Scott Donnelly: I don’t know, Cai. I mean, I thought we feel pretty good about our deliveries. We always would like to get another couple jets here and there, but I think we’re doing pretty good and feeling good about where we are on the labor front where we expected to be. So I don’t see a problem with our labor situation in Wichita. I think everybody has been challenged by higher turnover rates just in terms of the amount of churn and that’s really been one of the biggest impacts to us on the productivity efficiency side is the number of people that come in and rotate back out, but I think most companies in all industries frankly are seeing that. But no I don’t think we have a — we certainly don’t feel like we have a macro unsolvable problem. It’s improved significantly. The number of employees is where we need to be. And I expect we’ll continue to see a ramp on deliveries as we go through the year.
Cai von Rumohr: Great. And so that maybe going back to Myle’s question, so energy prices are up 5 to 5, it’s clearly targeting that market. You’ve got an order for 10. Do deliveries start relatively early next year, so could we start to see some pretty good build on that program?
Scott Donnelly: Well, we’re already ramping up the production side of the program to start to meet deliveries, but I suspect those deliveries will be in the late ‘25 sort of timeframe. I think we’re in a very good place in terms of the cycle, as you allude to. Obviously, Equinor is an energy company, and those are for oil and gas offshore applications. And we have several other customers whom we’re in, I’d say, positive latter stage negotiations that are primarily aimed at the oil and gas market right now. So it’s certainly a favorable time to be getting these things through certification and I think it fits a nice place in that end market.
Cai von Rumohr: Terrific. Thank you.
Operator: Next, we go to Seth Seifman with JPMorgan. Please go ahead.
Seth Seifman: Thanks very much. Good morning, everyone. I guess, Scott, you called out the contribution to EBIT growth from pricing at aviation, and we’ll see more about the other components in the queue. It looks like the compares for pricing get somewhat tougher from here. Should we think about — I know you probably have some visibility into the backlog here, you know, should we think about the $14 million of year-on-year pricing, you know, being a relatively high level, compared to what we’re likely to see for the rest of the year given that those compares get harder?
Scott Donnelly: Yes, I think it kind of is pretty stable through the course of the year. I mean we do have obviously very good visibility to the pricing side of things, because they’re all in the backlog. Obviously what’s important to us is to maintain that spread of net pricing over inflation and so that’s really you know most of the work as we go through the course of the year is just managing you know the inflation numbers around you know supply base and things like that. So — but I would expect to see positive price overinflation through the course of the year.
Seth Seifman: Right. Okay, Okay. Thanks. And then just to follow-up, I think you talked earlier about potentially some upside at Bell, talked about being in good shape at Aviation. I mean, when we think about where industrial came in, in the first quarter and where the guidance is, it looks like they’re going to probably have a tough time getting to that guidance and then maintaining the overall guidance for the company of aviation and Bell to fill in those gaps.
Scott Donnelly: Yes, I think that the industrial business, we would anticipate the revenue being a little bit lower than probably our original guide. I think we’ll probably hold in the margin range. But I think we have sufficient upside in terms of the performance and how we’re doing on the aviation and the Bell front, which is why we’re comfortable holding our guide for the overall company.
Seth Seifman: Great. Thank you very much.
David Rosenberg: Next, Liah. Liah, go ahead with them.
Operator: Sorry about that. We will next go to the line of Noah Poponak with Goldman Sachs. Please, one moment here. Please go ahead.
Noah Poponak: Hey, good morning everyone.
Scott Donnelly: Good morning Noah.
Noah Poponak: Hey, Scott, Frank, just staying on that Aviation margin. I mean, it’s a pretty good incremental in the quarter. I think it was a little bit of an easier compare. You know, we kind of have a sense of what units and price are doing? I think you had, you know, you’ve had cost input inflation, but you’ve also cited just kind of supply chain and some internal operating performance, you know, maybe that’s been a hurdle. Is that behind you now? Is that no longer an issue as you move through 2024? And is that a tail end, year-over-year?
Scott Donnelly: No, I think you’ll still see some pressure in second quarter, no. Remember, a lot of these aircraft are inventoried, a lot of that cost is inventoried, so it usually takes, you know, the first-half of the year to bleed out, you know, in the performance levels and productivity levels that we saw in the back half, you know, of the previous year in 2023 in this case. So I still think we see some pressure for that, but let’s say the good news is that when we look at the metrics in the factory and the efficiencies, productivity and things of that nature, you know, we are starting to see some of the benefits that we expect to see in a more stable, you know, production environment, less supplier disruption, you know, fewer onboarding, you know, so less you know impact on the training.
There’s a lot of things the business is doing to try to address some of those issues. So I do think that we’ll have margin rates that do continue to improve over the course of the year, but you’re still going to have some drag of that inventory release, particularly as you get through Q2.
Noah Poponak: Okay, that makes sense. And then I guess just to follow-up on the Bell margin, I know that FLRAA is still ramping and it’ll kind of exit the year at a different revenue run rate than it achieved in the first quarter. But it’s also ramped a decent amount. And I think this year you’ll get pretty close to what the run rate is in the sort of medium term. And this Bell margin just keeps outperforming. I mean, the amount of margin compression that was discussed out there in the market, I guess, in the medium term, is that kind of off the table? Or I guess how do you see this dollar margin hanging in ‘24, or ‘25, ‘26, just in the medium term as you continue to ramp borrow?
Scott Donnelly: Well, look, I mean, I think, yes, the term team is performing well. We’re doing everything we can on the cost front to deal with the lower production levels. Things like the Nigerian order, the additional five E-22s, these things are all helpful. I guess I would also note, you may have seen if you look at the FY ‘25 budget request, one of the allocations of sort of the elimination of FLRAA and where that money in the out years goes, there is over $200 million of FY ‘25 money on FLRAA above what was originally in the FIDAP. So I do think that we’re ramping quite nicely on FLRAA. We’ll actually probably see that increase in terms of the number of revenues on FLRAA as we get into 2025 above what we might have originally expected on the FIDAP.
So that’s, you know, another $200 million probably revenue step as we get into the next year. So we’ll continue to stay very focused on the cost side and executing and performing against all these programs. And as I said, I think that’ll drive us to the higher side of the revenue guide, or the margin guide for this year. And we’ll certainly get back to you on the FY ’25 guide sometime in January or February.
Noah Poponak: Okay. And Frank, I guess a decent amount or a lot of the items below segment, manufacturing segment EBIT were pretty different in the quarter, compared to what the full-year implied on a quarterly run rate. If I look at what deviation did, finance did, tax rate, corporate, interest even. Is it worth updating those on a full-year basis or are they all just kind of still looking like they’ll land in the range of what you had originally embedded in the earnings guidance?
Frank Connor: Well, I think that finance will be in the range of what we had thought. We talked about corporate expense was kind of significantly higher this first quarter due to share price performance. But we’ll kind of stick with that type of range. I think interest expense relative to I don’t know what we didn’t really guide interest expense, but I guess we’re probably a little better on interest expense, excuse me, relative to the 90, depending on what interest rates do for the year. You know, our investment in cash is a little better than we had thought, given the continuing higher interest rates, so there’s probably benefit there. But the other stuff is kind of in the range of what we had talked about.
Noah Poponak: Okay. Thank you.
Operator: Next, we have a question from Doug Harned with Bernstein. Please go ahead.
Doug Harned: Thank you. Good morning. I wanted to go back to your discussion around pricing at aviation. You know, this has been a great story with continuing to be able to get pricing ahead of inflation. But when you look at this, and I’d say outside of what you have in the order book right now, when you try and plan longer term, is this something you can expect to continue? Or do you have to look at this as eventually pricing is going to come back and kind of converge with inflation rates?
Scott Donnelly: You know, Jeez, I don’t know. I mean, obviously, I would say at a macro level, generally speaking, over very long periods of time, price inflation probably ended up pretty close. I think we certainly went through a number of years in this industry where the prices were, where the products were way under price. I mean it just doesn’t make sense. So I mean we had a significant, you know, catch-up in price, but I think got them back to much closer to where they should be. And obviously, our expectation is you’re going to continue to see inflation on a go-forward basis and we expect to see pricing increasing on a go-forward basis. And then we’re seeing that. I think the pricing in the market is solid. And beyond that, I’m not sure how to forecast over a long period of time, but we still think demand is strong and the price environment is doing well.
As I said, I think when we guided, we talked about the fact that you wouldn’t see as significant a price, absolute price increase as you saw in the last couple of years, but you also see some inflation starting to come down as well. So anyway, for us, what’s important is that we net, you know, have pricing, you know, positive overinflation.
Doug Harned: Okay, and then just switching over to Bell for a moment. On — again, on margins, you’ve talked in the past and I think is one would expect initially FLRAA is dilutive, but when you look at that trajectory now that you’re moving forward, you’re headed toward milestone B, I would expect long-term, this is a very accretive program once you’re in full rate production. Can you give us a sense of how you expect, kind of, the timeline of FLRAAs contribution to margins to proceed?
Scott Donnelly: Well, I mean, I think that, as you described it, that’s kind of what you would nominally expect for any of these large, you know, defense contract programs, far as a very big program, right? So the EMD phase of this thing, you know, goes out through, you know, into, you know, 2030. Now you’ll start to see, I would suspect initial production loss. We have LRIP deliveries that happen out in 2028, but you’ll start to see some of the follow-on production lots be negotiated out in that timeframe. But certainly the next several years is very much dominated by the EMD program.
Doug Harned: Okay. And that would be dilutive in that period?
Scott Donnelly: Yes, correct.
Doug Harned: Yes. Okay, and very good. Thank you.
Scott Donnelly: Sure.
Operator: Next we go to the line of Jason Gursky with Citi Group. Please go ahead.
Jason Gursky: Good morning, everybody.
Scott Donnelly: Good morning.
