Transcript
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please continue to hold gentlemen thank you for standing by welcome to the q4 2021 textron earnings release conference call at this time all participants are in listen only mode later we will conduct a question and answer session if you wish to ask a question please press one then zero on your telephone keypad you may withdraw your question at any time by repeating the one then zero command. If you should require assistance during the call, please press star, then zero. As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Mr. Eric Salander, Vice President of Investor Relations. Please go ahead.
Thanks, Brad, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call 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, down from $3.7 billion in last year's fourth quarter. During this year's fourth quarter, we reported income from continuing operations of $0.93 per share. In the quarter, we recorded $5 million in pre-tax special charges related to our 2020 restructuring plan, or $0.01 per share after tax. Excluding these special charges, adjusted income from continuing operations, a non-GAAP measure, was $0.94 per share for the fourth quarter of 2021, compared to $1.06 per share in the fourth quarter of 2020. Segment profit in the quarter was $310 million, down $14 million from the fourth quarter of 2020. Manufacturing cash flow before pension contributions totaled $298 million in the quarter. For the full year, revenues were $12.4 billion, up $731 million from last year. Adjusted income from continuing operations was $3.30 per share, compared to $2.07 per share in 2020. Manufacturing cash flow before pension contributions was $1.1 billion, up from 596 million in 2020 with that I'll turn the call over to Scott thanks Eric and
good morning everyone our business closed out the year with another solid quarter at aviation we continue to see favorable market conditions including improved aircraft utilization low pre-owned inventory levels and strong customer demand order activity remained very strong with backlog growth of 655 million in the quarter and 2.5 billion for the full year resulting in a 4.1 billion backlog at year-end. As a result, we delivered aircraft on a more linear trend through the year, which improved manufacturing efficiency and cash flow generation. Reflecting this improved operating environment and strong execution-bearer teams, aviation achieved a segment margin of 10.1% in the fourth quarter. For the year, we delivered 167 jets, up from 132 last year, and 125 commercial total props, up from 113 in 2020. Also, in the year, we saw sequentially higher aftermarket revenue on a quarterly basis, driven by increased aircraft utilization. Moving to defense, aviation was awarded a $143 million contract for eight AT-6 aircraft, ground support equipment, spare parts, and training from the Royal Thai Air Force. This contract establishes Thailand as the international launch customer for the U.S. Air Force's latest light attack aircraft. On the new product front, the Beechcraft Denali completed its first flight in November, launching the start of the flight test program. At Bell, revenues were down slightly in the quarter, largely on lower military revenues as expected, reflecting the continued wind down of the H-1 production program, partially offset by higher commercial revenues. In December, Bell completed the first in cell improvement modifications on an Air Force CV-22 Osprey. This effort is part of an ongoing process to upgrade the Air Force Osprey fleet. In January, the Bell Boeing Program Office was awarded a $1.6 billion contract over the next five years to support the V-22 Osprey, currently in service with the U.S. military. On the commercial side of Bell, we delivered 156 helicopters in 2021. up for 140 in 2020 we also saw we also saw solid commercial order activity for the year reflecting broad-based demand moving detection systems we saw another strong quarter of execution that contributed to a full year margin of 14.8% up 320 basis points from 2020 during the quarter we delivered the fourth ship the shore connector to the US Navy after successful completion of acceptance trials on the shadow program systems was awarded an 82 million dollar logistics support contract for 2022 on our common unmanned surface vessel platform we completed file testing related to the unmanned influence system program setting up the potential for a production contract award in the first quarter of 2022 moving to industrial revenues were lower in the quarter as we continue to experience supply chain challenges including order disruptions at caltex related to global auto oem production schedules at tectron specialized vehicles we continue to see a strong pricing environment and steady retail demand. Despite the ongoing supply chain challenges, both businesses saw sequential revenue improvements in the quarter. In summary, there were many items to highlight in 2021 across our segments. Aviation, strong water activity, and customer demand throughout the year drove $2.5 billion of backlog growth. On the new product front, we continued our product refresh strategy with the introduction of the Citation M2 XLS and CJA-4 Gen-2 aircraft. The Cessna Skycar completed the flight test program with 2,100 hours of flight test activity, and we expect FAA certification in the first half of 2022. At Bell, we continued our work on the FDL programs. We submitted the proposal for the FLORA program in September, and the U.S. Army is expected to award the FLORA program contract in 2022. On FARA, we've made significant progress on the 360 Invictus prototype build, with 75% of the effort complete at year-end. We opened the Bell Manufacturing Technology Center, an innovative proving ground to test and refine technologies and processes across Bell's core production capabilities. Tectron Systems, ATEC, continued to grow its fleet of certified F-1 aircraft in support of increased demand on U.S. Air Force, Navy, and Marine Corps tactical air programs. We continued our innovation and development activities with the rollout of the RIP-solum5 prototype vehicle for the U.S. Army and the Cottonmouth ARV for the Marine Corps. At Textron Specialized Vehicles, we entered into a strategic collaboration with GM, which will assist our ground support equipment business in the electrification of baggage tractors, cargo tractors, and belt loaders for use in airports globally. We also introduced to Liberty, the industry's first PTV to offer four forward-facing seats in a compact golf-car-sized platform powered by a lithium-ion battery. At Caltechs in 2021, we were awarded eight contracts on new vehicle programs for our hybrid electric fuel systems. Looking to 2022 at aviation, we are projecting growth driven by increased deliveries across all product lines and higher aftermarket volume. At Bell, 2022 represents the beginning of a transitional period, as we expect lower revenues related to military production programs, while awaiting a downselect and award on the flower program. At systems, we're expecting flat revenue with growth on ship-to-shore and tactical air programs, offset by lower fee-for-service volume. At industrial, we're expecting revenue growth and margin improvement. Within Caltechs, we expect increasing volumes from improving OEM auto production. While with specialized vehicles, we anticipate improving supply chain conditions and increasing volumes across our products. Earlier in 2021, we launched our e-aviation initiative to leverage the resources and expertise across our aviation businesses to develop new opportunities in aircraft utilizing electrical propulsion systems. In 2022, we plan to expand these efforts and increase our investment in developing technologies to accelerate the shift of sustainable flight, including eVTOL and fixed-wing aircraft. With this backdrop, we're projecting revenues of about $13.3 billion for Texron's 2022 financial guidance. We're projecting EPS in the range of $3.80 to $4 per share. Manufacturing cash flow before pension contributions is expected to be in a range of $700 to $800 million. 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. Revenues at Textron Aviation of 1.4 billion were down 201 million from a year ago,
largely due to lower aircraft volume,
partially offset by higher aftermarket volume. Segment profit was 137 million in the fourth quarter, up 29 million from last year's fourth quarter, largely due to favorable pricing, net of inflation of 21 million, and improved manufacturing performance. Backlog in the segment ended the quarter at $4.1 billion. Moving to Bell, revenues were $858 million, down $13 million from last year, reflecting lower military revenues, partially offset by higher commercial revenues. Segment profit of $88 million was down $22 million, primarily due to lower military volume. Backlog in the segment ended the quarter at $3.9 billion. At Textron Systems, revenues were $313 million, down $44 million from last year's fourth quarter due to lower volume, which included the impact from the U.S. Army's withdrawal from Afghanistan on the segment's fee-for-service contracts. Segment profit of $45 million was down $4 million from a year ago, largely due to the lower volume. Backlog in the segment ended the quarter at $2.1 billion. Industrial revenues were $781 million, down $85 million from last year, reflecting lower volume and mix of $133 million, largely in the fuel systems and functional components product line, reflecting order disruptions related to the global auto OEM supply chain shortages, partially offset by a favorable impact of $50 million for pricing, largely in the specialized vehicles product line. Segment profit of $38 million was down $17 million from the fourth quarter of 2020, primarily due to lower volume and mix, partially offset by favorable impact from performance. Finance segment revenues were $11 million and profit was $2 million. Moving below segment profit, corporate expenses and interest expense were each $29 million. Our manufacturing cash flow before pension contributions was $298 million in the quarter and $1.1 billion for the full year. In the quarter, we repurchased approximately 4.5 million shares, returning $335 million in cash to shareholders. For the full year, we repurchased approximately 13.5 million shares, returning $921 million of cash to shareholders. Turning now to our 2022 outlook, I'll begin with the segments on slide 8 of the earnings call presentation. At Textron On aviation, we're expecting revenues of about $5.5 billion, reflecting higher deliveries across all our product lines and increased aftermarket volume. Segment margin is expected to be in the range of approximately 10 to 11 percent, reflecting higher volume, favorable pricing, and increased operating leverage. Looking to Bell, we expect revenues of about $3 billion, reflecting lower military volume, primarily related to lower H-1 production. We're forecasting a margin in the range of about 10 to 11 percent, largely due to the lower military volumes and continuing high levels of R&D investment. At systems, we're estimating revenues of about $1.3 billion, with a margin in the range of about 13.5 to 14.5 percent. At industrials, we're expecting segment revenues of about $3.5 billion on higher volumes at Caltechs and specialized vehicles. we're estimating industrial margins to be in the range of about 5.5 to 6.5 percent at finance we're forecasting segment profit of about 15 million moving to slide 9 on a consolidated basis we're expecting earnings per share to be in the range of three dollars and eighty to four dollars per share we're also expecting manufacturing cash flow before pension contributions to be about 700 to 800 million which includes an approximately 300 million dollar impact from a change in the R&D tax law beginning in 2022. Looking to slide 10 we're projecting about 150 million of corporate expense which includes 30 million dollars of investment in e-aviation. We're also projecting about 120 million of interest expense and a full year effective tax rate of approximately 18 percent. Looking to the other items and turning to slide 11 we're estimating 2022 pension income to be about 120 million up from 30 million last year turning to slide 12 R&D is expected to be about 585 million down from 619 million last year we're estimating capex will be about 425 million up from 375 million in 2021 our outlook assumes an average share count of about 219 million shares in 2022 that concludes our prepared remarks so Brad we can open the line for questions of
course and once again if you did wish to ask a question please press 1 then 0 on your telephone keypad and our first question today comes from the line of
Peter Armet with Baird please go ahead yes good morning it's got Frank Eric nice results hey Scott maybe you could just describe kind of the level of where you think bizjet production or jet production is going to and in 2022 and And if in the fourth quarter, did you have any kind of challenges from the supply chain that had any jets move into the 2022?
Sure, Peter. So, you know, as we've talked about, we have been ramping up the production rate. We continue to do that and expect to continue to do that throughout, you know, the course of 2022. The backlog has been very strong. We still see robust, you know, demand in the marketplace. So I think it remains very favorable from a market condition. um you know we haven't had problems like i shouldn't say we haven't had problems you guys always have to work through supplier issues here and there but but no we did not have that impact our production rates um or impact any 2022 deliveries um the ramp rate continues you know we're bringing people on board you know every month and training and continuing to uh to bring on our human resources and in our own business we continue to work with suppliers as they meet those ramp rates as well um i think as we look forward you can look we were coming out of the year with you know you know somewhere around a 12 month um backlog we we like that i think that's very healthy um for us and i think it's very healthy for our customers right so it's it's really how the business should run it gives you much better visibility it allows customers the opportunity to go sell their used aircraft for for many of whom who are we're upgrading in aircraft It gives them a lot more time to specify, you know, options and interiors and paints and all of the things involved in that process. And it allows us to cut all those things into the production line in a very efficient way rather than having a bunch of rework and changes towards the end to accommodate a customer need. So I think keeping an eye on that 12 months, you know, again, kind of for our class of aircraft, that makes a lot of sense to us. And I think it makes sense to our customers. So, you know, as the year goes on, and obviously we'll keep a close eye on the demand environment and we'll continue to make, you know, adjustments, you know, as we see fit. But I think we're very happy with where we are at the backlog levels that we have. I think, as I said, it works for us. It makes for a much more efficient, cleaner, easier to operate, more linear business. And I think it's been good for our customers as well.
Just as a follow-up to that, Scott, is just, are you back now? do you think get back to the 200 plus jet level on production or should we not really look at it
that way just given the mix yeah no i think i think you should i think as we've been saying we think we'll be back to those levels where we were in 19 and um we're probably a little early to guide on our 2023 volumes but we'll you know keep an eye on it but yeah for sure we're um we feel good that we're on track to get back above those uh 2019 levels and i think you see that in
our in the revenue guide so yeah and just lastly on just a cr if it goes a full year have you quantified, if there's any impact, if any?
You know, Peter, we really haven't. I mean, we're still kind of going on the basis that the CR is going to resolve itself here probably in the end of February, end of March. You know, if it ends up being a full year thing, you know, I don't think we have any one specific thing we'd point at. But, you know, look, it's not healthy for the industry. It's not healthy for the government. I hope it gets resolved, but we kind of continue to fight through it every day. Appreciate the details.
And our next question comes from the line of Sheila Kiaglu with Jeffries. Please go ahead.
Good morning, guys. On Bell, revenues are down 8% and margins contract 158. How do we think about pension, given it should be additive to that, as well as R&D is lower, and how does SLAR factor into that?
Well, probably due to all the constituents' parts, Sheila, but there's no doubt that there's some margin compression at Bell. And, you know, operationally, that's driven by the fact that we're going to continue to see the H-1 program winding down. So you're losing, you know, what's been important production volume for us. We will have some offsets there, obviously. I think we'll have a good year in terms of commercial aircraft deliveries. I think the commercial aftermarket will continue to be better. But I think we're going to see some pressures. Military aftermarket is always a little bit lumpy, but, you know, it probably will be a bit of a challenge. But, you know, most importantly here, you know, as you know, we've been investing very heavily on the R&D side, particularly around FARA and FLORA. You know, we do expect, you know, given what we're seeing, that the U.S. Army customer is staying on track with what they've said publicly about the FLORA evaluation process. It's a huge proposal. It's a lot of work on both sides. But they're, I think it appears they're making good progress. So I think they're probably, you know, on track to, you know, make an announcement. you know, towards the middle of the year, as they've been saying. But I will say what we've put in our numbers is, you know, I think a reasonable expectation that this is a huge program and it's going to take a little while for it to actually get under contract and turn it into something that has revenue associated with it, right? So I think we're going to continue to see a pretty high level of R&D in support of that program throughout the balance of, you know, most of this year. So that's really what's going on operationally. We are, without a doubt, seeing a mixed shift from, you know, good margin production volumes, particularly associated with the H1 ramp down, with continued high levels of R&D and sort of a slow transition here, even in the event of a far win, to revenue recognition on that program.
Great. Thank you.
And our next question comes from the line of Kaivon Rumer with Cohen. Please go ahead.
Yes, thank you so much. So you mentioned, you know, the Flora down select in 2022. My understanding was the expectation was they were going to make that decision by mid-year. Is that still your understanding?
then? It is, Kai. All I was saying in kind of the response to Sheila's question was that I think they're on track. I mean, from what we see in evaluation notices and that process that you normally, you know, are working through on a proposal of this magnitude, I think it's heading in that direction. But there's a difference between, you know, announcing who the winner is and actually getting under contract, right? I mean, this is a big program, and I think it's going to realistically take some time, and so therefore I'm expecting that even though the announcement might come quite possibly at the end of Q2, let's say, that transitioning that into actual being on contract is going to take a little bit of time, and our assumption is we're not going to go disband that team, so we're going to have to continue to do part of the cost-share funding to retain that team until such time as we get under contract.
Got it. And then at Textron, I mean, I know that pricing, you know, you mentioned is strong, but did pricing improve in that quarter versus Q3? And maybe if you can tell us, how many price hikes did you have in 2021? And where have you had one in 22?
well i guess the the dialogue really kasha is around price realization right so you know we've for a long time you're negotiating these deals so yeah pricing certainly continued to be strong in q4 um you know you'll see that in the in the case right about 29 million dollars of positive price um and so well ahead of inflation and yep we're we're still continuing to improve on our on our realized price. And I expect that to continue this year as well.
That's great. And then, Frank, one for you. So in kind of reading through the release, I think you mentioned that your cash flow numbers assumes a $300 million hit from R&D credit amortization. So you're basically assuming that whereas Lockheed and RTX did not. Is that
correct? Yeah, I mean, it looks like different folks are handling this differently. There's, you know, kind of some dialogue around the interpretation of what might be capitalized and what might not be capitalized. I'd say that, you know, kind of we are on, we've taken an approach that is on the more conservative end of things, I think, in terms of looking at the cash impact and have included it in our guide. So it's $300 million, as I said, and that would be the, you know, kind of the full impact with the, you know, kind of larger range of impact associated with how people are looking to assess how this gets implemented.
And our next question comes from the line of Noah Poppenack with Goldman Sachs. Please go ahead.
Hey, good morning, everybody. Hey, Frank, just to stay there for a sec, I understand if you're being conservative in laying out a forecast to all of us. But what did you think of what Lockheed said there? Because they had originally been talking about an impact similar in percentage terms as what you've laid out here, but now they're saying that it only applies to where they've had R&D tax credit in the past. Do you think that's incorrect or it's just still being evaluated and that may be correct?
I think there's dialogue in the tax community, as I understand it, around the interpretation of this. And I think, you know, we're all hoping it gets fixed, you know, is the real answer that we're, you know, kind of there's a lot of dialogue around this. This is not good for companies investing in R&D and, you know, the focus of the nation on continuing to invest, you know, kind of for the future. And so we're all hopeful it gets fixed. But there are different interpretations that are being discussed in the tax community around the application of it. Look, no, I mean, all we're trying to be is transparent, right?
So, I mean, if they do the right thing, and, I mean, look, this is ridiculous, right? I mean, the whole purpose of the R&D tax credit is to incentivize R&D, and by not allowing you to do that, that sort of defeats the whole purpose for this thing. You know, so, you know, we're transparent. We're giving you guys the numbers. You know, the day a bill passes that repeals it or removes it or some interpretation, we'll immediately add that to our guidance.
but it can still be considerably smaller even without a bill that actually changes the law and where it's just a different accounting interpretation well i think you'd have to
that that would have to get resolved you know as we look at what our cash tax payments are and how we would like how we would handle that and the risk associated with that right so i'd say that And, you know, kind of as we sit here today, our expectation is that if the R&D tax credit does not get changed completely, that this will be our approach to the implementation of what is the law today.
And our next question comes from the line of Robert Stallard with Vertical Research. Please go ahead.
Thanks so much.
Good morning, Robert.
um scott or frank this way i'm not sure who this is for um you know what you've said so far about the aviation outlook sounds pretty positive for uh margins not just this year but in the future year as well in terms of pricing and a steadier production rate longer lead times what's your latest prognosis on incremental margins yeah maybe over the say two three year period
hello robert we've always said that these you know conversions ought to be somewhere in that 20, 25 percent, then I think that's what we're realizing. So, you know, you look at the guide, you're, you know, getting a nice, you know, revenue increase and good leverage to the bottom line
associated with that. So we move towards the top end of that range. You say the fair assumption
with this pricing coming through? Well, I think as time goes on, we'll continue to see the margins expand if we continue to see this kind of revenue growth, because I do think we'll be able to convert, you know, in those 20, 25 percent incrementals. You know, there's new programs
coming in like sky courier and denali over time and things you know that that have impact on things so it you know there's some variability as we look at mix but generally as scott said you know kind of it's consistent with what we've been talking about yeah and then as a follow-up on the
in the industrial division um you know relative to what you said three months ago have things got any better on the supply chain oh okay i think they're they're kind of where they were i i think
we're expecting that we'll see a little bit of a, you know, like the bad news of this Omicron is if you looked into our factories, our supplier factories, the last week or so of December into January, you saw this crazy high, you know, spike, which clearly has impacted operations. It's the good news here is we're seeing that line of cases come down just as dramatically as it went up. But, you know, I think realistically speaking, we'll see some of the impact of that, you know, trickle through here in the first quarter or so. But I think as we progress through the year, It's certainly our expectation that we'll see that improve, and that's what we've reflected in the guide. So you'll have probably a slower, you know, realization of that, and certainly in the first quarter going into the second. But, you know, all in all, we'll see improvement as we go through the year.
And our next question comes from the line of David Strauss with Barclays. Please go ahead. Morning, thanks.
Hey, Scott, you touched on Bell and the pressure there from the military. If you were to happen to not win FARA or FARA, what is the longer-term outlook for the military business of Bell?
Well, if you don't win any new military programs, that's a challenge for the military program, for sure. But, look, we talk a lot about FARA, and I certainly don't want to underestimate the impact and the importance of FARA to the future of Bell. That's something we've been working very hard at, and we think we're in a good place. But, obviously, it's a competitive program. But, as you noted, we're also working on FARA. We've got high-speed VTOL. I mean, there's a number of investments that we're making to, you know, that are operating. You've got maritime strike in the Navy and our programs in the Marine Corps. There's certainly a lot of other opportunities beyond FLORA, but FLORA is an important program for us, for sure.
Okay, thanks. And, Frank, can you, you know, obviously you highlighted the R&D impact. what what is you know what is your working capital assumption kind of underlying that seven to eight hundred million dollar uh free cash flow forecast and then you know i guess looks like capital deployment you're talking about maybe buying back five six hundred million dollars in stock but you know based on that you're going to be you know kind of half the times levered by the end of the year so how are you thinking about you know kind of longer term capital deployment and
you want the balance sheet to be thanks yeah sure so um from a working capital standpoint we're you know we're looking at kind of flattish working capital x the tax number which does impact working capital but you know kind of as you look at the other elements from an inventory payables receivables things like that we you know we think we will likely see a little bit of inventory growth associated with um ramp and the commercial businesses um but we think we can offset that in other places. And so kind of continued good working capital performance. In terms of cash flow, cash deployment remains the same. Certainly, we look at obviously R&D and investment back into the business. We outline that. So we've modeled in kind of some number for acquisition activity that we always do, but the rest of the free cash flow would go towards share repurchase activity. You know, kind of the number in our model in terms of share count actually has our share repurchase a little bit back end loaded. So, you know, kind of we're roughly thinking about share repurchase that is in line with the from a dollar standpoint with the amount of repurchase activity that we undertook this past year.
This question comes from the line of George Shapiro with Shapiro Research. Please go ahead.
Good morning. Scott, last year at this point, you projected aviation revenue at four or five. so you guys were quite good on that. But you projected profitability of 5.5%. We wind up with 8.3%, and the incremental is effectively like 60%. For your current projection, you're in line with what you're saying, 24% incremental. But my question is, you know, what caused last year to be so good, particularly the fourth quarter where revenues, you know, were down and profit was way up. And so is there upside to that 10 to 11% margin guide for this year?
Well, George, I mean, you know, the comparables going back to 2020, obviously, you know, 2020 was a pretty extraordinary year. So you would expect to see a lot better overall performance in the 21 as things kind of return to normal. So, you know, that's why I think we're back into that world where you're talking about these kind of 20, 25%, you know, incrementals on the business. We continue to be in a strong pricing environment. We've been in a strong pricing environment all year, which obviously is helpful. And again, as I mentioned, having the strength of a backlog that we hadn't seen in a very long time, it really has helped to run the plants much more efficiently and effectively. So I think we have all those things are tailwinds to us. But we'll get our way into 2022 here and keep our heads down and keep delivering. And if we can drive additional margin, obviously we have a reason in the world to do that.
Okay, and just one quick one, Frank. How much was aftermarket actually up in the quarter?
Aftermarket on a year-over-year basis was up at aviation 20% year-over-year and sequentially was up 6%.
Okay, thanks very much. Good numbers.
And our next question comes from the line of Pete Skibitzky with Alembic Global. Please go ahead.
Hey, good morning, everyone. um scott just just want to tease out how much visibility you have right now in the business jet marketplace um you know with with the incredible backlog growth you've seen this year and your kind of delivery skyline that you have planned do you think you could work any of that backlog down this year you know by the end of the year or you know could backlog stay flat could it grow do you have any sense of how hot the market is well i would say the market's pretty hot but
And you see that again in Q4 where we've got kind of 1.7 sort of numbers. So, you know, that's good. All I would say, Pete, is I think we like that visibility of kind of being able to look at over a month and understand that skyline of deliveries by models. And, again, it's so important to us to be able to work in an efficient way. But, look, our salespeople are out there selling hard every day. And so, you know, if we get the visibility where we start looking at, you know, looking out even further into the future, then we'll look at continuing to increase production rates. But, you know, I don't think we want to do something stupid and try to go, you know, radically accelerate production rates and then burn down backlog. And then you're back where you were where you don't have that visibility and don't have those efficiencies. Again, I don't think it's healthy for the industry, the customers or, you know, our companies. So I think that's, you know, that's sort of what we'll keep our eye on, right? is that those timelines have kind of come back to normal historicals in terms of what a customer's expectation is from the time that they, you know, start a process of buying and when they want to take a delivery for the aircraft. And I think we're in a good place right now, and we should keep it there.
Okay. Appreciate the color. And just one last one. Can you just – where are we in the commercial helicopter cycle? And, you know, will the 525 be certified this year?
Well, look, I think the commercial helicopter is, as we've seen, similar to what we've seen in aviation. We've seen a nice, solid demand. We saw good delivery increases. We'll see that, again, in what we've guided you in the 2022 numbers. Look, 525, you know, clearly has been a disappointment for us in terms of our ability to get that through certification. I think there's been a lot of good work done this year. I think we're on a good path. You've probably seen some of the stuff that's been out there in the press where we're, you know, in addition to, you know, working the basic, you know, cert, you know, we're starting the ICE certification because so many of our customers will need that capability. So, we're paralleling those tasks right now. And, yeah, certainly we expect to get that certification done this year.
And our next question comes from the line of Robert Spingarn with Melius. Please go ahead. Good morning.
Scott, would you be able to parse out the demand within aviation, perhaps across the portfolio, where you see the strength, and then also talk about the different types of customers, the corporates versus the individuals versus the fleet operators?
Well, I guess the color I could give is to say that JETS leads the way. That's been the strongest demand environment. I would say that the demand is very robust in both the individual buyer, whether that's a corporation or a high net worth individual, as well as obviously the fractional market is very strong right now. So, you know, we're seeing a lot of demand through our partnership with NetJets. So, again, look, Jets, virtually across the board, you know, in terms of Jet models from entry level all the way up through longitudes, it's quite strong. TurboProps is also strong, but not as strong as Jets. And I would say part of that reason is, is you guys know that our, you know, our jet business is usually, you know, the biggest chunk of that market is North America, where we see very robust demand. A smaller part of that market is outside the U.S. They're still a little bit behind. There is demand there, but it's not quite as robust as North America. You know, when you look at turboprops, you know, and specifically when you look into the King Airs, for instance, you know, that's a market that for us historically is stronger outside the U.S. than inside the U.S. So it's strong, but frankly, it's marginally led right now by North America because, again, the North American recovery has been so strong. So we have seen that outside of the U.S. market picking up and are seeing that demand. And so it is better than one-to-one. It's good. But I would say in terms of color, JETS is certainly leading the way.
And then just quickly on the specialty vehicle side, I wanted to ask how the inventories are. I think you touched on it, but with the supply chain issues, it gets a little obscured. Is the takedown or the sell-through of snowmobiles, has it been good this season, and what's the outlook for the dirt market?
Yeah, it is. Look, the demand environment is very strong, guys. The only challenge we have is just supply chain. If I can get more parts and build more machines, the stuff sells through the market. You know, it's our only frustration right now is being able to get more stuff out there to dealers. um i'd say look on a year-over-year basis we actually you know saw improved volumes through through the tracker channel which is is terrific but it could have been even better if we can get more more machines out there so it's this is this is most certainly not a demand problem it's a it's
a supply chain problem and our next question comes from the line of christine lewag from
morgan stanley please go ahead hey um good morning guys um morning as the backlog builds and aviation. Can you talk about how you're managing potential inflation risk, especially if we see raw materials and labor prices at elevated level? I mean, how much is a straightforward path through in terms of escalation clauses, and how much would you try to offset with lower costs?
Oh, look, obviously our intent here is to keep price net, you know, inflation a positive number. And so, you know, we do certainly see inflationary pressure. I think everybody in the world is seeing that, you know, come through to one degree or another. You know, some businesses have more long-term agreements than others, which helps you cushion that a little bit. Some are more exposed to logistics and transportation costs, which are, you know, virtually immediate. But, you know, we've responded to a lot of that where, you know, in the businesses where that's a problem, we put freight surcharges out there right away. So, you know, we're very, very conscious of the, you know, inflationary pressures and have, I think, you know, good plans and actions around, you know, prices and surcharge to try to more than offset that.
thanks and maybe on bell um with the program roll off and with flora you know if you win that contract uh upside is really farther down the line is there a path back to a 12 percent bell
margin in the next few years well because i i don't know i mean i won't go beyond probably 2022 guidance but you know we've been saying for a very long time that we expect bells sort of a 10 to 12 percent you know margin business we've obviously been well above that as we had a lot of, you know, strong multi-year production programs where we could drive efficiencies and gain the benefits of that. But on the other side of that coin, when you see some of the ramp downs, you know, it's more pressure to, you know, to be in that range. And that's where you see us, you know, today. So, you know, clearly some of these programs, you know, even when you talk about EMD programs of a magnitude like a flora, you know, there's still, you know, pressure when you unwind some of these large production programs. But, again, I think it's too early, obviously, to think about how we would guide, you know, into 23 or 24. It'll depend a lot on mix. You know, there's still opportunities out there for increased production on some of our military programs. We don't know what the aftermarket's going to look like on some of those programs. So, you know, we've got to kind of adjust every year. But I think 10% to 12% is, you know, what we've said for a long time. And I think that's probably the reality of where that business will be.
And our next question comes from the line of Ron Epstein with Bank of America. Please go ahead.
Hey, good morning, guys. Scott, I was wondering if you could share some of your thoughts on eVTOL. You know, we've seen some of the publicly traded eVTOL companies just get crushed. Boeing just dropped about half a billion dollars into WISC. And, I mean, arguably, you're probably one of the more experienced companies at this, given that you do have a vertical lift business. You do deal with, you know, kind of smaller vertical lift aircraft. And just curious what your sense is on that market and how you think about it for Textron.
Well, look, Ron, I think that I think we're in a better position than anyone to go execute on these market opportunities. We're doing that. I think the advantage for us is that we have already in the company the infrastructure and the talent to do these sorts of things. So, you know, I don't need to make a, you know, announce a half a billion dollar investments. I think we've indicated you guys we're going to probably have, you know, $30 million that we're putting in this year. But, you know, I can spend my money on actual engineering capability and designing, you know, stuff. I don't need to be building hangers and office spaces and test laboratories and all that sort of stuff. I have all that stuff, right? So, you know, we have a lot of technology leverage that, you know, comes out of our flight control side of Bell that's been doing tilt rotor, which is, you know, kind of what these guys look like are our baby tilt rotors. You know, we know how to design and build and certify Part 23 aircraft. So I just think our approach on here is, you know, spend the money we need to spend to invest in the technology. You know, we've talked before, the battery, the battery density issues. You know, I think you have to have a practical product. And so we're working with a lot of different angles and batteries, you know, cell suppliers to try to understand this thing. There's a number of things we're looking at to strengthen, frankly, that part of our business. I don't know how – we don't really need to strengthen the part of our business that knows how to do tilt rotors, that knows how to do fixed-wing aircraft and that weight class and that certification type, but we do need to strengthen our capability on the battery, electric, propulsion side of things. So we're doing all that. I just don't think there's a reason for us to come out and throw dates around around when this business model happens. And, you know, frankly, look, I think there's every reason to believe that that eVTOL and the urban air mobility could be a very big business. And I think we'd love to, you know, supply assets into that business. But I think Electrofly, frankly, is a lot more than that, right? I mean, there's trainers, there's six-wing, you know, stuff. It's not just all about, you know, eVTOL. I mean, that could be a monster market. That would be great. But I don't think it's the only market. So we're taking probably a more pragmatic approach and, you know, making the right investments, I think, and looking at opportunities for us to be a big player in that. I think we should be the winner in that space. But I think we can do it with relatively modest investments and leverage the technology that we already have in our company. Yeah, that makes a ton of sense. Thank you.
And our next question comes from the line of Seth Seifman with J.P. Morgan. Please go ahead.
Thanks very much. Good morning, everyone. I guess, Scott, I'm not totally sure, but I want to guess that you're probably at least three-quarters of the way through the NetJets agreement on latitudes. And so, you know, how do we think about where that goes from here and, you know, the demand level as you sort of approach the end of that, you know, those 200 aircraft, you know, given their importance as a latitude customer?
um like that's a good question i don't recall exactly you know the the numbers i mean it was a huge order as you guys know we put those into backlog as we you know work with net jets every quarter on forecasting you know that sort of 12 to 18 month you know you know window that's out there um you know we i don't think we're close enough that we started to you know have to negotiate another deal the provisions of how to manage that you know through the um the life cycle that couple hundred aircraft, you know, were already defined and were executed to that. I guess, you know, all I would say is I think that, you know, the performance of that airplane for NetJets, for their customers, has been terrific. The relationship is very strong. It's very healthy. You know, we enjoy working together. And I think, you know, when we get to the point where we've got to say, all right, guys, we're, you know, the term of that contract in terms of the number of aircraft, and we'll, I would have every reason to leave, we'd negotiate an extension to it and keep on,
keep on going. All right. Okay. Okay. Um, very good. And then, um, maybe, uh, following up on Christine's, uh, Bell question, um, understand, uh, that there's no 23 guidance at this point, but I mean, with a, with a Flora win, um, can we assume that 2022 is an EBIT bottom at Bell?
Well, guys, again, I don't want to guide 2023 just yet. You know, there's a lot of stuff that will happen here through the course of 2022 in terms of, you know, other programs and, you know, commercial aircraft and aftermarket and all those sorts of things. So there's a lot of moving parts in the mix that goes into, you know, what our EVIT levels look like at Bell, and we certainly haven't delved into that at this point.
Okay. Great. Thanks. Thanks very much.
Sure. And we do have a follow-up question from the line of Noah Papanek with Goldman Sachs.
Please go ahead. You first projected that you would recover half of the decline from 2019 to 2020 in Cessna deliveries in 2021. You essentially just reported exactly that, maybe actually slightly light of it. And you first projected 2022 would get back to 2019 for Cessna units with the fourth quarter of 2020 report and now you're guiding to pretty much exactly that but it seems like the market has strengthened considerably since you first provided those targets that span a two-year period you know about a year ago and so it's sort of you know the market's strong and I understand you want to be prudent about how you uh you know where you go with the production rates here and this has been cyclical in the past but it sort of seems like the strength the incremental strength of the last 12 months is not really you know coming through in
those deliveries well look no i mean we've we've tried to provide a guidance and and try to hit the expectations on that guidance we'll we'll look at how the market plays out through the course of the year and what the order rates look like and what we can do um that we think we can if we think we can do additional aircraft in other words if the market demand is there the supplier capability is there you know it all looks what we you know we work that every day so um if there's an opportunity for us to to improve upon that and service from the deliveries and you know obviously we'll go down that path but i think that the the guide is appropriate to what we've said it's supported by the backlog and you know that's the the plan that we're looking at today and do you
anticipate seeing bookings in excess of revenue at a rate, you know, through 2022 that was similar
to what you saw in 2021? Oh, look, no, I don't, I don't know. I mean, we, you know, we're looking at awfully strong, you know, ratios here in, in 21, you know, so that would be another awfully big, you know, backlog build. Like, you know, I'd love to see this continues, you know, some back on a bill, but is it reasonable to expect it to stay that hot through a whole other year? I don't know. I mean, if it does, great. And if it does, obviously we'll continue to tweak our production levels up and our delivery levels up. But that's something I think we'll just keep an eye on as we go through the course of the year. I mean, I'd just be making stuff up to it's going to be that strong for a whole other year. But we'll see how it plays out. Certainly it has remained robust. Our last follow-up question
is from the line of George Shapiro with Shapiro Research. Please go ahead.
Yes, Scott. The fourth quarter deliveries are, you know, being three less than the third quarter. I know you talked about wanting to level load them this year, but I would have expected the fourth quarter to be a little bit bigger than the third. So are there any deliveries that got pushed into 22 as a result of that, or that's just how it fell out, and this is what we expect
in the future? No, that's just how it fell out, George. I mean, we're going to have, you know, It's not going to be the same number every quarter, obviously, but I think we like the fact that there's a lot more linearity. If you contrast that to going back and having a lower third quarter and then you get this big spike of tons of deliveries right at the end of a fourth quarter, again, it's not a very healthy way to run a business. So would we like to be totally flat or a little bit better on sequentials? Okay, but I think at this point in the game we're delivering to the customer need dates, and that's what we're going to continue to do as we go forward.
Okay, and then what is the lead time where you'd have to make a decision to deliver more planes this year? You have the first half of the year to be able to do that, or what kind of lead time do you need?
Well, look, George, I mean, we've always talked about these being sort of 12- to 18-month, you know, kind of things on some of the longest lead. Obviously, we work with those suppliers, you know, to try to, you know, again go down another level or two levels in some cases to look at what are the longest lead times you know in their supply chains and and try to mitigate some of those things so that it gives us a little more flexibility you know in uh in in ramping as we go through but i mean there are obviously limits to that but you know so when we say it's kind of 12 to 18 months is where we'd like to be obviously you know we've tried to mitigate some of those longest lead items so that we have uh we have some flexibility inside of that window but look it's really hard to make much change, you know, inside of a six-month window, right? But we have a little bit of wiggle
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