Textron Inc Q4 FY2024 Earnings Call

Good morning, everyone. Welcome to the Textron Q4 2024 Earnings Release Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Now, I will turn things over to Mr. Dave Rosenberg, Vice President, Investor Relations. Please go ahead, sir.

Thanks, Bo, 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 $3.6 billion, down from $3.9 billion in last year's fourth quarter. Segment profit in the quarter was $283 million, down $101 million from the fourth quarter of 2023. During this year's fourth quarter, adjusted income from continuing operations was $1.34 per share compared to $1.60 per share in last year's fourth quarter. Manufacturing cash flow before pension contributions totaled $306 million in the quarter, down $74 million from last year's fourth quarter. For the full year, revenues were $13.7 billion, up $19 million from last year. In 2024, segment profit was $1.2 billion, down $127 million from 2023. Adjusted income from continuing operations was $5.48 per share as compared to $5.59 per share in 2023. Manufacturing cash flow before pension contributions was $692 million, down $239 million from 2023. With that, I will turn the call over to Scott.

Thanks, David. Good morning, everyone. The results for 2024 were affected by a work stoppage in Aviation and challenging conditions in our Industrial segment. During the quarter, Aviation reached an agreement with IAM on a new five-year contract. Although the strike was unfortunate, it allowed us to significantly enhance our parts flow to the production line, which we anticipate will decrease out-of-station work and boost efficiency moving forward. Aviation experienced steady customer demand during the quarter, bolstered by new product launches, resulting in a year-end backlog of $7.8 billion, up $676 million from 2023. In December, Aviation secured an order from the Naval Air Systems Command for an additional 26 multi-engine training systems, Beechcraft King Air 260s. Additionally, Aviation progressed in expanding the global market for its versatile Cessna SkyCourier turboprop, achieving type certification from Transport Canada Civil Aviation. Throughout 2024, consistent aircraft utilization within the Textron Aviation product portfolio led to a 6.3% increase in aftermarket revenues. At Bell, we experienced notable growth in 2024, driven by the ongoing expansion of the FLRAA program, which contributed to a 13.7% revenue increase for the year. During the quarter, Bell received a follow-on award for the FLRAA program as the US Army exercised Option 2 for two limited user test aircraft. On the commercial front, Bell maintained steady order activity in 2024, delivering 172 helicopters, just one more than the 171 delivered in 2023. In the Systems segment, the team achieved another strong quarter with a 13.5% profit margin. During the quarter, Systems completed Options 3 and 4 of the Future Tactical Uncrewed Aircraft System Program by delivering a production representative system to the US Army in December. Systems also received an award from Naval Sea Systems Command for the next production lot of nine ship-to-shore connector crafts, valued at $960 million. They were awarded a contract worth up to $106 million for Mine Sweeping Payload Delivery Systems from the US Navy for its minesweeping operations. In the Industrial segment, we saw decreased revenues and operating profit during the quarter, mainly due to ongoing softness in specialized vehicles and markets. We are currently conducting a strategic review of our PowerSports product line. In eAviation, Pipistrel delivered 42 aircraft in the fourth quarter and 120 for the full year while continuing to invest in electric and hybrid aviation technologies. Despite the challenges faced in 2024 in Aviation and Industrial, the company ended the year well-positioned for future growth in the Aerospace and Defense sectors, with strong order activity resulting in a total company backlog of $17.9 billion, an increase of $4 billion from 2023. At NBAA in October, Aviation announced significant progress in aviation technology with Gen3 platform upgrades to the M2, CJ3, and CJ4 aircraft, including Garmin Emergency Autoland and other enhancements. Throughout the year, we made strides on the Citation Ascend and Beechcraft Denali development programs, with Ascend logging over 700 hours of flight testing and Denali surpassing 2,500 hours. At Bell, the US Army approved Milestone B in August for the FLRAA program, allowing Bell to move into the engineering and manufacturing phase, working toward the first prototype. Bell's military program highlights in H1 included an FMS award for the production of 12 AH-1 Zulu helicopters to Nigeria and over $1 billion in sustainment awards for H1 and V22 programs. On the commercial side, Bell experienced consistent demand, receiving its first 525 helicopter order for 10 units from Equinor, the Norwegian state energy company. In 2024, Textron Systems made notable advances on several key initiatives. For the US Army’s Robotic Command Vehicle development program, Systems delivered two Ripsaw M3 prototype vehicles for Phase 1 ahead of an expected downselect in the first half of 2025. In the XM-30 program, Team Lynx moved to the detailed design phase, projected to finish with a critical design review in the first half of 2025. In the Advanced Reconnaissance Vehicle program, Systems continued development as one of two selected vendors to design and manufacture a 30-millimeter autocannon prototype variant due for delivery in 2025. In FTUAS, Systems has met delivery obligations while awaiting a final downselect for a production award from the US Army in the second half of 2025. Systems also received the next production contract award for the Ship-to-Shore Connector and broadened maritime airside operations with the US Navy. In the Industrial segment, we focused on optimizing our cost structure throughout the year to counter challenging market conditions. In eAviation, Pipistrel received an airworthiness exemption from the FAA for its Velis Electro Trainer, enabling US flight schools to utilize the aircraft for certified pilot training. Additionally, eAviation acquired Amazilia Aerospace, which specializes in digital flight control and management systems for both manned and unmanned aircraft. Looking ahead to 2025, we forecast growth in Aviation driven by increased deliveries across all product lines and a rise in aftermarket volume through enhanced productivity and manufacturing efficiency. At Bell, we anticipate revenue growth propelled by the FLRAA program and heightened commercial volume. For Systems, we expect low single-digit revenue growth with strong margins as we pursue new program opportunities. In our Industrial segment, we project lower revenues primarily due to the suspension of PowerSports production at TSV and decreased automotive volume at Caltex, but we expect cost reductions to improve profit margins in 2025. In eAviation, our commitment to developing new hybrid and electric technologies for aviation platforms will continue. Given this overall context, we project revenues of approximately $14.7 billion, a 7% increase from 2024, for Textron’s fiscal year 2025. We expect adjusted EPS to be in the range of $6 to $6.20. Manufacturing cash flow before pension contributions is anticipated to be between $800 million and $900 million.

Thank you, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.3 billion were down $242 million from the fourth quarter of 2023, reflecting lower volume and mix of $282 million, which was principally a result of production disruptions related to the strike. Segment profit was $100 million in the fourth quarter, down $93 million from a year ago, primarily due to lower volume mix and manufacturing inefficiencies, which included idle facility costs and higher costs associated with the labor disruption resulting from the strike. Backlog in the segment ended the quarter at $7.8 billion, up $219 million from the prior quarter. Moving to Bell. Revenues were $1.1 billion, up $58 million from last year's fourth quarter, reflecting higher military and support program revenues of $67 million, primarily due to higher volume on the FLRAA program, partially offset by lower volume on the V-22 program. Segment profit of $110 million was down $8 million from a year ago, primarily driven by mix as lower volume on the V-22 program offset higher volume on the FLRAA program. Backlog in the segment ended the quarter at $7.5 billion. At Textron Systems, revenues were $311 million, down $3 million from last year's fourth quarter. Segment profit of $42 million was up $7 million from last year's fourth quarter. Backlog in this segment ended the quarter at $2.6 billion. Industrial revenues were $869 million, down $92 million from last year's fourth quarter, largely reflecting lower volume. Segment profit of $48 million was down $9 million from the fourth quarter of 2023, reflecting lower volume and mix and inflation, partially offset by manufacturing efficiencies and lower selling and administrative expense, largely due to cost reduction activities. Textron eAviation segment revenues were $11 million in the fourth quarter of 2024, with a segment loss of $22 million, largely associated with research and development expense on new products. Finance segment revenues were $11 million and the profit was $5 million in the fourth quarter of 2024. Moving below segment profit, corporate expenses were $17 million. Net interest expense for the manufacturing group was $21 million. LIFO inventory provision was $80 million. And tangible asset amortization was $8 million. And the non-service components of pension and post-retirement income were $65 million. In December, we announced a strategic review of our PowerSports product line within the industrial segment that resulted in additional restructuring actions. With these actions, we recorded total pre-tax special charges of $53 million and an inventory valuation charge of $38 million in the fourth quarter. Our manufacturing cash flow before pension contributions was $306 million in the quarter. For the year, manufacturing cash flow before pension contributions totaled $692 million, down $239 million from the prior year. In the quarter, we repurchased approximately 2.8 million shares, returning $232 million in cash to shareholders. For the full year, we repurchased approximately 12.9 million shares, returning $1.1 billion in cash to shareholders.

Thank you, Frank. Turning now to our 2025 outlook on Slide 7. We're expecting adjusted earnings per share to be in a range of $6 to $6.20. We're also expecting manufacturing cash flow before pension contributions to be about $800 million to $900 million. Moving to segment outlook on Slide 8 and beginning with Textron Aviation. We're expecting revenues of about $6.1 billion. Segment margin is expected to be in a range of 12% to 13%. Looking to Bell, we expect revenues of about $4 billion. We're forecasting a margin in a range of 8.5% to 9.5%. At Systems, we're estimating revenues of about $1.3 billion with a margin in a range of 12% to 13%. At Industrial, we are expecting segment revenues of about $3.2 billion and margin to be in a range of about 4.5% to 5.5%. At eAviation, we expect revenues of $45 million and a segment loss of $70 million, reflecting our continued investment in sustainable aviation solutions. At Finance, we are forecasting segment profit of about $25 million. Looking at Slide 9, we're projecting about $160 million of corporate expense. We're also projecting about $130 million of net interest expense for the manufacturing group, $165 million of LIFO inventory provision, $35 million of intangible asset amortization, and $265 million of non-service pension income. We expect a full-year effective tax rate of approximately 18%. Turning to Slide 10, R&D is expected to be about $500 million, up from $491 million last year. We're estimating CapEx will be about $425 million, up from $364 million in 2024. Our outlook assumes an average share count of about 184 million shares in 2025. That concludes our prepared remarks. So, operator, we can open the line for questions.

And we'll go first this morning to Sheila Kahyaoglu of Jefferies.

Good morning, Scott, Frank, and David. Maybe, Scott, if you could start off with the Aviation guidance. Can we talk about the 2025 deliveries? I think it's implied around 190 deliveries versus 151 in 2024. Can you talk about the quarterly cadence of jet deliveries as well as maybe turboprops just given the Q4 delivery number?

I believe the numbers will certainly increase throughout the year. We are recovering and moving towards full operation after the strike. We will continue to expand our production capacity as we progress through the year, primarily driven by parts supply, which seems to be in good shape, and by increasing our workforce. Additionally, there are early signs of greater stability in the workforce following the contract agreement, which is encouraging and should help us achieve that growth over the year. As mentioned in the last call, we also expect significant improvements in margins throughout the year. We will have many deliveries in the first quarter that were originally scheduled for 2024, and since they are priced at 2024 levels, I anticipate seeing both volume and margin growth as the year unfolds.

Maybe if I could just follow up on the margin ramp, can you talk about that bridge as we think about the 7.8% exit rate for Q4 for Aviation, how we think about that progressing, and the contributors to that?

Well, for sure the 7.8% is an anomaly, right? I mean we had obviously unusually low volumes with the strike affecting a third or more of the quarter. And certainly we took an inefficient current period expense with all of our overhead that wasn't burdened. We couldn't burden on volume. So, 7.8% is certainly an anomaly. I would expect, as you think about us going through the year, we will see progression. If you look at the guide, obviously we're probably 1 to 200 basis points probably below the guide and probably finishing up more like 100 basis points to 200 basis points above the guide as you progress through the year to get to that average.

Great. Thank you.

Sure.

Yes. Good morning, Scott, David, and Frank. Frank, good luck with your retirement. Thanks for all your help over the years.

Thank you.

Could you talk a little bit about the, Scott, just, or David, maybe you want to weigh in on just the, your outlook for cash flow for the year, just given the earnings you're projecting, which is obviously a pretty nice snapback. Just some of the moving parts, it seems, maybe it was a little lower than we were estimating, but maybe we didn't have all the inputs, but thanks?

It will progress throughout the year. The cash flow was lighter than usual in Q4, mainly due to a significant amount of inventory at Aviation for jets that did not deliver in that quarter. We expect the cash flow to be relatively low in Q1, but it will increase as the year goes on. We are fairly confident that we will be in the range of $800 million to $900 million, although it will be more heavily weighted toward the latter part of the year.

Appreciate that. Scott, in general, I know Sheila talked about Aviation. Can you discuss your strong bookings in refreshed product lines that are attracting new interest? Perhaps you could highlight what you're seeing in the demand environment, whether it's broad-based or if certain markets are performing better than others. Thank you.

Thanks, Peter. Look, it's been pretty much across the product line. I think we feel like we're in pretty good shape. The demand and order activity across every model has been good. We saw some very strong demand, obviously in that light jet with the Gen3 announcements. So that was very, very well received by customers. So we, in particular, had a very strong quarter in sort of that CJ3, CJ4 product line. But again, it's been pretty strong in most of the portfolio. And I think we, just given where customers are and the level of activity and the level of dialogue, I think we'll continue to see a sustained demand through the course of the year. Again, we're probably looking at a one-to-one book-to-bill just because we think that's about where things ought to land, given the lead times of where most availabilities are for our different products. So one-to-one is what we're baked into our basic plan.

Appreciate all the color. Thanks, Scott.

Thank you. We go next now to Robert Stallard of Vertical Research.

Thanks so much. Good morning.

Good morning, Rob.

And, Frank, yeah, best of luck for your retirement. It's been quite a ride. Let's start off with Bell. I was wondering if you could talk about what the risks and opportunities could be within that 2025 guidance, both for revenues and margin.

Robert, I don't see much risk here. Most of this is related to backlog business. The FLRAA program's ramp-up is backed by the upcoming 2025 appropriations budgets and the guidance we’re getting from the customer. Therefore, I don't anticipate any issues there. Most of our commercial business is securely booked, and the sustainment work for the V-22 and H1 is very predictable and mostly accounted for. As we progress through the year, I believe there is little risk of downside regarding the Bell numbers.

Okay. And then as a follow-up, I was wondering if you've seen any sign of demand changing at Aviation or Industrial since we've had the US election?

No, no, we really didn't Robert. It's actually kind of interesting. I mean, normally, we see more of a slowdown a little bit before the election just because people don't like a lot of uncertainty. I think probably largely in part as a result of the size of the backlog and the stuff that aircraft that are available well out past that period, obviously that we didn't see quite the drop and pop that we often see around our Presidential election. So, I would say it was relatively steady and we really haven't seen any change that I'm aware of in the demand environment in terms of the industrial side.

Thank you. We go next now to Noah Poponak at Goldman Sachs.

Hey, good morning, everyone.

Good morning, Noah.

Good morning.

Hey, just back to the cash flow guidance, I guess, it would be lower than 2023 and the conversion from net income or the free cash margin, I think a little light of where you've talked about being over time, and I would have expected you'd be recovering some inventory from '24 that would help. So is there a net negative working capital assumption still in '25, or what else are we all missing in that bridge?

Yes, there is some pressure on working capital due to the timing of military payments. From an inventory perspective, we will be increasing production throughout the year as we previously mentioned. Although we entered the end of 2024 with higher inventory levels than expected, we will require even higher inventory levels at the end of 2025 for anticipated ramp-up. Therefore, you won't see much benefit from inventory. As mentioned, there are also timing issues with military payments. Additionally, we are expecting increased capital expenditures compared to what was seen in 2023, driven by business growth and specifically FLRAA preparation activities at Bell.

Okay, that makes sense. And then I just was hoping to get a little more detail on the Bell margin. That's been quite resilient as you've ramped the early stages of FLRAA rapidly, which we had all anticipated would dilute that margin. But so far it hasn't. So maybe just walk us through the pieces that would bring the Bell margin down that much in 2025?

If you look at Bell through 2024, we were helped by some improvement in the first half, particularly due to the Nigerian deal that allowed us to maintain more of that first-half volume, which is beneficial for us. However, on a broader scale, we anticipate a decline in V-22 and a decrease in first-half performance. While we had a strong aftermarket in 2024 and expect solid aftermarket performance in 2025, it will be less robust than in 2024. The significant growth will primarily come from the ramp-up of FLRAA and increased commercial OEM deliveries, both of which typically reduce our margins. These deliveries do lead to substantial aftermarket opportunities, which are positive for long-term business prospects. The two main growth drivers for 2025 will be the FLRAA ramp and higher commercial deliveries, both of which are expected to be dilutive. We have always anticipated that this margin would decline to some extent due to this mix, but we aim to manage it to avoid any negative impact at the EPS level. Thus, we believe we can maintain a range that keeps our dollar levels stable while growing revenue from lower-margin activities.

Okay, great. I'll add my congrats and to Frank and Dave on the retirement and the new appointments. And thanks so much for working with us over the years, Frank, and thanks for taking my questions.

Thanks, Noah.

Thanks, Noah.

Thank you. We go next now to Seth Seifman at JPMorgan.

Hey, thanks very much, and good morning and congratulations, Frank. Just to maybe come at Bell from the other side, it was strong performance through most of the year and certainly at the high-end relative to the initial guide. But I think the guide went up in Q3 to about 10.5% to 11%, I think, and came in slightly lower. Was there something that changed in Q4 at Bell that led to that shortfall?

We had some program adjustments in Q4 that were unfavorable at Bell, primarily related to FLRAA. We did perform a limited user test, which is a fixed-priced option that was utilized. As expected, the fixed-priced options do not yield high margins, resulting in some dilution. This impacted our program accounting and created a slight drag in Q4 for us.

Okay. Thanks. And maybe to follow up just at Aviation, the orders have been quite steady through the year. When we think about the composition of those orders in terms of NetJets versus retail, is that a pretty steady composition? Is it a pretty, both in terms of how it's been trending versus itself and then how it's been trending versus the level of deliveries that we're seeing?

Well, in general, it holds about flat, right, because as you guys know, we put these into the backlog based on sort of a 12-year forward. NetJets puts orders in, generally speaking, every month. It's usually fairly linear, but not always. And so, there can be from quarter-to-quarter some variation based on how many delivers we have to make in that quarter versus how many new exercises they happen to put. So it's not a perfectly linear process, but it generates a little bit of variability from quarter-to-quarter, but over the course of the year, it's been pretty stable.

Okay. Great. Thanks very much.

Thank you. We go next now to Myles Walton with Wolfe Research.

Thanks. Good morning. On R&D, I know you started off the year with a $550 million number for R&D, it came in at $490 million. I'm curious to the underrun there. And this would be a few years in a row of declines on the R&D front. I imagine, much of it from Bell. It looks like you're looking for a stable outlook for '25 to $500 million. Is that a good number going forward? And also what was the cause of the underrun in '24?

I think it's a good number going forward. Look, I think the Bell dynamic with the end of the FLRAA program is certainly what drove a significant change in the R&D on a year-over-year basis as that program was wrapped up. And so, I think on a go-forward basis, we'll see more normalized R&D spending at Bell, as well as across the rest of the businesses. So for sure, part of what drove the lower R&D in the year and drove some of the higher margin frankly at Bell was that we did see a step-down associated with the funding that we were having to put in net to the FLRAA program.

Okay. And then relative to systems, I know the decisions on FTUAS and maybe RCV are kind of sort of dictate how the year goes and maybe how '26 goes. How sensitive to this year are the outcomes on those programs for your outlook for systems top line of $1.3 billion?

Well, I don't think there's a huge sensitivity to it. Obviously, the RCV program, we expect to be in the first half of 2025. FTUAS is probably more of the second half latter in the year. And of course, those programs have to ramp up. So in the early phases, they're not huge numbers. And particularly in the case of FTUAS because it's late in the year, there's not a huge sensitivity to them. They're certainly much more important to us from a standpoint of what growth looks like as we go into '26 and beyond. So I guess I think of them as important milestones for us in the course of 2025, but not having a huge impact on revenue and margin in the year.

All right. Thank you.

Sure.

We'll go next now to David Strauss at Barclays.

Thanks. Good morning, everyone.

Good morning, David.

Scott, aviation revenues in the fourth quarter, they came in a little bit light, I assume, looks like maybe you missed relative to what you're thinking 10 to 15 jet deliveries. What happened there? Was that supply chain or was that more on kind of your own in terms of getting the factory restarted post the strike?

Certainly, compared to our initial guidance for the year, the aircraft deliveries were likely in the mid-teens range. This was mainly due to the fact that we didn't manage to restart the factory until the beginning of November, which caused us to lose a third of the quarter because our workforce was unavailable. The positive news is that our team is back, and we have a five-year contract agreement in place. I believe the workforce is satisfied with the outcome, and we are also content with it. Everyone is in the process of ramping up production, but we definitely experienced a loss in production capacity for about a third of the quarter.

Yeah, I was just looking at it. You took down the revenue forecast of 5.5% and you were a little short of that. I guess just following up there, how do you feel about the Aviation supply chain in terms of the ramp you're looking at in terms of deliveries for 2025?

Look, David, I think we feel good about it. I mean, that's where we're guiding where we are. I would say that the third-party parts, supply chain pieces coming into the factory are certainly in a much better position than they were throughout the course of 2024. So that feels very good. The other critical part is obviously stability of our workforce and retention. And again, since the contract has been signed, we were very happy with the number of people that came back, even folks that had been with us for a very short period of time before the strike hung in there and came back once the agreement was put in place. And the attrition numbers we're seeing are certainly improved from where they had been through the course of the rest of 2024. So, I think the momentum is in the right direction. Now we've got a lot of work in front of us here to get deliveries that were supposed to be in '24 done and ramp it up. But I'd say the early look in terms of aircraft coming out of the production lines, attack times, which clearly have to improve over the course of the year are operating as we would expect. So I think we're at this point feeling pretty good that we're going to be able to make that ramp and deliver on the guide at the $6.1 billion.

Okay. And timing for Ascend certification, what are you looking at? And is the Aviation guide sensitive at all to that timing?

Well, look, I mean, obviously, we're expecting it to be in the course of the year. We got to work this through the FAA. If there's not an issue or a problem, it's going well. But clearly the actual certification is an FAA action. I think we feel great about the flight testing. The program is going very well. We do have a few aircraft in the year. So, yes, it's part of our guide, but certainly not material, but we would certainly expect to get the first few aircraft delivered late this year.

Great. Thanks very much.

Thank you. We go next now to Ron Epstein of Bank of America.

Hey, good morning, guys.

Good morning, Ron.

Is there anything, Scott, you've seen with maybe the change in administration that could be like an added little tailwind for private Aviation. So as an example, have you heard any discussion around some form of accelerated depreciation coming back or something like that historically has been a nice catalyst for private Aviation?

Yeah. I don't know specifically that the accelerated depreciation impact, but I would have to say, Ron, I think in general, as you know, most of our customers are small to mid-sized businesses, entrepreneurial, high net wealth, I mean, it's a broad range of customers, obviously. But I think that in general, tax policy, regulatory policy is encouraging to them and therefore, they feel-good about their businesses. Their businesses are likely to be successful in growing and that certainly is nothing but helpful in terms of how they get their head around CapEx expenditures like new aircraft. So, I would say, I wouldn't point out one particular item and it's obviously early here and we don't know how all the tax stuff is going to work its way out. But I think in general, just the nature of our kinds of customers that they think the outlook for business is good and that's good for the prospects of private Aviation.

That makes a lot of sense. If I could follow up by changing the subject slightly, not too long ago, you released Scorpion, which I thought was impressive. At that time, the Department of Defense didn't seem very interested. However, it now appears there could be a shift towards greater adoption of commercial contracting, with contractors assuming more risk. Do you see any potential opportunities for something like Scorpion 2.0 given this evolving landscape and possibly more commercial-style contracts?

I can't speak specifically about a Scorpion. However, looking back at the mindset from four to eight years ago, there was definitely an emphasis on finding ways to accelerate processes. Our acquisition system, including OTAs and MTAs and the Army's establishment of Futures Command, has contributed to expediting many initiatives we are currently pursuing. It's still early in the process, and while many discuss the need for acquisition reform, I don't necessarily anticipate significant policy changes. What matters is identifying ways to speed up programs that benefit both the warfighter and the taxpayer. We lack data at this point, but I remain optimistic that the new administration and those within the organization are motivated to find ways to enhance efficiency. Incorporating commercial practices is part of this effort, as is improving how we expedite processes to deliver solutions faster to the warfighter. We have numerous excellent programs that the military would like to see deployed to combatant commands, and I'm hopeful we will witness progress in this area.

Yeah. Thanks. Thanks a lot, Scott. Thank you.

Thank you. We go next now to Gavin Parsons of UBS.

Thanks. Good morning.

Good morning.

Just maybe two questions on the Aviation margin. You mentioned still having some impact of the disrupted '24 deliveries slipping into '25. Just I was hoping you could give us some sense of how much of that excess cost you're absorbing in that 12% to 13% margin guide?

Well, we're not. It was a significant factor in the Q4 results because we incurred a lot of overhead costs that would typically be allocated across aircraft deliveries. Since we had lower volumes, this resulted in a noticeable impact on our period expenses. However, as we look ahead, we have a plan in place focused on margin rates and anticipated normal aircraft delivery volumes. Therefore, I don't expect to see substantial period expenses related to the lower volumes in 2024.

And then anything you can give us on what you're expecting on net price and performance for '25?

No, I mean, as I mentioned, we certainly expect performance and factory efficiencies to improve significantly compared to 2024, and this will drive much of the margin we have projected. Regarding pricing, while it remains favorable in the industry, there is also inflation to consider. Therefore, I don’t anticipate a large difference in the net effect of that. I believe the majority of our performance improvement and margin recovery by 2025 will stem from much better factory performance. Sure.

And we'll take our final question this morning from Pete Skibitski of Alembic Global.

Hey, good morning, guys. Congrats, Frank.

Hi, Pete.

Guys, this longer fiscal '25 continuing resolution, is that impacting your military programs at all?

I haven't noticed a significant impact. The uncertainty is frustrating for us and for our customers, who are trying to plan their 2026 budgets without having finalized their 2025 budgets. However, customers seem to be proceeding with what they expect their 2025 budget to be, remaining prepared while awaiting final decisions. This situation is quite disruptive and unfortunately diverts their attention from other priorities. The positive aspect is that most of our programs are already funded, not new initiatives. There will be new projects as we move further into the year, but we expect to resolve the continuing resolution and establish a budget before it becomes an issue.

Got it. Okay, Thank you. Just one last one for me. Across the whole company, in terms of the new administration, is there anything on your radar in terms of new regulations or policies or the tariff issue that could be either positive or negative for the business that's on your radar? I think maybe one thing in terms of if we get tariffs towards Canada, does that impact Bell commercial at all? Is there anything on your radar that you can share with us?

Sure. Pete, looking at the positive aspects, we've mentioned our expectations for the overall business environment, including reduced regulation and potentially more favorable tax resolutions than we might have anticipated. From a business perspective, those factors are encouraging regarding taxes, regulations, and military support. I believe the incoming administration has historically focused on accelerating processes, which could be beneficial for us. However, the tariff situation remains uncertain. We are unsure of the details, especially since we operate in Mexico and have a considerable presence in Canada, particularly in Bell commercial. Many of our transactions involve cross-border exchanges, which we hope remain unaffected. We also rely on significant suppliers like Pratt Canada for engines in both rotorcraft and fixed-wing aircraft, and we have our Bell operations in Mirabel on the commercial side. Overall, it's an unknown situation, and we’re not taking a definitive stance at this moment. We need to observe how things develop, as much of this depends on negotiations related to free trade agreements moving forward. We'll continue to watch the situation unfold.

Got it. Got it. Helpful. Thanks, guys.

Thank you.

Thank you. And ladies and gentlemen, that will bring us to the conclusion of today's Textron Q4 2024 earnings release call. We'd like to thank you all so much for joining us today and wish you all a great remainder of your day. Just a reminder, today's call will be available for replay beginning later today by calling 1 (800) 839-5125 or (402) 220-1502. Again, thanks for joining us, everyone. We wish you all a great day. Goodbye.