Earnings Call Transcript - TXT Q2 2023

Operator, Operator

Thank you for joining us. Welcome to the Q2, 2023 Textron Earnings Release. All participants are currently in a listen-only mode. We will have a question-and-answer session later. Today's conference is being recorded. I will now hand it over to your host, Vice President of Investor Relations, Eric Salander. Please continue.

Eric Salander, Vice President of Investor Relations

Thanks, Kaylie 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 $3.4 billion, up $270 million from last year's second quarter. Segment profit in the quarter was $352 million, up $71 million from the second quarter of 2022. During this year's second quarter, we reported income from continuing operations of $1.30 per share. Adjusted income from continuing operations, a non-GAAP measure, was $1.46 per share compared to $1.11 per share in last year's second quarter. Manufacturing cash flow before pension contributions, a non-GAAP measure, totaled $242 million in the quarter compared to $309 million in the second quarter of 2022. With that, I'll turn the call over to Scott.

Scott Donnelly, Chairman and CEO

Thanks, Eric, and good morning, everyone. Second quarter was a strong quarter with revenue up across all our businesses and solid execution, generating a segment profit margin of 10.3%, up 140 basis points from the second quarter of 2022. At Aviation in the quarter, we delivered 44 jets, down from 48 last year and 37 commercial turboprops, up from 35 in last year's second quarter. Aviation continues to see solid demand across jet and turboprop products. Backlog grew $315 million, ending the second quarter at $6.8 billion. In the quarter, Aviation received an order for 11 Special Mission King Air 360s, expecting to deliver in 2024 and 2025. Also during the quarter, Aviation delivered the first passenger-configured Cessna SkyCourier to Lāna’i Air for its Hawaiian interisland routes. On the new product front, Aviation announced the Cessna Citation Ascend at Ebase ph in May. Ascend will feature the latest Garmin 5000 avionics suite, a 4-passenger range of 1,900 nautical miles, a comfortable cabin experience with large windows and a flat floor, and the new Pratt 545D engine that features improved thrust, increased time between overhauls, and enhanced fuel efficiency. The aircraft is expected to enter into service in 2025. Moving to Bell, revenues were slightly higher in the quarter. Bell began ramping activity on the FLRAA program, including onboarding engineers, contracting with major suppliers, and ordering long-lead materials. Bell also added $1.2 billion of backlog related to the FLRAA contract during the quarter. Also in the quarter, Bell received an initial contract authorization for four additional V-22 aircraft. On the commercial side of Bell, we delivered 35 helicopters, up from 34 in last year's second quarter. At Textron Systems, we saw continued solid margin performance on slightly higher revenues. In June, Systems delivered Craft 107 to the U.S. Navy Ship-to-Shore Connector program. The aircraft delivered to the Navy. Also during the quarter, Systems Aerosonde Hybrid Quad UAS was among four competing unmanned aerial systems that were awarded design contracts under the first option of the Army's Future Tactical UAS Program. Systems also advanced as part of Team Lynx led by American Rheinmetall in the next phase of the U.S. Army's XM30 program. Textron Systems is a designated manufacturer of Team Lynx. The Army down-selected two competitors for the next phase of the program, which includes detailed design and prototype builds. Moving to Industrial, we saw higher revenues in the quarter driven by higher volume in both Kautex and Specialized Vehicles. At Specialized Vehicles, we announced the new Liberty LSV, a street-legal vehicle powered by our elite battery system with four forward-facing seats. Within Kautex, we saw increased volumes year-over-year across all our geographic end markets. Moving to Aviation, we began wind tunnel testing on the Nexus eVTOL aircraft. These tests represent a significant step in the aircraft development process and support design validation activities. Additionally, we continued the prototype assembly and systems integration of the Nuuva, our hybrid electric unmanned cargo VTOL aircraft at our facilities in Slovenia. With that, I'll turn the call over to Frank.

Frank Connor, Chief Financial Officer

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 up $78 million from the second quarter of 2022 reflecting higher pricing of $95 million, partially offset by lower volume and mix. Segment profit was $171 million in the second quarter, up $22 million from a year ago, largely due to favorable pricing net of inflation of $52 million, partially offset by an unfavorable impact from performance of $23 million. Performance included unfavorable manufacturing performance largely related to supply chain and labor inefficiencies. Backlog in the segment ended the quarter at $6.8 billion. Moving to Bell, revenues were $701 million, up $14 million from last year due to higher pricing of $21 million, partially offset by lower military revenue of $7 million. Segment profit of $65 million was up $11 million from last year's second quarter due to a favorable impact from performance of $13 million, largely reflecting lower research and development costs and a favorable impact from pricing net of inflation of $9 million, partially offset by lower volume and mix. Backlog in the segment ended the quarter at $5.6 billion. At Textron Systems, revenues were $306 million, up $13 million from last year's second quarter, largely reflecting higher volume. Segment profit of $37 million was down $1 million from a year ago. Backlog in the segment ended the quarter at $1.9 billion. Industrial revenues were $1 billion, up $155 million from last year's second quarter, largely due to higher volume and mix at both Kautex and Textron Specialized Vehicles of $121 million and a favorable impact from pricing of $37 million. Segment profit of $79 million was up $42 million from the second quarter of 2022, primarily due to higher volume and mix of $32 million and a favorable impact from pricing net of inflation of $17 million, principally at Kautex, partially offset by an unfavorable impact of $10 million from performance. Textron eAviation segment revenues were $11 million and segment loss was $12 million in the quarter, primarily reflecting research and development costs. Finance segment revenues were $18 million and profit was $12 million. Moving below segment profit, corporate expenses were $21 million, net interest expense was $16 million, LIFO inventory provision was $35 million, intangible asset amortization was $10 million, and the non-service components of pension and postretirement income were $59 million. In the quarter, we repurchased approximately 4.2 million shares, returning $273 million in cash to shareholders. Year-to-date, we have repurchased approximately 9.4 million shares, returning $650 million in cash to shareholders. Earlier this week, Textron's Board of Directors approved a new authorization for the repurchase of up to 35 million shares under which the company intends to repurchase shares to offset the impact of dilution from stock-based compensation and benefit plans and for opportunistic capital management purposes. To wrap up with guidance, we are increasing our expected full-year adjusted earnings per share to be in a range of $5.20 to $5.30 per share, up from our prior range of $5 to $5.20 per share. We also continue to expect full-year manufacturing cash flow before pension contributions of $900 million to $1 billion. That concludes our remarks. So operator, we can open the line for questions.

Operator, Operator

Thank you. Our first question will come from the line of Peter Arment with Baird.

Peter Arment, Analyst

Yes, good morning Scott, Frank.

Scott Donnelly, Chairman and CEO

Good morning.

Peter Arment, Analyst

Hi, Scott, I guess, start with Aviation, really strong performance on margins and the top line. Do you still kind of track, I mean, I guess, with the supply chain the way there has been so much volatility? How are you thinking about just kind of your delivery targets and just managing your skyline? I know you're probably sold out now much farther out, just given your backlog, maybe just some overall comments? Thanks.

Scott Donnelly, Chairman and CEO

Sure, Peter. Look, I think on the order activity, the market is still quite strong and so I think we've posted a strong book-to-bill again in the quarter. It's both jets and turboprops, so I think we continue to be really happy with how the market is behaving in terms of demand and pricing. So that's all good. Okay, as I think you're hearing from everybody, the biggest challenge still remains on the supply chain side of things. I'd say it's not getting worse, it's probably modestly getting better but as you know, the challenge is every part is important, right? So, you may not have as many problems, but you still are kind of hit by that weakest link and hey, if you look at our numbers, we're probably a few jets lighter each quarter than we would like to be. That's obviously creating a little bit of inventory, but these things ultimately will sell. But I think when we think about the guide and what's going forward, we're still very happy with the margins and execution performance despite inefficiencies and dealing with some of the supply chain issues. But I think for the year, it will be a little light on the revenue side versus where we would like to be, but those things will push into 2024, obviously. So net of everything, it's still a good, strong demand environment and we'll continue to fight our way through some of the supply chain challenges through the course of the year.

Peter Arment, Analyst

I appreciate that. And just one quick follow-up. Frank, did you disclose what the aftermarket growth was in the quarter for Aviation at all?

Frank Connor, Chief Financial Officer

So aftermarket for the quarter was about 3% growth and 32% of total revenue.

Peter Arment, Analyst

I appreciate it. Thanks again.

Operator, Operator

Thank you. We'll go next to the line of Sheila Kahyaoglu with Jefferies.

Sheila Kahyaoglu, Analyst

Good morning, guys, and thank you. Maybe just to start off a specific one on Bell, how do we think about the B-22 here? The House Appropriations Bill included about $700 million for potentially five B-22s, how do we think about how that could add legs to this program and transition to FLRAA?

Scott Donnelly, Chairman and CEO

The Navy has been deploying the CMV-22s for some time now. The program was intended to replace the C2 COD aircraft, and the number of CMV-22s was initially planned just for that purpose. However, the Navy has publicly acknowledged that as they integrate the CMV-22 into their fleet, they are discovering additional capabilities that the V-22 offers, which were not available with the COD, as it was limited to large carriers and onshore airports. The increased versatility and performance of the V-22 is prompting the Navy to express interest in acquiring more of these aircraft for other uses. While this interest has not yet been formalized, discussions are ongoing. The inclusion of five additional CMV-22s in the House Appropriations reflects this growing demand due to their adaptability. We are pleased with the aircraft's performance, and the Navy feels similarly, so we hope to see continued production as we move beyond the initial program framework.

Sheila Kahyaoglu, Analyst

That's great. Thank you for that color. And then maybe a bigger picture one. Frank, if you could start, and I know you'll be for both, so give Scott some time on this too. You announced a pretty large repurchase program in the quarter. How are you thinking about capital allocation? And then Scott, obviously, with Ascent, capital allocation for repo versus new products?

Frank Connor, Chief Financial Officer

So capital allocation remains consistent. We continue to generate strong free cash flow and are investing significant capital back into the business through R&D and capital expenditures, which will continue. Additionally, we are producing substantial free cash flow that is being returned via share repurchases. We have indicated a baseline of 5% to 6% of our share base per year for repurchases. Coming out of the pandemic, we are more liquid than usual, and in the first half of the year, we repurchased a considerable amount of stock. We expect to remain active in the market when opportunities arise, and the 35 million signifies the need for authorization to facilitate this. We had only 2.7 million shares remaining from the last repurchase, and we are moving through it quickly.

Sheila Kahyaoglu, Analyst

Cool. Thank you.

Scott Donnelly, Chairman and CEO

That’s right. As Frank said, Sheila, I mean, I certainly don't see it as a trade with R&Ds. As you know, we're a fairly high R&D company. We think investing in new products is the key to growth. I think we're seeing that play out right now and if you look at Aviation with the investments in Latitudes and Longitudes, a lot of the upgrades, a lot of our current products both on the jet and the turboprop side, SkyCourier now driving nice growth for us, the Ascend that we just announced. So if you look at Bell, obviously, we've made a huge investment over the years in the FLRAA program and the FLRAA program that's obviously now turning into a great growth driver for us. So across all the businesses we're not going to change our strategy here in terms of R&D. We'll keep making the investments that we think we need to make in the product side. But despite all that, we're obviously making strong profits and strong cash flow and that gives us a great deal of flexibility to allocate and drive some of that back through the share repurchase program and do what's right we think for the shareholders.

Sheila Kahyaoglu, Analyst

Great, thank you.

Operator, Operator

Thanks. We'll go next to the line of Jason Gursky with Citi.

Jason Gursky, Analyst

Hi, good morning, everybody.

Frank Connor, Chief Financial Officer

Good morning.

Jason Gursky, Analyst

Scott, I was wondering if you could provide kind of a general update on the general aviation market. I think there was a show here recently up in Oshkosh. I was wondering if you had any general learnings from either that show or your general view of the general aviation market? And then second one would be just kind of an update from your perspective on the market for pilots both for, as they come in through the general aviation market and make their way maybe up into the biz jets and other aircraft that are more important to you?

Scott Donnelly, Chairman and CEO

Sure. Look, Jason, I think one of the nice parts about the market right now is this, as much as we talk about the jets and the turboprops and obviously, that's the bulk of our business, but when you're looking at Oshkosh, which is really a show that's aimed around the propeller marketplace and Cessna 172s and Pipistrel electric aircraft and all that kind of good stuff, the demand is strong from top to bottom. I mean, we’re have a great book-to-bill and our 172s, 182s, 206s. So you see really, really strong demand from that GA customer that we've always had. There's very strong demand from training schools. So if you kind of shift into your pilot discussion, there's no doubt people have talked for many, many years about the shortages of pilots that are coming up, and we're seeing that, right? So the training schools are putting a lot of orders in, they're increasing the size of their fleet so they can get more pilots through. There's a lot of activity with frankly, some of the airlines buying a lot of aircraft so that they can get pilots, not just pilots that come into the industry, but pilots that need to get the hours in order to be eligible to fly for the actual airlines. And so those hours are best built by using less expensive per hour kinds of aircraft; we have a lot of demand on that side as well. So the nice part here is it's a robust market, everything from Cessna 172 or a small Pipistrel Velis all the way up through Longitude. So it's the demand is very, very broad.

Jason Gursky, Analyst

Great, thank you.

Operator, Operator

Thank you. We'll go next to the line of David Strauss with Barclays.

Bradley Barton, Analyst

Hi, good morning, Scott and Frank. This is Brad Barton on for David. Quickly starting off on Bell, looks like the quarter might have been a little light, can you just talk about how much FLRAA added in the quarter and how Bell’s going to ramp from here and hitting the $3.3 billion?

Frank Connor, Chief Financial Officer

Sure. Look, I think Bell is pretty in line with where we expect them to be. The FLRAA program is certainly ramping. We’ve added a lot of engineering resources and we are able ramp reasonably quickly because we still had a lot of engineering talent that had been going through the FLRAA design, the CDR risk reduction programs that we've retained through that period. So, I’d say the team is ramping really well. The Army has been great about working to quickly get authorizations out there for us to award contracts to our major subcontractors which is a huge part of the program obviously, as it goes out through the industrial base. They’ve authorized critical long-lead materials that we needed to support the industrial flight aircraft, so the program is ramping the battle status as I can imagine ramping such a large program. So, I think we still feel very comfortable with the guidance that we provided in terms of where we're going to end up the year on revenues that program drives a lot of the growth frankly that's ramping up. And look, as the way they think about this program, it's certainly ramping but the next few years that’s just sort of a $1 dollar a year program. Obviously, part of that is retained by the government to run their program offices and things like that, but I think we will very rapidly ramp up and how far exactly where we expect it to be, which is in that probably $800 million to $900 million a year of revenue.

Bradley Barton, Analyst

Okay. And then just a follow-up, there have been some reports in the press about potential interest in some properties out there. Just wondering if you could talk a little bit about how you see the portfolio shaping up?

Scott Donnelly, Chairman and CEO

We probably won't provide any commentary on various rumors that are out there in terms of M&A activity at this point.

Bradley Barton, Analyst

All right, thanks for the time.

Scott Donnelly, Chairman and CEO

Sure.

Operator, Operator

Thank you. We'll go next to the line of Noah Poponak with Goldman Sachs.

Noah Poponak, Analyst

Hi, good morning, everyone.

Scott Donnelly, Chairman and CEO

Hi, Noah.

Frank Connor, Chief Financial Officer

Hi, Noah.

Noah Poponak, Analyst

The aviation margin is at one of the highest levels we've seen in a while, and the incremental figure seems to be slightly above your long-term expectations. This is despite the performance number you mentioned. If I include that back in, I'm projecting more towards the mid-teens. As I consider the future of that margin, it's clear that the labor and supply chain inefficiencies you're referencing won't be resolved immediately, but they also won't be permanent. So, is it sensible to view the adjusted margin for this quarter as a baseline, plus an additional incremental for what you can expect late next year into the middle of the decade?

Scott Donnelly, Chairman and CEO

Well, I'm probably not ready to guide into the middle of the decade, just yet, Noah.

Noah Poponak, Analyst

Well, you have a pretty big backlog in that business now.

Scott Donnelly, Chairman and CEO

I believe the margins are quite strong. The team is navigating through challenges, which we hope will lessen over time. There is certainly inflation that affects our current numbers. While I prefer not to provide too much guidance about the future, I can say we are working with a solid gross margin product. Long-term, we envision a conversion rate around 20% to 25%, and we anticipate growth as we approach 2024 and beyond. However, this growth will be somewhat limited by supply, and we need to ensure we are aligned with market demand. We've previously mentioned that the health of the industry relies on maintaining a significant backlog, and we currently have that, which is a positive indicator for the industry overall.

Noah Poponak, Analyst

In the near-term, is it reasonable to expect that the price adjusted for inflation will increase? I believe the pricing in your backlog is still better than what is currently reflected in the profit and loss statement, but please correct me if I'm mistaken. Additionally, if inflation is slowing down, it seems likely that both the upper and lower ends of that figure would be expanding.

Scott Donnelly, Chairman and CEO

Well, look, I think we do feel good about the pricing that's going into the backlog, but we are still seeing inflationary pressures. The rate of inflation is certainly coming down, but there is still inflationary pressure out there.

Frank Connor, Chief Financial Officer

Yes. Remember, we have some longer-term supply contracts, so we did a nice job of responding to any demand in the market and created a more appropriate pricing environment, but there is some lag effect associated with our contracts and just the flowing in of inflation. But we still feel very good about where we are price net of inflation, but there is a lagging impact on some of those cost inputs.

Noah Poponak, Analyst

Okay. And just the last piece on it, is your price, your rate of change in price decelerating with maybe some normalization in the market or did you not increase it so fast that it needs to slow and the rate of change is just kind of holding at this point?

Scott Donnelly, Chairman and CEO

I don’t know. I have not run a first derivative on our price at this point, but I don't know. We probably won't go into that level, quite that level of detail, but suffice to say, we're still getting price and feel good about how that price demand is working in the market.

Noah Poponak, Analyst

All right, I appreciate it. Thank you.

Operator, Operator

We'll go next to the line of Robert Stallard with Vertical Research.

Robert Stallard, Analyst

Thanks so much. Good morning.

Frank Connor, Chief Financial Officer

Good morning.

Scott Donnelly, Chairman and CEO

Good morning.

Robert Stallard, Analyst

Scott, on industrials, a good quarter there, both on the top line and the margin. How sustainable do you think this is going forward? And do you just see this as a sign that the U.S. consumer is still holding in there pretty resilient?

Scott Donnelly, Chairman and CEO

I believe this is definitely a positive indication, Robert. The recovery in the automotive sector across various regions is encouraging as we see those volumes increasing, and the Kautex team has effectively capitalized on that. Demand remains strong in golf and turf as well as consumer products. So, yes, they are maintaining their position. While there is some concern about the high-end consumer, overall, things have been relatively stable. It's important to note that there is inherent seasonality in these businesses. During autumn, we typically experience summer shutdowns, making the second quarter more robust and the third quarter lighter in terms of revenue. However, looking at the overall picture, the demand environment is improving, and our teams are performing well in their execution.

Robert Stallard, Analyst

Yes. And then Frank, a technical question for you. You raised the EPS guide by $0.10, so can you give us some idea of where that's coming from within the operations?

Frank Connor, Chief Financial Officer

Yes, it reflects a strong first half and the earnings we just reported. There are some factors related to share count and other items, but it indicates solid performance in the first half of the year and continued good execution into the second half. As Scott mentioned, there may be slightly lower volume in aviation compared to our guidance, but industrial is likely stronger than we initially expected from a revenue perspective, along with overall strong execution across all businesses.

Robert Stallard, Analyst

That’s great. Thanks so much.

Operator, Operator

Thank you. We'll go next to the line of George Shapiro with Shapiro Research.

George Shapiro, Analyst

Good morning and good numbers. Scott, do you think we still expect to hit 200 deliveries, or should we adjust that to around 190 considering we seem to be missing a few each quarter?

Scott Donnelly, Chairman and CEO

Yes. I think the number is going to be a little bit lighter than we originally had in there, George, so I don't think it's going to be 200. As I said, I think their execution is strong. I think the margins and contribution to earnings are going to be where we expected them to be, but it's going to be with a little bit lighter top line just driven by, again, trying to get the aircraft out and obviously those are aircraft that will move into 2024 sales that are still going to happen, but I do think we'll be a little bit lighter on the year than what we originally guided on the top line.

George Shapiro, Analyst

And at Bell, is the margin guide still good, assuming that this quarter was particularly strong because FLRAA hasn't fully built yet, so margins will weaken in subsequent quarters?

Scott Donnelly, Chairman and CEO

Look, I think Bell is tracking right on where we expected from a guide standpoint. So we're still seeing good execution on a lot of the production side of things. Obviously, FLRAA coming in is nice in terms of driving the top line. And clearly, it absorbs a lot of overhead in the business, which helps maintain the level of profitability in some of the other product lines. But as we've talked about the absolute number and we don't have as much V-22, H1 production as we had, but we're going to still, I think, post a number that's very much in line with what we guided.

George Shapiro, Analyst

And then just one follow-up on Industrial, I mean it was particularly strong, I mean, I went back and looked, it was the best quarter since like Q2 of 2018 and that probably- the business wasn't even the same at that point, although Kautex is obviously there. So, can you comment anymore? I mean it would seem like the sales you could- would be $3.6 billion guide here for the year and the margin certainly would look like it could be based on what the margin was this quarter. So if you could comment a little bit more on that?

Scott Donnelly, Chairman and CEO

Yes, look, I think we do have George as I said, look, aviation is probably a little bit light on the revenue line. I think industrial will be a little bit stronger on the revenue line to offset that as we go through the year. I do think that the margins, there's probably a little bit of upside to the margin, but certainly just conversion on net revenue will give us a little bit of upside on the year. And again, that's part of what's factored into the raise on our guidance at the EPS level, so I think we're happy with how that's going on the industrial side. And again, it's strong demand recovering in the auto side. You don't see as much drag on automotive manufacturing, and that's good for us at Kautex, and golf and turf and these markets are staying pretty robust. So I do think that's kind of the way we think about mostly offset here. We'll see some nice upside on the revenue there, and that will bring with it some increase in Op, that's certainly incorporated in part of our raise for the year.

George Shapiro, Analyst

Okay, thanks very much.

Operator, Operator

We'll go next to the line of Myles Walton with Wolfe Research.

Louis Raffetto, Analyst

Hi, you have Lou Raffetto on for Miles for you.

Scott Donnelly, Chairman and CEO

Good morning.

Louis Raffetto, Analyst

So I think you kind of covered this a little bit with the ongoing disruption, I guess, within Aviation, but at what point do you think that the pricing benefit will sort of overcome or more than overcome the sort of the negative on the performance side?

Scott Donnelly, Chairman and CEO

Our current pricing, even after accounting for inflation, is sufficient to address some of the challenges caused by ongoing supply issues. This has been a trend for a while, and I anticipate that it will continue as we move forward.

Louis Raffetto, Analyst

Okay. And then I think you mentioned, so is 190 the right number to think about or will you be maybe a little bit higher than that for the year?

Scott Donnelly, Chairman and CEO

We're not going to provide a specific number. However, being short by a couple of hundred million dollars is likely a reasonable way to view the top line. From a performance and margin perspective, we should generally align with our previous guidance.

Operator, Operator

Thank you. We'll go next to the line of Cai Von Rumohr with TD Cowen.

Cai Von Rumohr, Analyst

Yes. Thanks, so much. So Scott, a strategic question, obviously, your A&D business is growing with FLRAA, some opportunity at OMB, a number of other programs. And yet when you look at your business, you're not really a niche player, and you're also not up with the GD or Lockheed, those guys. Strategically, I think you said you'd like to increase A&D, how big would you like to get? And what sorts of things would you consider buying to bolster your A&D business?

Scott Donnelly, Chairman and CEO

That's a great question, Cai. We certainly want to grow larger. The investments we've made in our current businesses are significantly contributing to that growth. In aviation, for instance, the ongoing investments in new platforms we've made will drive substantial growth. We've made a considerable investment in FLRAA over the years, which will enable us to compete successfully on a program-by-program basis. Additionally, in systems, we discussed opportunities like OMF, now known as XM30, and ARV with the Marine Corps, which could be important growth factors. We're competing against some of the biggest names in the industry, and I believe we can succeed. Our ongoing focus is on making strategic investments to foster organic growth. While we are open to acquisitions if the right opportunity arises, I believe it's crucial not to feel pressured to make a deal. Therefore, our strategy is to concentrate on the right organic investments for strong growth, while also remaining open to sensible opportunities for expansion.

Cai Von Rumohr, Analyst

So when you look at things, do you look at it sort of from a holding company perspective, this would be a good business or are there specific skill sets that you think would be complementary to what you currently do that would make you a stronger player in helicopters and whatever?

Scott Donnelly, Chairman and CEO

Well, look, I think, Cai, right now, it's primarily looking in the A&D space, things that would help diversify us in terms of our strength in A&D. I don't think it's likely that you see something that's specifically in the helicopter space. I just don't know that there is targets out there where you do that. And from a government standpoint and other standpoint, I don't think you would probably see much activity in that space. I'd be kind of surprised. But I think you look at complementary A&D capabilities, certainly where we bring technological capability where the target would bring technology capability that's some synergistic, but I think in large part, providing a more well-rounded, more diversified A&D company.

Cai Von Rumohr, Analyst

Great, thank you very much.

Operator, Operator

Thank you. And our last question will come from the line of Kristine Liwag with Morgan Stanley.

Kristine Liwag, Analyst

Great, thanks. Scott, with the macroeconomic uncertainty and increasing interest rates, I mean, ultimately the demand and pricing for business jets and general aviation continue to be robust, a surprise for the bears pretty much. So what do you think is driving this sustained demand and how undersupplied do you think the market continues to be?

Scott Donnelly, Chairman and CEO

I believe the demand in the market is largely due to individuals who have recently experienced private aviation. They have found that it significantly enhances their travel efficiency compared to commercial airlines. Private jets allow for flexibility in scheduling and access to a wider range of destinations, which has become increasingly appealing, especially in the wake of COVID-19. Many people who may not have considered private aviation before are now discovering its advantages, contributing to ongoing demand. We offer a diverse selection of products at various price points, which further supports the strong demand environment we are seeing. This trend is evident not only in our company but across the entire general aviation sector.

Kristine Liwag, Analyst

Yes. And I guess when you look at the portfolio, light, medium and large cabin, that large cabin out of the market continues to also be robust. At this point, when you look at the Cessna portfolio, what's your appetite to go bigger? I mean we had the Columbus and the Hemisphere that didn't come about, but is there a right moment to reintroduce an airplane of that size or even larger and move up the portfolio to the larger cabin jets?

Scott Donnelly, Chairman and CEO

I don't believe there is a current opportunity in that area. We did consider it at one point when we expanded the upper range of our platform, but due to technical reasons, we decided not to pursue those programs. That part of the market, especially as you move to larger offerings, is already well-served. Therefore, it's better for us to concentrate our research and development efforts and investments on the super midsize segment with the Longitude. We have been implementing significant upgrades across various programs and platforms in our portfolio, and we are continuing to make sound investments. Denali is still under development and is expected to be very successful for us. It fits perfectly within our market segment, where we have seen a strong track record with past aircraft, and I believe it will be well received and generate substantial growth. We're committed to continuing our investments from our smaller Cessna 172s to the electric aviation space with Pipistrel and eAviation, and up through the Longitude. This focus on our R&D efforts is where we see the most potential.

Kristine Liwag, Analyst

Great, thanks Scott.

Operator, Operator

Thank you. And ladies and gentlemen, today's conference will be available today, 10:00 a.m. Eastern Time running through July 27, 2024, at midnight. You may access the AT&T replay system by dialing 18662071041 and entering the access code of 8467989. International dialers may call 402-970-0847. Those numbers again are 18662071041 or 402-970-0847 with the access code of 8467989. That does conclude your conference for today. Thank you for your participation and for using AT&T Event Conferencing. You may now disconnect.