on Myles question, and maybe see if we can get into the gory details.

Still a little bit.

My main question is Scott is there a minimum number of aircraft that they are obligated to take each year under this deal and if so how does that compare to the prior deal.

No they don't.

The relationship and the way this works is that.

I mean are our friends and net jets are out every day selling aircraft or so.

Given where the market is and what sales activity it looks like what the pipeline looks like firming up.

Aircraft that are going to deliver in roughly that one year window.

So when the market is strong. This element you expect that thing to continue to grow if there was a slowdown then you would expect to see that number come down so it's.

Total, 100% alignment around that end market.

Got it okay, and how do you think about the high end I mean on average 100 aircraft a year would be more than 50% of your deliveries. This year, how do you think about contemplating.

If you could ever get to the high end of that deal.

Well again Thats based on the end market right I mean, if the end market continues to be that robust, but I would I guess, what I would say is if the end market is going to be that robust and the fractional side in all likelihood as also can be that robust in the in the whole aircraft side. So you'd have to expect to see overall production output growing not locked into where it is in the 2023 number.

Alright fair enough fair enough. Okay. Thank you guys.

And we have a follow up from David Strauss with Barclays. Please go ahead.

Hey, David.

Hey, thanks.

Just wanted to ask specifically on on Florida I think.

You guys had talked about kind of $8 million to $900 million annual revenue run rate on Florida.

Are you fully ramped to that rate and in Q3.

And if not did that had something to do with the.

The Bell margin holding up I think certainly better than we had thought.

No no I wouldn't say, there's a margin impact to it but certainly we're not ramped to that rate yet David I mean that will grow here as we go through.

'twenty three 'twenty four I would say the ramp.

Is going well you know I mean, a lot of our internal resources ramping up the engineering activity is happening.

At a pretty good clip, but obviously a lot of that is also getting all of our suppliers onboard and getting a lot of it.

Key partners ramped up it took some time from the original contract award to get those guys onto under contract. So as you go through the rest of this year and particularly as you grow.

Into 2024, there is inside kind of Bell heads, if you will but theres also a lot of ramp.

The pass through to our partners on the program as well.

Okay.

I apologize if you already touched on this and I missed it but.

The supply chain issues that you called out on.

The commercial helicopter side.

How do those compare there.

What youre seeing on the aviation or jet side, I think you hadn't really highlighted supply chain is a challenge on the.

Bell commercial side prior to today, yes, it's very similar issues stated there.

It's very similar issues.

Okay, alright, thanks very much.

Sure.

And we have a follow up from Cai von rumor with TD Cowen. Please go ahead.

Yes. Thank you very much so your deliveries were down 50% at Bell commercial maybe give us some color on like what's the demand there and what should we look like in the fourth quarter because of your original guidance assumes a very big step ups that looks like it's.

Going to be tough to hit and you also had talked about margins kind of coming down.

As Florida effort ramped and maybe some color in terms of where the margins could be thanks.

Yes, I'm not sure I have a whole lot of additional color on the on the on the margin Psychos and we certainly expect it to be.

Even the performance through the course of the year that it will be over the over the top end of what we originally guided so I think we still feel that the.

Double finished out a very strong year.

The numbers are significant and I appreciate that and it certainly looks like a big ramp. The we've had a couple of issues very specific around our 505, which is a.

Fairly high volume product.

Relatively speaking lower dollar per unit volume so.

Lot of the numbers Smiths and a lot of the challenge frankly in Q4 in terms of.

The units is around those 500 fives so.

Obviously, we'd like to get the mouth customers want us to get them out but.

But the Miss on.

A number of those.

Light helicopters won't have a big material impact to the performance overall bill.

Thank you.

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