Q3 2024 Textron Inc Earnings Call
Thank you for standing by.
Thank you for standing by welcome to the Textron third quarter 2024 earnings call. At this time, all participants are in a listen only mode.
Operator: Welcome to the Textron, 3rd quarter, 2024 earnings call.
Operator: At this time, all participants are in a listen-only mode.
Operator: Later, we will conduct a question-and-answer session. If you would like to ask a question, please press one, then zero on your phone keypad. Should you require assistance, press star zero.
Later, we will conduct a question and answer session. If you would like to ask a question. Please press. One then zero on your phone keypad should you require assistance press Star zero.
Operator: This conference is being recorded for digitized replay and will be available after 10 a.m. Eastern Time today, running through October 24, 2025. You may access the replay by dialing 866-207-1041 and entering the access code of 1-480019.
This conference is being recorded for digitize replay and will be available. After 10, a M. Eastern time today running through October 24th 2025, you may access the replay by dialing 8662071041 and entering the access code of 14800.
One nine.
David Rosenberg: I would now like to turn the conference over to David Rosenberg, Vice President and Bester Relations.
Speaker Change: I would now like to turn the conference over to David Rosenberg, Vice President Investor Relations. Please go ahead.
David Rosenberg: Please go ahead. Thanks, Kelly.
David Rosenberg: And good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations starting our call today. These four looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release.
Speaker Change: Thanks, Kelly and good morning, everyone before.
David Rosenberg: Before we begin I would 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.
David Rosenberg: 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. Revenue's in the quarter were 3.4 billion, up from 3.3 billion in last year's third quarter. During this year's third quarter, adjusted income from continuing operations was $1.40 per share compared to $1.49 per share in last year's third quarter. Manufacturing cash flow before pension contributions told about $147 million in the quarter compared to $205 million in the third quarter of 2023.
David Rosenberg: On the call today, we have Scott Donnelly, Textron's, Chairman and CEO and Frank Connor, our Chief Financial Officer.
David Rosenberg: Our earnings call presentation can be found in the Investor Relations section of our website revenues in the quarter were $3 4 billion up from $3 3 billion in last year's third quarter.
David Rosenberg: During this year's third quarter adjusted income from continuing operations was $1 40 per share compared to $1 49 per share in last year's third quarter manufacturing cash flow before pension contributions totaled $147 million in the quarter compared to $205 million in the third quarter of 2023.
Scott Donnelly: With that, I'll turn the call over to Scott. Thanks, David. Good morning, everyone.
David Rosenberg: That I will turn the call over to Scott.
Scott Donnelly: Thanks, David and good morning, everyone.
Scott Donnelly: Growing the quarter, aviation experiences strike on the exploration of its existing labor agreement with the IAM. The work stoppage caused disruption to our production and service in our reach to our facilities. On October 20th, the IAM ratified a new five-year contract, ending a four-week strike. As employees return to work, and production delivery activities recover, resulting disruptions will impact our 2024 financial results. In the quarter, aviation delivered 41 jets, up from 39 last year, and 25 commercial turboprops, down from 38 in last year's third quarter. Aftermarket revenues grew 5% for the third quarter of 2023 versus 2023, and our year-to-date aftermarket revenues are up 8% compared to the prior year.
Scott Donnelly: During the quarter aviation experienced a strike on the exploration of its existing labor agreements with the iam.
Work stoppage caused disruptions to our aircraft production and service.
Scott Donnelly: Facilities.
Scott Donnelly: On October 20th ratified a new five year contract ending a four week strike.
Scott Donnelly: As employees return to work and production and delivery activities recover, resulting disruptions will impact our 2024 financial results.
Scott Donnelly: In the quarter Aviation delivered 41 Jets up from 39 last year and 25 commercial turboprops down from 38 in last year's third quarter.
Aftermarket revenues grew 5% for the third quarter 2023 versus 223, and our year to date aftermarket revenues were up 8% as compared to prior year.
Scott Donnelly: Aviation continues to strong demand in the quarter, looking over $1 billion in new orders; backlog grew 162 million, ending the third quarter at $7.6 billion. During the quarter, aviation delivered the 400th Session Citation Latitude. Latitude has been the best selling aircraft from the mid-sized check segment since it was introduced into service in 2015. At MBWA this week, aviation also announced the Gen3 updates of the Citation M2, CJ3, and CJ4, reflecting continued investments in this bottom portfolio.
Scott Donnelly: We should continue to see strong demand in the quarter booking over $1 billion of new orders backlog grew $162 million ending the third quarter at $7 6 billion.
Scott Donnelly: During the quarter edition deliver the 400 Cessna citation latitude latitude has been the best selling aircraft in the midsized jet segments. Since it was introduced into service in 2015.
Scott Donnelly: At <unk>. This week aviation also announced the Gen. Three updates of the citation <unk> C. G III and CJ four reflecting continued investments in this broader portfolio.
Scott Donnelly: At Bell, revenues were 929 million, up 175 million over last year, and segment profit was 98 million, up 21 million, as compared to the third quarter last year. During the quarter, the U.S. Army announced approval of Milestone B for the FLAW program. This significant milestone established as FLAW as a program of record and transitioned the program to the Engineering and Manufacturing Development phase. This phase includes continued digital modeling, detailed hardware and software design, and fabrication of hardware, as Bell proceeds to critical design review and the first flight plan for 2026. As a result of milestone B in the subsequent UMD award, Bell's backlog grew by 2.3 billion in the quarter, now totaling 6.5 billion.
Scott Donnelly: At Bell revenues were 929 million up $175 million over last year.
Scott Donnelly: Profit was $98 million up $21 million as compared to the third quarter of last year.
Scott Donnelly: During the quarter the U S Army announced approval of milestone B for the Florida program.
Scott Donnelly: If you're a milestone of staffs with established as far as a program of record and transitioned the program to the engineering and manufacturing development phase.
Scott Donnelly: This includes continued digital modeling detail hardware and software design and fabrication of hardware.
Scott Donnelly: As bolt procedure critical design review and first flight plan for 2026.
Speaker Change: As a result of milestone B and the subsequent even be award those backlog grew by $2 3 billion in the quarter now totaling $6 5 billion.
Scott Donnelly: On the commercial side, Bell saw increased order activity in the quarter. Bell delivered 44 helicopters, up from 23, and last year's third quarter.
Speaker Change: On the commercial side Bell saw increased order activity in the quarter fell deliver 44 helicopters up from 23 in last year's third quarter.
Scott Donnelly: Textron Systems revenues and profits were slightly lower compared to last year. In the quarter, systems completed two major milestones in the Army's F-Q-E-S program. A modular open systems approach conformance evaluation and a prototype aircraft flight demonstration. The team will now proceed to option 4 of the competitive program, which includes delivery of a production representative aircraft system for Army testing evaluation. Systems expanded its U.S. Navy aerosound operations with awards for two new land-based sites and three new maritime sites. Also in the quarter, systems delivered two prototype ribs saw in three robotic vehicles to the U.S. Army for testing as part of Phase 1 of the robotic combat vehicle program.
Speaker Change: Textron systems revenues and profits were slightly lower compared to last year.
Speaker Change: In the quarter systems completed two major milestones in the Army's <unk> program.
Speaker Change: Our modular open systems approach conformance evaluation and a prototype aircraft flight demonstration. The team will now proceed adoption for the competitive program, which includes delivery of a production representative aircraft system for army testing and evaluation.
Speaker Change: Systems expanded its U S Navy <unk> operations with awards for two new land based sites and three new maritime sites.
Speaker Change: Also in the quarter systems deliver two prototype ripsaw M. Three robotic vehicles to the US army for testing as part of phase one of the robotic combat vehicle program.
Scott Donnelly: The Army's expected sounds like the phase 2 for a production representative prototype in mid-20025.
Speaker Change: As expected it sounds like the phase III for production represented prototype in mid 2025.
Scott Donnelly: Moving to industrial, the second experience lower revenues and operating cost on the quarter, driven by continuing softness in specialized vehicles and markets. Specialized vehicles continue to take cost actions to align with lower production volumes. Moving to aviation, the move of 300 continued integration testing, including a full system power on and flight simulation run conducted this quarter. The team is now focused on preparations for the aircraft's first hover flight, which is expected in Q4 of this year. Also doing the quarter, the Nexus EV tall program continued to progress on the wing and empanada assemblies and outfitting of the ground control station, preparation for the starter flight testing, which is expected to begin in 2025.
Speaker Change: Moving to industrial segment experienced lower revenues and operating profit in the quarter driven by continuing softness in specialized vehicles end markets.
Speaker Change: These vehicles will continue to take cost actions to align with lower production volumes.
Speaker Change: Moving to aviation and over 300 continued integration testing, including a full system power on in flight simulation run conducted this quarter.
Speaker Change: The team is now focused on preparations for the aircraft's first overflight, which is expected in Q4 of this year.
Speaker Change: Also during the quarter the Nexus Vitol program continued to progress on the wing and <unk> assemblies and outfitting of the ground control station preparation for the start of flight testing, which is expected to begin in 2025.
Scott Donnelly: Finally, as we announced yesterday, we're making some important executive changes at Textron. Our CFO, Frank Conner, has notified us that he intends to retire from the company on February 28th of 2025. Dave Rosenberg, our current vice president and investor relations, has been elected as our new executive vice president and chief financial officer, succeeding Frank. Dave is more than 24 years of experience in the aviation industry and has served in a series of financial strategy positions, Textron Aviation, Beechcraft and its predecessor companies. In addition, Scott Hextram has been elected Vice President of Investor Relations, replacing Dave.
Speaker Change: Finally, as we announced yesterday, we are making some important executive changes at Textron, our CFO, Frank Connor has notified us that he intends to retire from the company on February 28 2025.
Speaker Change: Dave Rosenberg, our current Vice President Investor Relations has been elected as our new Executive Vice President and Chief Financial Officer, succeeding Frank.
Speaker Change: David has more than 24 years of experience in the aviation industry. Mr. Urban series, a financing strategy positions Textron aviation Beechcraft and its predecessor companies.
Speaker Change: In addition, Scott. Thanks, Jerome has been elected Vice President of Investor Relations, replacing date ortho.
Scott Donnelly: Both elections are effective March 1st, 2025. I want to thank Frank for his outstanding leadership and significant contributions to Textron during the 15 years, and to congratulate Dave Scott on the new appointments.
Speaker Change: Our collections are effective March one 2025.
Speaker Change: To thank Frank for his outstanding leadership and significant contributions textron during 15 years and to congratulate Dave and Scott on the new appointments.
Frank Connor: With that, 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.
Frank Connor: With that I'll turn the call over to Frank Thanks, Scott and good morning, everyone. Let's review how each of the segments contributed starting with Textron aviation.
Frank Connor: In the third quarter of 2024, delayed aircraft deliveries, along with unfavorable performance resulting from the IAM strike, lowered Textron Aviation's revenues by about 50 million and segment profit by around 30 million. Revenue at Textron Aviation of 1.3 billion was essentially flat with the third quarter of 2023, with higher pricing of 36 million. Mostly offset by lower volume and mix of 35 million. Segment profit was 128 million in the third quarter, down 32 million from a year ago, largely due to lower volume and mix of 29 million.
Frank Connor: In the third quarter of 2024 delayed aircraft deliveries along with unfavorable performance, resulting from the iam strike lowered textron aviation's revenues by about $50 million.
Segment profit by around $30 million revs.
Frank Connor: Revenue at Textron aviation of $1 $3 billion or essentially flat with the third quarter of 2023 with higher pricing of $36 million, mostly offset by lower volume and mix of $35 million.
Frank Connor: Net profit was $128 million in the third quarter down $32 million from a year ago, largely due to lower volume and mix of $29 million backlog in the segment ended the quarter at $7 6 billion up $162 million from the second quarter.
Frank Connor: Back along in the segment ended the quarter at 7.6 billion, up 162 million from the second quarter. Moving to Bell, revenues were 929 million, up 175 million from last year, largely reflected in higher volume and mix of 148 million. Volume and mix included higher military volume of 81 million, primarily related to the flora program, and higher commercial volume and mix of 67 million, reflecting an increase in deliveries. Segment profit of 98 million was up 21 million from last year's third quarter, largely due to a favorable impact from performance of 17 million and favorable pricing net of inflation of 12 million.
Frank Connor: Moving to Bell revenues were $929 million up $175 million from last year, largely reflecting higher volume and mix of $148 million.
Frank Connor: Volume and mix included higher military volume of $81 million, primarily related to the Florida program and higher commercial volume and mix of $67 million, reflecting an increase in deliveries.
Frank Connor: Net profit of $98 million was up $21 million from last year's third quarter, largely due to a favorable impact from performance of $17 million and favorable pricing net of inflation of $12 million.
Frank Connor: Backlog in the segment ended the quarter at 6.5 billion.
Frank Connor: Backlog in the segment ended the quarter at $6 5 billion.
Frank Connor: At Textron Systems, revenues were 301 million, down 8 million from last year's third quarter, largely due to lower volume. Segment profit of 39 million was down 2 million from a year ago.
Frank Connor: At Textron systems revenues were $301 million down $8 million from last year's third quarter, largely due to lower volume segment profit of $39 million was down $2 million from a year ago backlog in this segment ended the quarter at $1 9 billion.
Frank Connor: Backlog in the segment ended the quarter at 1.9 billion.
Frank Connor: Industrial revenues were 840 million, down 82 million from last year's third quarter, mainly due to lower volume and mix of 86 million, principally than the specialized vehicles product volume. Segment profit of 32 million was down 19 million from the third quarter of 2023, primarily due to lower volume and mix.
Frank Connor: Industrial revenues were $840 million down $82 million from last year's third quarter, mainly due to lower volume and mix of $86 million principally in the specialized vehicles product line.
Frank Connor: Segment profit of $32 million was down $19 million from the third quarter of 2023, primarily due to lower volume and mix.
Frank Connor: Textron EVA edition segment revenues were $6 million, and segment loss was $18 million in the third quarter of 2024, compared with a segment loss of $19 million in the third quarter of 2023.
Frank Connor: Textron Aviation segment revenues were $6 million and segment loss was $18 million in the third quarter of 2024, compared with a segment loss of $19 million in the third quarter of 2023.
Frank Connor: Finance segment revenues were $12 million, and profit was $5 million.
Frank Connor: Finance segment revenues were $12 million and profit was $5 million.
Frank Connor: Moving below segment profit, corporate expenses were 20 million, net interest expense from the manufacturing group was 22 million, life of inventory provision was 49 million, intangible asset amortization was 9 million, and the non-service components of pension and post-retirement income were 66 million.
Frank Connor: Moving below segment profit corporate expenses were $20 million net interest expense for the manufacturing group was $22 million LIFO inventory provision was $49 million.
Frank Connor: Tangible asset amortization was $9 million and the non service components of pension and post retirement income were $66 million.
Frank Connor: In the quarter, we were purchased approximately 2.4 million shares, returning 250 million in cash to shareholders. Year to date, we have repurchased approximately 10.1 million shares, returning 890 million in cash to shareholders.
Frank Connor: In the quarter, we repurchased approximately two 4 million shares returning $215 million in cash to shareholders.
Frank Connor: Year to date, we have repurchased approximately $10 1 million shares returning $890 million in cash to shareholders.
Frank Connor: Textron is adjusting its full-year outlook to include the expected impact of the aviation strike on its financial results. Textron now expects 2024 adjusted earnings per share from continuing operations to be in a range of $5.40 to $5.60 per share, down from its previous outlook of $6.20 to $6.40 per share. Manufacturing cash flow before pension contributions is now expected to be in a range of 650 to 750 million, as compared to its previous outlook of 900 million to $1 billion, with planned pension contributions of about 50 million. Looking to aviation, we now expect total year revenue of about $5.5 billion with an expected segment margin of around 11%.
Frank Connor: Textron is adjusting its full year outlook to include the expected impact of aviation strike on its financial results.
Frank Connor: <unk> now expects 2024 adjusted earnings per share from continuing operations to be in a range of $5 40 to $5 60 per share down from its previous outlook of $6 20 to $6 40 per share manufacturing cash flow before pension contributions is now expected to be in a range of 600.
Frank Connor: $50 to $750 million as compared to its previous outlook of $900 million to $1 billion with planned pension contributions of about $50 million.
Frank Connor: Looking to aviation, we now expect total year revenue of about $5 5 billion with an expected segment margin of around 11% at.
Frank Connor: At Bell, while total year revenue outlook has unchanged, we expect an improved segment margin in a range of 10.5 to 11%. At Systems, the revenue outlook has unchanged with a segment margin estimated at the top end, or slightly above our original guidance range of 11 to 12%. Looking to industrial, we now expect revenues to be about $3.5 billion with an expected segment margin of around 4%.
Frank Connor: At Bell, while total year revenue outlook is unchanged, we expect an improved segment margin in the range of 10, 5% to 11%.
Frank Connor: At systems. The revenue outlook is unchanged with a segment margin estimated at the top end or slightly above our original guidance range of 11% to 12%.
Frank Connor: Looking to industrial we now expect revenues to be about $3 5 billion.
Frank Connor: With an expected segment margin of around 4%.
Frank Connor: At aviation, we now expect revenue to be about 35 million, with segment margin unchanged at a loss of around 75 million.
Frank Connor: At Aviation, we now expect revenue to be about $35 million with segment margin unchanged at a loss of around $75 million.
Frank Connor: At Finance, we now expect revenue to be about $50 million with segment margin of around $30 million.
Frank Connor: Although segment profit, we now expect corporate expenses to be around $135 million interest expense to be about $85 million and a tax rate of 17, 5% that.
Frank Connor: That concludes our prepared remarks, so operator, we can open the line for questions.
Speaker Change: Thank you for those asking questions. We ask that you. Please take yourself off speaker phone for the best sound quality.
Speaker Change: And we'll go to the line of David Strauss with Barclays.
David Strauss: Good morning. Thanks.
Speaker Change: That's a great.
David Strauss: <unk>.
David Strauss: Thank you.
David Strauss: Scott could you just maybe touch on how.
Speaker Change: How things are going in terms of restarting or restarting production and kind of what what have you assumed in the in the updated forecast for for aviation and get $5 5 billion in revenue in terms of jet deliveries.
Scott: Sure David So look I mean, obviously, we got the ratification last weekend, which was.
Speaker Change: Very important.
Speaker Change: Under the terms of the contract.
Speaker Change: The workforce house up to five days to come back in so we are starting.
Speaker Change: So our ramp and get things back in place I think they talked to Ron yesterday, we've probably got about 60% of the workforce was backing yesterday, we expect that to continue to ramp and clearly expect to be at full.
Speaker Change: Full representation on Monday, so when we factor in the numbers, we kind of think about that that's why.
The $1 billion revenue dropped.
Speaker Change: Not really four weeks is more of a five week.
And then we've got to get all of the ramping in deploying back up and running here as we get into fourth quarter.
Speaker Change: I guess I'd say, David the good news is that's what we're focused on we have a five year deal in place Thats. Good for employees, it's good for us or our total focus right now is getting things ramped up.
Speaker Change: So we've spent obviously a lot of time here over the last four or five weeks continuing to work with our supply chain to make sure that parts are coming in and.
Speaker Change: Suppliers, who have been late to Po or getting back to current so our complete focus right now is getting everybody back in the door.
Speaker Change: Given the factory up and running and hopefully more efficient than its been over the past few years as we get better portfolio.
Speaker Change: Yeah.
Speaker Change: Okay. Thanks for that.
Speaker Change: Color and Frank in terms of the terms of the lower forecast for free cash flow for the year it looks like.
Speaker Change: Maybe you were losing about 125 million from lower earnings Capex, I think there's a little bit lower than you had previously forecast what accounts for it looks like you know $200 million of the additional $200 million hit on the free cash flow side.
Speaker Change: Yes, we're going to we're going to have some inventory headwinds associated with kind of the slower kind of wrap up here and the impact of the production.
Speaker Change: As Scott said, it's kind of a five week impact we wanted to get healthy from a supply chain standpoint. So.
Speaker Change: We certainly looked at kind of mitigating the cash impact of the strike, but we also want to make sure that we we were healthy as we come out of this so that's really the impact and we will.
Speaker Change: We'll then have that inventory, obviously to burn through in sell in in 'twenty five.
Speaker Change: Thank you very much.
Speaker Change: We will go next to the line of Sheila <unk>.
Sheila: <unk> <unk> with Jefferies.
Speaker Change: Good morning.
Speaker Change: Bob.
Speaker Change: And congratulations with bank of course, so just going back to the EPS guidance kind of 80 cents.
Speaker Change: I think industrial is about 30%, that's a headwind but balances.
Speaker Change: Of that how do we think about I guess <unk>.
Speaker Change: <unk>.
Speaker Change: 2024 exiting Q4, and then also industrial just given a 4% margin.
Speaker Change: Sure.
Speaker Change: So on the industrial front, Joe we've been we've seen softness all year, we've talked about that each quarter. So I think as we brought.
Speaker Change: <unk> the guidance just give any color. We've tried to give you guys. Some specific each one of those segments.
Speaker Change: And so I think our expectation right now is that the.
Speaker Change: Softness in that end market are going to continue as we've talked about in previous quarters. We're just cut way back on production volume, we don't want to put stuff out in the channel I don't think deals one thing is in the channel until we get better perspective, and view on where things are going in terms of interest rates and their end market. So.
Speaker Change: I think this was just we're just kind of firming up our view on the on the total guide.
Speaker Change: On that on that segment.
Speaker Change: The bigger issue for US obviously is we've got to get the aviation business ramp back up again here.
Speaker Change: Just trying to talk about given the sort of the delays in some of these deliveries were going to certainly carry out more inventory through the end of the year of work in process than we would normally have coming out of the Q4.
Speaker Change: But I guess, it's important to note.
Speaker Change: Sales aren't lost right I mean, these are are pushed in and were.
Speaker Change: Ultimately these aircrafts so as we think about 2025.
We clearly expect that we're going to see revenue progression over what our original 2024 Guide was you know we're continuing to ramp.
And I think now with the contract behind US we're optimistic about seeing more stability in the workforce clearly a better position on supplier parts and it's tough to recover all of that in one quarter, but I think we will have good momentum as we go into 2025.
Speaker Change: And just on the contract.
Speaker Change: How do we think about that headwind in <unk>.
Speaker Change: 2025.
Speaker Change: The rate increase.
Speaker Change: Hey, Chris.
Speaker Change: That was largely baked into our plans.
Speaker Change: The deal was a little bit more than we expected, but it's.
Speaker Change: Our direct labor is about 10% of our cost so I mean, our focus at this point, we'll be making sure we can drive greater productivity and efficiency to to compensate for that but I think.
Speaker Change: It's a it's a fair deal it's good for our employees and our view is we want these to be the best jobs in town. We think it's a hugely important workforce, we need good people, we need to retain them and we'd like to be the best job and I think this makes us the best job in town. So.
Speaker Change: It's a good trade for us.
Speaker Change: Hugh.
Speaker Change: We will go next to the line of Robert Stallard with vertical research.
Robert Stallard: Thanks, so much good morning.
Speaker Change: Alright.
Robert Stallard: Just wanted to follow up on David's question really.
Speaker Change: <unk> plenty of it sounds like you've taken.
Speaker Change: Had a proactive approach to managing the supply chain that you haven't turned anyone off thank.
Speaker Change: Thank you just kept things going in you've built up this inventory is that a fair analysis.
David: Yes, David I mean parts.
Speaker Change: Parts shortages well you know it is.
Speaker Change: Proved over the last few years has still been problematic I think for everybody in the industry.
Speaker Change: It's gotten to be a smaller number of part numbers that are a problem, but theres still a problem and that was continuing to drive a lot of.
Speaker Change: Out of station work in.
Speaker Change: Just significant inefficiencies in the factory so our view was.
Speaker Change: Nobody wins a strike the strike is not a good thing, but we certainly are during the period of a strike. We're committed to go we will continue to work with those.
Speaker Change: Flyers and tried to resolve that problem. So again from our perspective. This is all about how you move forward.
Speaker Change: Expecting we will get the workforce back in which is which is now happening that we would put ourselves in a better situation in terms of arts and back shops in these things so that we can be more efficient.
Speaker Change: Going forward, so that's going to cost a little bit of inventory, but you know all.
Speaker Change: All of that inventory is going to turn into airplanes, so I'm not particularly worried about that.
Speaker Change: Okay, and then as a follow up on industrial you mentioned, that's a specialty.
Speaker Change: Vehicles as being having some demand challenges, but what about Capex have you seen any softening on the European waterfront.
Speaker Change: Well for sure we have I mean auto was down around the world.
Speaker Change: P. M is probably the most challenged market. So the volumes are somewhat below where we would like them to be but frankly that team does a really good job of managing through in and dealing with that and offsetting with productivity and pricing and so I think the context, guys actually have been performing quite well.
Speaker Change: Okay. That's great. Thank you.
Speaker Change: Sure.
Speaker Change: And next we'll go to the line of Peter Arment with Baird.
Peter Arment: Yeah. Thanks, Good morning, Scott.
Speaker Change: Thank you Dave.
Peter Arment: Hey, Scott maybe just to talk about just on the heels of <unk> you guys. Obviously saw some nice bookings. This quarter can you talk maybe just about what youre seeing on the demand environment still seems obviously very favorable for a lot of your models.
Scott: Yes, Peter I think it has I mean, we had over $1 billion here in Q3 as you know Q3 is usually.
Scott: Historically, one of the lighter ones right. The summer July August is kind of usually quieter I think it was a good quarter of order activity.
Scott: We're very encouraged the refreshes of the team is putting out in both M. Two C. J three the new <unk> four of course, we have the ascend, which we announced two long that's coming along very well so the.
Scott: The number of updates, which are pretty significant in terms of capability aircraft and safety, particularly with launching auto land across all of those single pilot.
Scott: Jet platforms is driving strong demand. So I think the end market continues to.
To feel good order activity has flow is good. So I think we're still feeling good about where the where the industry is.
Speaker Change: And you just as a follow up on pricing net of in place and you guys have.
Scott: They've done pretty well.
Speaker Change: All year.
Speaker Change: What's the latest there I assume given that the demand of iron is healthy.
Speaker Change: Yes pricing is still good Peter in the marketplace.
Speaker Change: Talked about I think the price inflation number.
Speaker Change: As you know is compressing right I mean, so I would not expect to see big in.
Speaker Change: Contributions necessarily price over inflation.
Speaker Change: What we're really going to be doing is driving productivity and efficiency in our factories to continue to maintain that.
Speaker Change: That momentum so the pricing dynamic is good.
Speaker Change: Not a problem but.
Speaker Change: You had these pretty significant price inflation spreads and again that will as we've talked about before that will be that'll be coming down, but we're not banking on that to drive the kind of margin performance that we need to see going forward, we've really got to drive gold fashion productivity inefficiencies on that volume. The only think I'd add on that is for this quarter and next.
Speaker Change: With the lower volume, which is where price comes through and essentially inflation across all aspects of the cost structure not just the aircraft, but SG&A and other things that puts pressure on price versus <unk>.
Speaker Change: Net of inflation so for this quarter.
Speaker Change: <unk> net zero price, but that is certainly impacted by the lower volume associated with the strike and that will have an impact on the price versus inflation on a net basis in the fourth quarter as well.
I appreciate all the color thanks, guys.
Speaker Change: We'll go next to the line of Noah <unk> with Goldman Sachs.
Speaker Change: Hey, good morning, everybody.
Speaker Change: Alright.
Speaker Change: Sure.
Noah <unk>: Frank Congrats on the retirement and thanks for all the help and the relationship over the years and David Congrats on an excellent CFO.
Speaker Change: Thanks.
Speaker Change: How many Cessna jet deliveries are we expecting in the fourth quarter given.
Speaker Change: Yeah.
Speaker Change: Normal backdrop with the strike in the recovery.
Speaker Change: Well no I mean, we've never given a number of number Jeff. So I think we'll probably just stick the revenue at this stage of the game, but.
Speaker Change: It's a half a billion in revenue, obviously adjustment, which is pretty significant but I think that accounts for you.
Speaker Change: Whats turning out to be really a kind of a five week strike.
Speaker Change: Duration, and then just the inefficiencies and just the time of getting it ramped back up and going.
Speaker Change: Okay.
Speaker Change: Okay, and Scott I guess.
Speaker Change: In 2025 should we anticipate that.
Speaker Change: Jan one when youre, starting the year youre pretty much recovered and its a clean run rate production line or could there be disruption that bleeds into the beginning of the year and then should we expect.
Speaker Change: The aircraft that slip out of 24 to add what you previously had planned for 25.
Speaker Change: Or does it kind of smoothed out over a longer period of time.
Speaker Change: Well so first of all we certainly expect by January one we're running yet.
Speaker Change: Normal productivity in a smooth right you know what I mean, we're here.
Speaker Change: Kind of late October we've got you know November December here to get things ramped them operating smoothly. So I certainly expect by the start of the year the factor will be stable and doing well.
Speaker Change: I guess it will be I mean, we're kind of probably not ready to guide 2025, yet, but as I said no I do think if you look at what we're doing in production ramp and our expectations in terms of where we're going to be in 2025, while the 'twenty 'twenty four is obviously an issue and impacted we certainly expect to see.
Speaker Change: Good healthy revenue growth and 25 above what we originally guided in 'twenty four.
Speaker Change: Okay.
Speaker Change: And then just lastly on the on the margin at aviation.
Speaker Change: We all just continue to contemplate the incremental margin framework, you've referenced in the past or.
Speaker Change: You know as cost now different enough or is there still a lot of opportunity on the productivity front.
Speaker Change: Should we be thinking about that over the medium term.
Speaker Change: Look we still think about this business is converting at 20 plus percent in terms of.
Speaker Change: Revenue given the kind of a mix of gross margin across the business. So that's still I think an appropriate long term.
Speaker Change: <unk>.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks.
Speaker Change: Next we'll go to the line of Myles Walton with Wolfe Research.
Speaker Change: Thanks, Good morning.
Speaker Change: I was wondering if you could talk to to systems and you mentioned the two contracts that are being decided next year if T. A S and everybody a combat vehicle is an outcome on those.
Going to dictate whether or not systems can start a real growth profile. It's been obviously flattish here for for a long long time and how critical are those two programs.
Speaker Change: Yeah, absolutely look I mean these are programs that we've been investing for a long time to position ourselves they are.
Speaker Change: Key factors are driving growth of the business in the future.
Speaker Change: Theres other programs obviously in fact.
Speaker Change: Frankly, if you look at 2020 for that business is performing extraordinarily well.
Speaker Change: Did take a hit at the beginning of the year, which we did not anticipate around the shadow getting pulled out of service.
Speaker Change: The businesses within systems over the course of the year have grown to help to offset that and as we said, even even with that hit which was not trivial to us.
Speaker Change: The businesses are are hitting the original guide in terms of revenue and they're gonna be on the high side of the margin. So I think the systems team is performing very well.
Speaker Change: But yes, absolutely those programs like gift UAS and like our C V. And then of course, there's <unk> in the year out and such are key drivers of growth in the future.
Speaker Change: Okay and just one quick one is the 55 still on track for four key search or is that slipping into 'twenty five.
Speaker Change: Hi.
Speaker Change: We were actually just down there yesterday look the flight test program is continuing I I hate to put data out there because we don't certify that right I mean, that's.
Speaker Change: I'd say the relationship and the work going on with the FAA as good flight test program is going well, whether it gets this year.
Speaker Change: I were to guess I would probably say would slip into 2025, just because of just the sheer amount of documentation and paperwork and number of approvals that you know that.
Speaker Change: We need to flow through before the official TC gets put on there. So if we can.
Speaker Change: Continue to do the work on the flight test and all the work that we have to do on our side and of course, we're already moving water resource into.
Speaker Change: Various kits and capabilities that need to be added onto the aircraft over its lifecycle, so and that work will go on and in parallel with the certification process.
Speaker Change: Alright, thanks for the color.
Speaker Change: Thank you and we'll go next to the line of Seth Weizmann Board with J P. Morgan.
Speaker Change: Okay, Thanks, very much and good morning.
Speaker Change: Okay.
Speaker Change: And congratulations.
Speaker Change: Frank and Dave.
Speaker Change: Wanted to ask about the margin in any of the Shannon So extra strike it looks like it was kind of in the mid 11% range, which was <unk>.
Speaker Change: Below the guidance range for the year.
Speaker Change: I know, there's variability quarter to quarter, and you talked about Q2 being exceptionally strong but.
Speaker Change: Just anything to point out there with regard to why we saw kind of a step down there versus what we've been.
Speaker Change: Some are accustomed to seeing in recent quarters.
Speaker Change: Well, what guys I mean the.
Speaker Change: The strikes are a bit messy right. When you go back and you look at an idle facility in impacts in total year volumes and assumed overhead rates and liquidation rate. So.
Speaker Change: Part of what you're seeing in the quarter and the years, you've got to factor in.
Speaker Change: A lot of.
Speaker Change: Significantly lower volume all of a sudden with.
Speaker Change: A lot of cost, which some of which is not variable and so that's part of why you see that drag in the.
Speaker Change: In the in both Q3 as well as in our updated guidance for the full year.
Speaker Change: Okay. Okay.
Speaker Change: Got it and then I guess.
Speaker Change: Maybe thinking about.
Speaker Change: Margin at Bell and profitability coming in.
Speaker Change: Ahead of expectations this year.
Speaker Change: As far our continues to grow it.
Speaker Change: Is this something where you can kind of.
Speaker Change: Continue to maybe see some improvement here.
Speaker Change: Given the performance elsewhere.
Speaker Change: Or should we still be thinking about maybe maybe profit dollar growth margin rate declines.
Speaker Change: Yes, we're still we're still trying to drive the profit dollar growth.
The floor program is growing and will continue to grow next year fairly significantly which is great. Obviously, but as you note at a lower margin mix.
Speaker Change: But the commercial market is strong so that's helpful to us when in Nigeria, which is actually going to grow the <unk>.
Speaker Change: Each one original couldn't volumes here over the next couple of two or three years is obviously helpful. So there are some things in their mix wise that are helping but again I still think given the.
Speaker Change: Significant growth of the.
Speaker Change: Florida program, our focus really is how do we continue to be accretive to make sure that we're growing.
Speaker Change: Margin dollars in subsequent years.
Speaker Change: Excellent thanks very much.
Speaker Change: And we'll go next to the line of Doug Harned with Bernstein.
Speaker Change: Good morning, Thank you.
Speaker Change: And also congrats to Frank and Dave.
Speaker Change: Got it.
Speaker Change: If you if.
Speaker Change: We look forward from here say over the next five years.
Speaker Change: And thinking about what youre going to be investing in in the aviation side with respect to R&D and Capex.
Speaker Change: How do you see that profile evolving and are there specific areas, where you really intend to be focusing there.
Speaker Change: Well look I mean, I think that I don't see us, making a big change I think what we've been doing for the last number of years and I would expect we continue to do in the future is a is a nice mix of upgrade programs to our existing portfolio, which as we talked about earlier drives drive.
Speaker Change: Healthy growth in.
Speaker Change: No.
Speaker Change: Well received I say on the customer front.
Speaker Change: And occasional new product clean sheet, the drops and so.
Speaker Change: That is a formula that has worked for us and I think we'll continue to make that.
Speaker Change: From an R&D.
Speaker Change: Active we've talked about kind of making this ad or a slight tailwind in terms of on a percentage of sales basis, no part of our margin challenged here towards the end of the year as well.
Speaker Change: You assume that Youre, what youre doing on the R&D front is.
Speaker Change: It is fairly fixed over the course of the year. So if you lose a big chunk of revenue obviously on a strike that kind of hurts you a little bit, but I mean, that's an unusual circumstance. Obviously, so I think we will see fairly stable.
Speaker Change: It is still on track that Youll see that in 2025, despite the fact that we have.
Speaker Change: An interruption.
Speaker Change: Production here in 2024, so we we have had a ramp plan that was coordinated with suppliers and our own.
From a resourcing and staffing and I think that's that's still in place and that's why you should expect that we will see revenue growth and 25 above the 24 original guidance.
Speaker Change: Very good thank you.
Speaker Change: Okay.
Speaker Change: We'll go next to the line of Jason Gursky with Citi.
Jason Gursky: Yeah, Hey, good morning.
Jason Gursky: Frank Congrats on and good luck with the next phase and Dave Congratulations well deserved and look forward to working with you.
Jason Gursky: We're closely in that role.
Jason Gursky: Scott a couple of quick questions for you you mentioned labor productivity.
Jason Gursky:
Jason Gursky: Earlier as a way to offset.
Jason Gursky: Maybe some of the higher costs associated with the strike I'm. Just curious if you can make some bigger picture generalized comments about labor productivity, maybe now versus where we were prior to the pandemic and kind of the things that you are doing to drive.
Jason Gursky: Productivity back to maybe where we were if it was better back then and how much longer you think.
Jason Gursky: It takes for labor productivity to kind of returned to historic levels.
Speaker Change: Well there's two.
Speaker Change: Two major contributors to the inefficiencies you know, which certainly manifest themselves largely in productivity in the factory part of it was certainly supplier parts.
Speaker Change: Youre looking at running a production line and you've got lots of.
Speaker Change: Holes in your part bin Yu, you start doing stuff, that's out of sequence and having to rework things and swap things between aircraft in there. There is a lot of disruption that comes from that as I said I think.
Speaker Change: It won't be perfect you know, what we did work through the strike period to try to get.
Speaker Change: Get the on time to Poe and supplier delivery to where we have many many many fewer of these instances, where we don't have the part available at the time that we need to consume that part in the various stages of the production line.
Speaker Change: Frankly, it's just sheer labor right I mean like most companies.
Speaker Change: So a couple of reasons one many of our customers already owned aircraft and their ability to remarket their aircraft and manage having no what their timeline is and what a window of time to go sell their aircraft is important.
Speaker Change: And it also gives us the right amount of time to specify aircraft in interiors and go through a very smooth.
Speaker Change: Smooth process, where we know and that aircraft at the line what.
Speaker Change: What is that aircraft or whats the configuration and a lot of stuff to standard obviously, but there are customization that happened towards the latter part of the process and having that.
Speaker Change: All set and well understood being able to signal and have a consistent.
Speaker Change: Volume and delivery dates with our suppliers I mean, it really helps to me.
Speaker Change: A business, where it can run smoothly when you can see out that 18 to 24 months on volumes and product mix and product configuration.
Speaker Change: Great.
Speaker Change: Helpful. Appreciate it guys.
Speaker Change: And we'll go next to the line of Gavin Parsons with UBS.
Gavin Parsons: Thanks, Good morning, and Frank and Dave Congrats.
Speaker Change: Yes.
Gavin Parsons: I just wanted to ask a couple of margin questions on industrial or are you still getting some benefit of the restructuring or is that largely already in place at this point.
Speaker Change: Well I mean, I think clearly we've been news for restructuring through the course of the year, but I'd say there is more restructuring to come for sure.
Speaker Change: I think the end markets and particularly in a couple segments of the business are.
Speaker Change: Our continued to be soft and I think we're gonna be soft for a while so we will continue to do what we think is appropriate to.
Speaker Change: No restructure in and.
Speaker Change: Maximize our performance in each of those business segments.
Speaker Change: Got it and on aviation can you just remind us how the performance accounting line works you know if you have cost on aircrafts. This year that delivered next year, we expect some margin headwind there.
Speaker Change:
Speaker Change: So.
Speaker Change: You guys are viewing that decision.
Speaker Change: Well look I think that the as you kind of know Peter.
Speaker Change: Given the status of where that was right kind of just started E. M D.
Speaker Change: Made it a fairly low risk you know easy process to execute the spirit team.
Speaker Change: It was highly collaborative and work very very closely with us and in that process.
Speaker Change: It's it's done so we're focused on going forward, where we are.
Speaker Change: We're executing to that and Oh, so far so good.
Speaker Change: Thank you.
Operator: Thank you. We have no further questions in queue at this time, and today's conference is being recorded for digitized replay and will be available after 10 a.m. Eastern Time today through October 24, 2025. You may access the weekday by dialing 866-207-1041 and entering the access code of 148-0019.
Speaker Change: Thank you.
Speaker Change: Further questions in queue at this time in today's conference is being recorded for digitize replay.
Speaker Change: After 10, a M eastern time today through October 24.
Speaker Change: 2025, you may access the replay by dialing 866, 20710, 401 and entering the access code of 1480019. This does conclude the conference for today. Thank you for your participation you may now disconnect.
Operator: This does conclude the conference for today. Thank you for your participation. You may now disconnect. Have a great time.