Earnings Call Transcript - TXT Q2 2022

Operator, Operator

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2022 Textron Earnings Release Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, today's conference is being recorded. I'd now like to turn the conference over to Eric Salander, Vice President of Investor Relations. Please go ahead.

Eric Salander, Vice President of Investor Relations

Thanks, Brett, 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, 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 $3.2 billion, essentially flat with last year's second quarter. Segment profit in the quarter was $303 million, up $14 million from the second quarter of 2021. During this year's second quarter, we reported net income of $1 per share compared to $0.81 per share in last year's second quarter. Manufacturing cash flow before pension contributions totaled $309 million in the quarter, down $200 million from the second quarter of 2021. With that, I'll turn the call over to Scott.

Scott Donnelly, Chairman and CEO

Thanks, Eric, and good morning, everyone. Aviation had another solid quarter with higher revenues and strong execution, resulting in a 12.1% segment profit margin. We continue to see strong demand, solid pricing, and increased deliveries for our citation jets, commercial turboprops, and higher aftermarket volume from increased aircraft utilization. We delivered 48 jets, up from 44 last year, and 35 commercial turboprops, up from 33 in last year's second quarter. Order activity was strong in the quarter, reflecting continued order momentum that generated $700 million of backlog growth, resulting in $5.8 billion of backlog at aviation at the end of the second quarter. During the quarter, aviation's defense business was awarded a $91 million contract for 86 aircraft, spares, and related support services to Tunisia. Also, AT-6 Wolverine received military type certification from the US Air Force, paving the way for continued global sales of the light attack aircraft. On the new product front, we delivered the first unit to our launch customer FedEx and also delivered the first XLS Gen2 aircraft. At Bell, revenues and segment profit were down in the quarter, primarily reflecting lower H1 program volume. On the commercial side of Bell, we delivered 34 helicopters, down from 47 in last year's second quarter. While commercial order activity was strong across all models, supply chain headwinds impacted Q2 results as several commercial helicopter deliveries slipped out of the quarter. Overall, the strength in commercial demand, which included South Korea selecting the Bell 505 aircraft for use as its next military trainer, contributed to an increase in Bell backlog of $500 million in the second quarter. During the quarter, Bell announced the contract award of $518 million to upgrade Canada's fleet of CH-146 Griffon aircraft. This upgrade program is expected to be completed by 2028. Moving to Future Vertical Lift, we now expect the FLRAA contract announcement sometime in October, following the AUSA conference. As a result, we anticipate continuing our investment in this program, which will be incremental to our original segment guidance. Moving to Textron systems, revenues were down in the quarter on lower volume, primarily reflecting the impact of last year's withdrawal of the US Army from Afghanistan on our fee-for-service and aircraft support contracts. At ATAC, we continue to see increased flight activity on our U.S. Navy and Air Force adversary air contracts. During the quarter, we delivered LCAC 104 to the US Navy and continue to progress through the build process of the remaining EMD craft on the ship-to-shore connection program. Last week, the US Army announced that systems were awarded a $354 million firm-fixed-price contract for the production and delivery of XM 204 Tupolev ammunition in an anti-vehicle system. This is an IDIQ contract with an estimated completion date of 2027. Moving to industrial, we saw higher revenues in the quarter driven by higher pricing volume in specialized vehicles, mainly in our personal transportation and golf product lines. At CalTex, the auto market remains challenging as we again experienced order disruptions related to the global auto OEM supply chain shortages and COVID-mandated factory shutdowns in China that continue to directly impact our production schedules. In April, we closed the acquisition of PIPISTREL, a pioneer and global leader in electrically powered aircraft. Beginning in the second quarter of 2022, PIPISTREL became part of Textron eAviation, a new reporting segment that includes PIPISTREL's operating results and R&D expenses related to the development of sustainable aviation solutions. In the quarter, we announced that PIPISTREL Velis Electro received the UK Civil Aviation Authority Certification. The Velis Electro remains the only type of certified electric aircraft in the world. Overall, it was a solid quarter with strong cash generation and growth in earnings. Our teams executed well in a difficult environment where we continue to experience supply chain disruptions, labor supply shortages, and COVID-related impacts across our businesses. While these challenges drove manufacturing inefficiencies and delayed product deliveries at many of our businesses, our financial performance demonstrates the resiliency of our operations. Looking forward, we anticipate these headwinds to continue through the remainder of the year. With that, I'll turn the call over to Frank.

Frank Connor, Chief Financial Officer

Thank you, Scott. 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 up $123 million from the second quarter of 2021, largely due to higher aircraft and aftermarket volume. Segment profit was $155 million in the second quarter, up $59 million from a year ago due to the impact from higher volume and mix of $25 million, a favorable impact from performance of $19 million, and favorable pricing net of inflation of $15 million. Backlog in the segment ended the quarter at $5.8 billion. Moving to Bell, revenues were $687 million, down $204 million from last year due to lower military revenues of $170 million primarily related to the H1 program and lower commercial revenues of $34 million. Segment profit of $63 million was down $47 million from last year's second quarter, reflecting lower volume and mix, partially offset by a favorable impact from performance, which included lower operating expenses, partially offset by an unfavorable change in net program adjustments. Backlog in the segment ended the quarter at $5.3 billion. At Textron Systems, revenues were $293 million, down $40 million from last year's second quarter, due to lower volume of $44 million, primarily reflecting the impact of the US Army's withdrawal from Afghanistan on our fee-for-service and aircraft support contracts. Segment profit of $42 million was down $6 million from a year ago, primarily due to lower volume and mix. Backlog in the segment ended the quarter at $2.1 billion. Industrial revenues were $871 million, up $77 million from last year's second quarter, primarily due to a favorable impact from pricing and higher volume and mix, principally at specialized vehicles. Segment profit of $41 million was up $9 million from the second quarter of 2021, primarily due to the higher volume and mix. Textron eAviation segment revenues were $5 million and segment loss was $8 million in the quarter. Finance segment revenues were $14 million and profit was $10 million. Moving below segment profit, corporate expenses were $12 million and interest expense was $28 million. Our manufacturing cash flow before pension contributions was $309 million in the quarter, down $200 million from last year's second quarter. The second quarter of 2022 included significant cash tax payments as a result of the 2022 change in R&D tax treatment. In the quarter, we repurchased 4.4 million shares, returning $282 million in cash to shareholders. For the full year, we are reiterating our earnings per share guidance of $3.80 to $4 per share, and we are increasing our cash flow from continuing operations before pension contributions guidance to be in the range of $800 million to $900 million, up $100 million from our prior outlook. That concludes our prepared remarks. So Brad, we can open the line for questions.

Operator, Operator

And our first question today comes from the line of Sheila Kahyaoglu with Jefferies. Please go ahead.

Sheila Kahyaoglu, Analyst

Hey guys, I'm impressed nine minutes today. So in terms of your guidance for the year, you reiterated it, but several companies are missing on supply chain. So maybe can you talk about, are you seeing some of those supply chain headwinds for the second half of the year? And Scott, in your prepared remarks, you mentioned FLRAA, the push out to mid-October, how does that impact results and the additional investment there?

Scott Donnelly, Chairman and CEO

Sure, Sheila. Well, look, I think if we look at sort of the company across the board, first and foremost, I think Textron Aviation's performance will continue to be very strong in the second half. We are trying to ramp production. We expect to continue to ramp production through in 2023, given the very strong demand environment. Supply chain headwinds are causing some disruptions there, obviously. So, I think we'll probably be a little light on revenue. We'll probably miss some deliveries as things push into 2023. But from a performance standpoint and margin standpoint, the business will continue to excel. Aftermarket remains very strong, and that's an important part of the financials in the business. So I think that business will be a strong performer in the second half and be really well positioned for us going into 2023 as well. The industrial segment, like our vehicle business continues to perform well. It continues to improve. The first half was pretty tough in the automotive world, again, mostly supply chain and COVID shutdowns in China. I certainly expect that to improve in the second half. So we'll see better performance from CalTex in the back half of the year. So I think, continued improvement. It'll probably be towards the low end of margin just because of the first couple of quarters on the automotive side, but overall strong performance. Systems in the second half, look, we should get back. We've had these negative revenue comparisons driven largely by the Afghanistan pull-out and the impact it had on fee-for-service business. Those comps go away in the third and fourth quarter. So I think we get back to stable, even showing some growth probably towards the end of the year, resulting from some new wins and again, very strong performance, I think in terms of segment profit and Bell will be the one that's a bit of a challenge. Look, we are starting to see strong performance on the commercial side. The demand environment is good. We'll certainly have a lot more deliveries in the back half of the year. But they are fighting through supply chain issues and inefficiencies. We know, and fully expect we're going to see lower volume, particularly on H1 aftermarket. There has been lower demand and lower flying on that side of the house. But the big issue we also have to face is obviously the Flower program, which we continue to feel good about. Our teams are working really hard on it, but that's probably a three or four-month slip from where we thought it would be when we gave our guidance originally. So obviously, we have a big team, and we're going to retain that team and keep pressing on, but that will weigh on Bell for the total year. So I think we'll probably get there on revenue, but we'll be on the lighter side of margin given that transition.

Sheila Kahyaoglu, Analyst

Maybe just a follow-up on balance, since you just mentioned it, 22% decline, how much of that or 23% decline, how much of that was due to supply chain and how much of a decline should we expect in the second half? Is it still $3 billion feasible in terms of revenue?

Scott Donnelly, Chairman and CEO

Yeah, I think $3 billion is still feasible. The split is partly, again, lower aftermarket on the military side, which is down and that's kind of lumpy. It was actually pretty strong in the first quarter. It was pretty weak here in the second quarter, but I do think we'll see softness in that aftermarket side. But I think we will see strong deliveries on the commercial side of the helicopter business that will partially offset that in the third and fourth quarter.

Sheila Kahyaoglu, Analyst

Great. Thank you very much.

Operator, Operator

And our next question comes from the line of Ron Epstein with Bank of America. Please go ahead.

Ron Epstein, Analyst

Oh, one moment. Sorry about that, please go ahead with your question.

Elizabeth, Analyst

Hi, I'm on for Ron this morning. We noticed on your finance segment slide in your presentation that the 60 plus delinquency more than doubled quarter-over-quarter from $2 million to $5 million. Is there anything to worry about there?

Frank Connor, Chief Financial Officer

No, the finance segment's been performing very well, as you can see from kind of the earnings for finance. So we continue to see good performance out of the portfolio. Things come up from time to time where things move around, but the overall portfolio is performing well.

Operator, Operator

And our next question comes from the line of Peter Arment with Baird. Please go ahead.

Peter Arment, Analyst

Yeah, thanks. Good morning, Scott and Frank. Nice results, Peter. Hey Scott, your backlog continues to swell in aviation. Can you maybe talk a little bit about just how you think of managing that, ramping that production and you're obviously probably well into 2023 when you think about delivery slots? Just maybe a little color there, that'd be helpful.

Scott Donnelly, Chairman and CEO

Sure, Peter. Look, obviously demand has been really strong and that backlog is continuing to grow. It gives us really good visibility, which is terrific; something we didn't have for a long time. So yeah, we continue to work to ramp and we're continuing to do that through the course of the year, and obviously we'll need to do that as we go into 2023. We're working really hard on hiring on our end to bring staff on board and working with suppliers to meet the ramp. So, we're making sure we're cautious about how we're committing to customers who want to deliver on the dates that we'll say we can deliver, but it's a headwind. Like I said, I think it will impact us this year on some deliveries that we would have originally had that will push off into the beginning of 2023. But our teams are obviously working every day on this stuff, and we are making progress with growing our workforce in-house and continue to work with our suppliers to help them meet that ramp as well. So I don't think it's going to be easy, but clearly I think we have line of sight that will continue to increase our production rates as we go through the balance of this year and through 2023 as well.

Peter Arment, Analyst

That's great. And Frank, do you have what the aftermarket growth number was in the quarter?

Frank Connor, Chief Financial Officer

Yeah, it was 18% on aviation, 18%, and 33% of the revenues.

Peter Arment, Analyst

Terrific. Thanks again, results.

Operator, Operator

And our next question comes from the line of David Strauss with Barclays. Please go ahead.

David Strauss, Analyst

Scott, on FLRAA, what gives you confidence that we're actually going to see a decision here in October? We've seen several slips now, I guess. What color can you give us around your confidence that we're actually going to get a decision here come the fall?

Scott Donnelly, Chairman and CEO

Well, obviously we've had ongoing interaction with the acquisition side of the Army. Everything is very quiet from a post-evaluation stage. The indications we get from the acquisition side are that they're going through their process, and there haven't been data requests or proposal-related activity here for some time. We know they're in their detailed evaluation phase. Secretary Bush, who we saw last week, indicated that, and he has said this publicly in several forums that he expects that they're on track to make an announcement after the USA conference, which is around the 10th, 11th or so of October. So when he says that we're kind of surmising, that means sometime in that mid to late October timeframe. That’s what we're currently trying to factor into our plans and what we need to do to make sure that our team, that’s assembled, which is currently working on the risk reduction program, will continue to have activity and keep progressing this thing while they finish their evaluation. But the dates I'm quoting are kind of publicly, Secretary Bush has made those statements. Again, there's no indication from him when we met that there's anything other than just working through their process.

David Strauss, Analyst

Okay, Frank, I have a couple of questions. You've increased your free cash flow guidance, but how do you view the components of working capital, particularly inventory and advances, for the remainder of the year? Also, do you have any initial thoughts on the pension for 2023, considering asset returns and discount rates, as it represents a significant income item for your organization? Thanks.

Frank Connor, Chief Financial Officer

Yeah. So on the cash flow side, we're consistent with where we had been. We continue to see good working capital performance. The supply chain issues and potential delays in deliveries obviously could create a little bit of pressure on the inventory side. But I don't expect that to be at all significant as we go into year-end. We raised cash flow guidance anticipating continued overall good working capital performance, and that's bolstered by strong order activity and customer deposits, frankly both at aviation and Bell on the commercial side as well. So, overall good cash flow performance so far year to date and expect that to continue through the remainder of the year. Look on the pension side, it's too early right now, but if you snap a line, the interest rate impact would more than offset the impact from the asset valuation side in terms of creating any headwind associated with pension. So, we have the potential for some additional tailwind given where things are right now as we move into '23 from pension.

Operator, Operator

And our next question comes from the line of George Shapiro with Shapiro Research. Please go ahead.

George Shapiro, Analyst

Good morning. Quick one, why was corporate expense so low in the quarter?

Frank Connor, Chief Financial Officer

That has to do with the share price impact that kind of flows through corporate for our equity-related compensation programs. Unfortunately, we saw a tough overall market and tough share price performance for us in the quarter. In terms of overall for the year, given where the overall market environment is, we're probably $10 million-ish better. We expect corporate expense for the year. Hopefully, that number is not a sustainable quarterly number because of the share price performance.

George Shapiro, Analyst

Okay. And then you'd also mentioned that in Bell, there was an unfavorable adjustment. Can you quantify that?

Frank Connor, Chief Financial Officer

Yeah, we don't talk about that per segment. But the comment relates to we did see some unfavorable program adjustments this quarter. When you compare that to a year ago, we had some favorable program adjustments. So, overall, between the two years, we created more negative program adjuster. So that's the nature of the comment. Overall expenses are down at Bell anticipating the reduction in volume. But frankly, volume has come out a little faster than we anticipated, and so it did have some negative impact on performance.

George Shapiro, Analyst

Okay. Then for Scott, in terms of the general aviation demand, did you see any changes throughout the quarter and is July continuing to be strong?

Scott Donnelly, Chairman and CEO

Oh, so George, so far the market feels about the same. Demand is strong and continues to be strong in the business jet market in North America. In the quarter, we saw a significant pickup in international activity, particularly in our turboprop business. So strong international demand on years, which certainly helps. We see more of the corporates coming back in as corporate flight activity picks up, but still seeing a lot of new entrants into the market as well. I think that, as we look at sort of how Q2 played out and continues now in the beginning of Q3, it is indicative of really strong demand across the entire portfolio of products.

George Shapiro, Analyst

Okay. Thanks very much.

Operator, Operator

And our next question comes from the line of Noah Poponak with Goldman Sachs. Please go ahead.

Noah Poponak, Analyst

Scott, how are you going about deciding exactly where to lay the Cessna production and deliveries for the remainder of this year and next year?

Scott Donnelly, Chairman and CEO

Well, for the most part, no, these are pretty well booked. So, we know what commitments we've made to customers in terms of delivery dates. As you know, unlike it was for a long time, this is pretty well booked business. So we know the models, we know the mix, we know the interiors and colors. We know what we got to go do. That's not a problem. The challenge is just getting enough people and suppliers to deliver the parts and complete the production. So it's a good problem to have, but it's still a problem. We're working our way through that. Like I said, I think the performance of the business, despite a lot of those interruptions and disruptions, is holding steady. I do think we'll have some aircraft slip out because of particular supplier issues that we're not able to meet their delivery dates, but it's a relatively small number of aircraft. Again, that's offset by a very strong aftermarket; the utilization of the aircraft is very high, which drives a lot of service business, which is great, and overall, I think the business is performing really well.

Noah Poponak, Analyst

You've had bookings in excess of revenue by about 50%, several quarters in a row. The backlog isn't all newly built, but just the implied bookings are running at about $2 billion a quarter. Do you try to take the production system and the revenue to a place that would match some assumption of that order rate slowing down and try to get the revenue and the orders to land in the same run rate? Or do you want the orders to keep exceeding revenue and keep growing the backlog from here? Or can you just not even do that because it's customer-dependent?

Scott Donnelly, Chairman and CEO

Well, look, there's a lot of moving parts here, right? But to be honest, in a perfect world, you'd have a one-to-one; you'd keep building and keep selling and everything would be great. Obviously, right now demand is stronger than that, which leads to backlog going out further in time. That’s not all bad, but it gives us visibility, and we'll plan our production rate accordingly. We are increasing our production rates and will continue to do that in the next year. But we keep a close eye on that because in the end, this is about matching supply and demand. As we've talked about before, this is a business that should run off backlog. It’s better for our customers and better for us. I think the whole market is in a better place when there's adequate time for people to sell their aircraft and do their upgrades, which allows for a better flow in manufacturing and customizations. So, look, maintaining a backlog is certainly a goal, but it has to be balanced so that it's beneficial for both ourselves and our customers.

Noah Poponak, Analyst

Yeah, no, I meant it more anticipating a slowdown in the order rate and therefore keeping the supply tight.

Scott Donnelly, Chairman and CEO

Well, the good news is we're far enough out that if you do see a slowdown at some point, you can adjust accordingly.

Noah Poponak, Analyst

And then just on the margin, it seems like another incremental that is well above that sort of longer-term framework you have in the segment. Can you give us some color on how much of that is price versus absorption versus mix and then where do you see that for the remainder of the year?

Scott Donnelly, Chairman and CEO

Look, I think we're still coming out of some highly disruptive times when you look at the year over year. We saw this in the first quarter as well. Price over inflation is positive. We've needed that in this industry for a long time. So that’s a positive contributor, but if you think about the long term, the gross margins, the mix between the original equipment and aftermarket should see somewhere in that 20% to 25% range. We're a little stronger than that coming off some extraordinary times, but as we go forward, I think that’s a reasonable expectation.

Operator, Operator

And our next question comes from the line of Cai von Rumohr with Cowen. Please go ahead.

Cai von Rumohr, Analyst

Yes. Thanks so much for taking the question. So Scott, could you talk about supply chain specifically at aviation and also labor availability in the Wichita area? You seem to have obviously done pretty well. What kind of challenge is it, and is it getting better or worse?

Scott Donnelly, Chairman and CEO

You know, Cai, it's kind of flat, right? On the labor front look, we are making progress. If I look at the ramp, as we think about this year and going into next year, we're looking to add kind of net, a 100 people or so a month. We're running hiring fairs. We are seeing people come back into the workforce. We're working that hard. It's the entry level, bringing new people in, and obviously, you have training and development. So, there’s only so fast we can do it, but we're working. Wichita has always been a great place for us in terms of availability, labor, and people with a good work ethic. We're continuing to work that, but it's a sizable number of people that we need to bring on board to support that ramp every month. With respect to the supply chain, Cai, I think many of our smaller suppliers continue to struggle with COVID disruptions here and there. When we have an issue and some people can't show up to work, we're big enough to try to move people around and keep things going, not easy, but our guys do a pretty good job of that. When you have smaller suppliers that lose a chunk of their workforce for a week, they may slip a week on part availability. So again, our guys do everything they can to manage those inefficiencies. I don't think it’s getting worse, but we haven't seen it get dramatically better either. Additionally, you always have a couple of suppliers where the lead times are affected, especially with some resourcing out of Russia into US manufacturers. That’s a discontinuity that we will get caught up on, although it may impact us in pushing some things into 2023. Again, net of all that, the business is performing really well despite those challenges.

Cai von Rumohr, Analyst

Terrific. And you've owned PIPISTREL now for a little over a quarter. Could you give us some thoughts on where you plan on taking the products here specifically? Before PIPISTREL, you had some designs; do you hope to take their technology and pursue that area? You have the Nuva, you’ve got a number of potential opportunities. Maybe give us some color on where you're thinking of taking that?

Scott Donnelly, Chairman and CEO

Sure, absolutely. Look, the Nuva you just mentioned; we’re very excited about that. They’ve done some good work in the past, and that is one of the areas that we're adding R&D to try to accelerate that and get the aircraft, the first aircraft flying. When you think about unmanned, I actually think unmanned cargo is likely to see market acceptance and growth, and that Nuva is kind of a 1,000-pound cargo type. The team is working hard on that right now, and we’ve accelerated some of our investment to bring that to market. You talk about Nexus and sort of the EV space; as we discussed, we feel great about our aerodynamic, fatigue, structures, and flight controls teams. These projects look like, at least in our view, sort of a mini rotor technology. We have the right technical talent to pull that off. Our weak spot in terms of organic capability was around the power train and electric propulsion, and the PIPISTREL guys are fantastic at that. This is what they do. So in that particular area on Vitol, absolutely, we have that team now engaged in adding some resources to help our team in Wichita manage battery storage, battery energy, and electric propulsion trains to support the future projects. So far, we've only owned PIPISTREL for a couple of months; they have a great current product line. We have the potential for that to be part of our portfolio as a certified IFR aircraft. The integration has been going really well, and the PIPISTREL folks have a fabulous engineering and technical background, and we’re just growing that.

Operator, Operator

And our next question comes from the line of Robert Stallard with Vertical Research. Please go ahead.

Robert Stallard, Analyst

Scott, I have a question for you: obviously concerns out there about a slowing global economy. I was wondering if you'd seen any sign of this in your industrial division, and if this were to occur, switching over to aviation, how would you say the setup here differs from what you saw back in, say 2007, 2008 at the peak of the last cycle?

Scott Donnelly, Chairman and CEO

Well, Robert, that's a great question. Look, we haven't seen it yet. I think we all kind of keep an eye on things, and everyone sees some softness in some of the lower-end retail side. That makes sense: people are putting a lot more cash into their gas tanks, which takes discretionary spending away. We keep a very close eye on this in terms of the demand, particularly in the industrial world. But we're still seeing a very strong demand environment. We continue to be gated more by supply chain issues and just getting product out there. Dealer inventories are still at very, very low levels, so we’ll continue to monitor it closely. But, we're not observing any material change just yet. On the GA side, Robert, we have the situation today having lived through that 2008, 2009 cycle; it's just a totally different dynamic. You had a liquidity-based financial crisis. Today, I would argue we have absolutely the opposite of that: the world is awash in money. On the aviation side, you had political overhang back in 2008, 2009, where it was undesirable to have a business jet; today, you see a situation where good, bad, or indifferent, the commercial airlines and the entire network of commercial travel are struggling, which incentivizes people to move into the business aviation world. The dynamics are wildly different; I think the underlying economics have totally shifted.

Operator, Operator

And our next question comes from the line of Pete Skibitski with Alembic Global. Please go ahead.

Pete Skibitski, Analyst

Hey, good morning, guys. Question on the system, sorry if I missed this, but are you still expecting $1.3 billion for the full year and if so, which programs are going to ramp in the back half?

Scott Donnelly, Chairman and CEO

Well, I think that we are not sure it's probably going to be a one, two, or something in that Peter. We continue to see growth in our services business on the adversary air. We're continuing to see growth in our webs and munitions business as GBSD continues to ramp. We mentioned an award on the XM204. It's a program we've been working on for a long time. It's across obviously very important milestones that will start to contribute growth to the business. In summary, it's across all the other segments. The comparative that we've struggled with really has been this Afghanistan withdrawal, and again, I think you'll start to see this business pick up and return to growth mode here in the latter part of the year, fueled by those programs.

Pete Skibitski, Analyst

Okay. And just one last one for me, much smaller program, but I'm just curious if you guys are tracking this Armed Overwatch program just because it seems like the type of thing that could be maybe leveraged internationally and you just got the 86 certified. So just wondering if you think that might be awarded this year and if it's going to be meaningful to you or not.

Scott Donnelly, Chairman and CEO

Well, look, it would be, Peter. I think that the Armed Overwatch; our expectation is that could be announced any day, any week here. The air force is in their proposal evaluation, so all is quiet there, but they're going through their process. I think that is something that will be announced in the pretty near future. Regardless, the fact that we did get the military type certification on the T6 is significant for us in the international markets. We’ve already taken our first orders for that because customers expected we would get the type certification, and we have a large installed base with a very successful product in the T6 on the trainer side. An awful lot of customers have been in dialogue with us around their desire to transition from that T6 into AT6 for their light attack aircraft. So I think we see a bright future for that product now that we have the MTC. If we were to win the Armed Overwatch program, that would be a huge opportunity, but regardless, we feel really good about where the AT6 is positioned going forward.

Operator, Operator

And our next question comes from the line of Seth Seifman with JPMorgan. Please go ahead.

Seth Seifman, Analyst

Okay. Thanks very much and good morning, everyone. I was wondering if you could talk a little bit more about Bell and just kind of A, the pace of recovery through the year, but also, with H1 ramping down just the extent to which the EBIT level that we saw in Q2, even though there was some one-time aspects to it. To what extent does that become a preview of '23, '24 as H1 goes away and we think about the transition, potentially into FLRAA?

Scott Donnelly, Chairman and CEO

Well, I think what we saw this quarter is probably kind of where Bell's going to be for a little while, as we see those lower aftermarket military volumes. Again, we’ll see commercial kicking in here with some increases on the revenue side, and obviously, a lot of this will depend on where FLRAA goes. We're optimistic about the program, but the army it's their decision, and hopefully, we'll see that happen here in that October timeframe because clearly that's going to be really important for us for the future in terms of that program moving from the investment phase, which it has been for almost a decade, into a real program.

Seth Seifman, Analyst

Right. Okay, thanks. I apologize if you mentioned it, but I think you said a few deliveries might slip out due to supply chain issues in aviation. If we thought that the target was to get back to 2019 levels of 206, should we still be thinking about, let's say 200 deliveries, and do these supply chain issues have much impact on the quarterly cadence in the second half?

Scott Donnelly, Chairman and CEO

Look, I think it's going to be south of the numbers you're talking about here. We've never given the exact number, but as I said, I think you can expect that our original guidance on revenue will probably fall short by a couple hundred million. But on the margin side, it will be north of our guidance because the business is performing really well despite these disruptions and strong aftermarket, as Frank mentioned. As you look through the balance of the year, I think aviation will continue to perform really, really well. But, for sure, these supply chain issues are going to force a few aircraft deliveries out of this year.

Operator, Operator

And our next question comes from the line of Robert Spingarn with Melius. Please go ahead.

Robert Spingarn, Analyst

Scott, on the slippage in the deliveries that we were just discussing, is you mentioned it's a lot of small suppliers, but are engines involved at all? Is there an engine shortfall?

Scott Donnelly, Chairman and CEO

Sure. It's across the airplanes. The engine impact on one particular model is probably our single biggest impact. In that case, they’re working hard to resolve that issue. The good news is in that particular case, the resourcing is well defined; it's well understood, and it's someone who's built the part before. I think there's a good path to getting back on track, but I don’t see that getting resolved without impacting deliveries this year. A few will push into 2023. Financially we're going to be fine; the business is performing really, really well. The bigger issue is, frankly, I have some customers that want their aircraft that will be pushed into next year as a result, but I think the path to getting that resolved is clear. It's being worked really hard. There are a few issues with a couple of suppliers that we are fighting daily.

Robert Spingarn, Analyst

Right. And it looks like your pricing is outpacing inflation, but if inflation continues to stay where it is or gets worse, are there any protections being built into the newer contracts?

Scott Donnelly, Chairman and CEO

No, look, most of our aircraft deals are negotiated. We know what the delivery dates are, and our guys have put in appropriate pricing associated with our expectations on the inflation side. With the few deals we have that are out there in time and pre-negotiated, they take market price at that moment into consideration. We feel like we have adequate protection and incorporation of inflation going forward.

Operator, Operator

And our next question comes from the line of Kristine Liwag with Morgan Stanley. Please go ahead.

Kristine Liwag, Analyst

Hey, Scott, back on Textron Aviation, you reported margins at 12%, the highest we've seen since 2008. Looking back, it’s really been 14, 15 years since we've seen a real light and mid-size biz jet upcycle. At this point, use inventories are in your favor, you're getting pricing, you're getting orders. If we continue to see sustained demand and the supply chain issues ease, are there any structural differences in the business today that could prevent margins from going back to the mid to high teens that we saw in '07 '08, at some point, not this year clearly, but at some point?

Scott Donnelly, Chairman and CEO

Look, I think the way we look at the market right now and performance of the business and the mix of aftermarket, aircraft, and all the programs—the new models—obviously we have a very different product portfolio today than we did back then. I think the cost structure of the business is really well managed and aligned to the volumes. Our expectation is that we'll continue to see positive margin progression as we go into the future. That’s absolutely our plan. It's been a long and hard fight since the 2008 days to get to where we are today, which is back to a business running properly and with a strong backlog, which is how it should be. The dynamics, as you mentioned, used aircraft available for sale are at record lows, which had been a real issue for many years. I think 12% profit margins is a spectacular number, and I do believe we can continue to improve those margin rates as we move into future years.

Operator, Operator

And with that, there are no further questions for today's call. Today's conference will be available for replay after 11:00 AM Eastern today through October 27. You may access the AT&T replay system at any time by dialing 1866-207-1041, entering the access code 5456778. International participants may dial 4029700847. And those numbers again are 1866-207-1041 and 402-970-0847, again, entering the access code 5456778. That concludes your conference for today. Thank you for your participation and for using AT&T teleconference services. You may now disconnect.