Textron Inc. (NYSE:TXT) Q4 2023 Earnings Call Transcript

Textron Inc. (NYSE:TXT) Q4 2023 Earnings Call Transcript January 24, 2024

Textron Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. Welcome to the Textron Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] This conference is being recorded for digital replay and will be available after 10 a.m. Eastern Time today through January 24, 2025 at midnight. You may access the replay service by dialing (866) 207-1041 and enter the access code 4065507. I would now like to turn the conference over to David Rosenberg, Vice President of Investor Relations. Please go ahead.

David Rosenberg: 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 $3.9 billion, up $3.6 billion in last year’s fourth quarter. Segment profit in the quarter was $384 million, up $78 million from the fourth quarter of 2022. During this year’s fourth quarter, adjusted income from continuing operations was $1.60 per share, compared to $1.23 per share in last year’s fourth quarter.

Manufacturing cash flow before pension contributions totaled $380 million in the quarter, up $12 million from last year’s fourth quarter. For the full year, revenues were $13.7 billion, up $814 million from last year. In 2023, segment profit was $1.3 billion, up $191 million from ’22. Adjusted income from continuing operations was $5.59 per share as compared to $4.45 per share in ’22. Manufacturing cash flow before pension contributions was $931 million, down $247 million from ’22. With that, I’ll turn the call over to Scott.

Scott Donnelly: Thanks, David, and good morning, everyone. Our businesses closed out the year with another solid quarter with strong margin performance and cash generation. Throughout the year, our team has worked to mitigate supply chain challenges to deliver products to our customers. At Aviation, while we ended the year with an expectation of a book-to-bill 1:1, solid order flow and customer demand across our product portfolio resulted in year-end backlog of $7.2 billion, an increase of $782 million. Textron Aviation Defense delivered 13 T-6 aircraft for the year, up 10 from a year ago. During 2023, solid aircraft utilization within the Textron Aviation product portfolio resulted in a 6.5% growth in aftermarket revenues. At Bell, revenues in the quarter were up driven by higher commercial and military revenues.

On the commercial side of Bell, we delivered 91 helicopters in the fourth quarter, up from 71 in last year’s fourth quarter. For the full year, we delivered 171 helicopters in 2023, down from 179 in 2022. The higher military revenues reflected the continued ramp on our FARA program. On the FARA program, Bell completed the installation of the ITEP engine on the 360 Invictus. The team continues to conduct integration activities and prepare the aircraft for initial ground runs in 2024. Moving to Textron Systems. Revenue and margin were flat with last year’s fourth quarter. During the quarter, Systems delivered the last detailed design and construction craft on the Ship-to-Shore Connector program following its successful completion of acceptance trials.

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Q&A Session

Moving to Industrial. We saw higher revenues in the quarter, driven by higher volume in Caltex and favorable pricing in specialized vehicles. Moving to Aviation. Pipistrel delivered 135 aircraft during the year, up from 61 in 2022. Also at eAviation, during the quarter, the Pipistrel Bells Electro was selected to participate for a trial period to explore operational and trading uses for this all-electric aircraft as part of Agility Prime, the Air Force’s vertical lift program. Summary, in 2023, the year — we had a strong year across all of our businesses. We continue to execute on our growth strategy of ongoing investments in new products and programs to drive organic growth and margin expansion. During the year, Aviation announced the new Cessna Citation Ascend at EBACE and the Cessna Citation CJ3 Gen2 at NBAA.

In May, Aviation delivered the first passenger variant of the Cessna SkyCourier to Lanai Airlines servicing the Hawaiian Islands. In the third quarter, Aviation announced a new fleet agreement with NetJets for up to 1,500 aircraft over 15 years, including longitude, latitude, and the newly announced Ascend, extending our 40-plus year relationship. In October, Aviation delivered the 100th Cessna Citation Longitude. At Bell, we began work on the FARA program in April. The team continues to increase activity on the program, ramping up engineering resources, contracting with key suppliers, and ordering long-lead materials. At Textron Systems, we advanced through the future tactical unmanned aircraft system competition and are now one of two remaining competitors down from the initial five.

Systems also continued to win on land vehicle programs advancing to the next phase of the Army’s XM30 program as part of Team Lynx and was selected as one of four competitors to build RCV light prototypes for the Army. At Textron Specialized Vehicles, we introduced the new street legal EasyGo Liberty LSV powered by our elite lithium ion battery system. At Caltex in 2023, we announced the first pentatonic order from an automotive OEM for a thermoplastic composite underbody battery protection skid plate, establishing Caltex as a supplier to the expanding battery electric vehicle market. In Aviation during the year, we began system-level integration of the first Nuuva prototype, our hybrid electric unmanned cargo VTOL aircraft in preparation for first flight in 2024.

As we closed out 2023, manufacturing performance was trending positively with improvements in labor productivity and supplier deliveries. Looking to 2024 in Aviation, we’re projecting growth driven by increased deliveries across all product lines and higher aftermarket volume. At Bell, we’re projecting revenue growth in 2024 on higher military revenues from the FARA program and higher commercial revenues from increased deliveries. At Systems, we’re expecting slightly higher revenue as new programs continue to ramp. At industrial, we’re expecting flat revenues as growth of specialized vehicles is offset by lower than expected volume at Caltex. At Aviation, we plan to continue investments in development of technologies and products supporting sustainable flight solutions for unmanned cargo, next-generation electric trainers, eVTOL, and general aviation.

We also expect higher aircraft deliveries at Pipistrel. With this overall backdrop, we’re projecting revenues of about $14.6 billion, up 7% from 2023 for Textron’s 2024 fiscal year. We’re projecting adjusted EPS in the range of $6.20 to $6.40. Manufacturing cashflow before pension contributions is expected to be in the range of $900 million to $1 billion. With that, I’ll turn the call over to Frank.

Frank Connor: Thanks, Scott, and good morning, everyone. Let’s review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.5 billion were down $58 million from the fourth quarter of 2022, reflecting lower volume and mix of $158 million, partially offset by higher pricing of $100 million. Segment profit was $193 million in the fourth quarter, up $23 million from a year ago, reflecting a favorable impact from pricing net of inflation of $51 million, partially offset by lower volume and mix of $22 million. Backlog in the segment ended the quarter at $7.2 billion. Moving to Bell, revenues were $1.1 billion, up $255 million from last year’s fourth quarter, reflecting higher commercial revenues of $171 million largely driven by increased deliveries and higher military revenues of $84 million related to the FARA program.

Segment profit of $118 million was up $55 million from a year ago, primarily driven by higher volume and mix of $39 million. Backlog in the segment ended the quarter at $4.8 billion. At Textron Systems, revenues were $314 million and flat with last year’s fourth quarter. Segment profit of $35 million was equal to last year’s fourth quarter. Backlog in the segment ended the quarter at $2 billion. Industrial revenues were $961 million, up $54 million from last year’s fourth quarter, largely reflecting higher volume and mix at Caltex and a favorable impact from pricing at Textron Specialized Vehicles. Segment profit of $57 million was up $14 million from the fourth quarter of 2022, primarily due to higher pricing net of inflation of $18 million.