Textron Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Textron Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. If you should require assistance during the call, please press star, then zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Vice President, Investor Relations, Mr. Eric Salander. Please go ahead.

Thanks, Greg, 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 Conner, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. With that, I'll turn it over to Scott.

Thanks, Eric, and good morning, everybody. First, I'd like to recognize that we're all operating in extraordinarily challenging times while facing numerous disruptions to our daily routines. On behalf of our company, I'd like to share our deepest sympathies for all those who have been affected by this global pandemic, and we join in thanking those who have been working to keep us safe through the crisis, particularly those on the front lines in the healthcare community. As we respond to the COVID-19 pandemic and this uncertain time in the world, our number one priority remains the health of our workforce and ensuring that we have a safe work environment during this unprecedented time. Our employees have stepped up across the communities and are constructing plastic face shields and cloth face masks at Aviation and TSV, producing hand sanitizers at Bell, and gathering essential items for those in need of Caltex and systems. We continue to work in understanding and assessing the impacts of COVID-19 is having on our businesses, but we still have limited visibility in these times, particularly with respect to how long this crisis will affect our markets. We're implementing actions across the company to manage and mitigate the impact this pandemic is having on our operations. Given the diversity of our segments and in markets, the impacts of COVID-19 have had a wide range of effects on our business operations. For instance, the U.S. government has taken several actions that continue to reinforce the importance of our nation's defense industrial base and has deemed the defense industrial base as part of the nation's essential critical infrastructure. Working in our defense businesses, Bell and Textron systems have maintained a steady operational cadence throughout the health crisis, and we expect them to continue to do so. Bell executed very well in the quarter with increased revenue from higher military volume and a 14% operating margin. On the commercial side of the business, we delivered 15 helicopters down from 30 in last year's first quarter. We did see several deliveries push out of the quarter, resulting from customers' inability to accept aircraft due to COVID-19-related travel restrictions. During the quarter, Bell hit another major milestone in its pursuit of the Army's future vertical lift programs when it was down-selected for the next phase in both of these strategically important aircraft acquisition programs, for the future of Army aviation. On the future long-range assault aircraft program, the Bell V-280 Valor was one of the two competitors selected for the competitive demonstration and risk reduction phase over the next 18 months, with the expectation that the Army will award a preliminary design contract in Q4 of next year. The V-280 is well-positioned entering this final phase of the acquisition selection process and has now been flying for over two years while continuously demonstrating its speed, agility, and versatility in both piloted and autonomous flight. On the future attack reconnaissance aircraft program, the Bell 360 Invictus team was selected as one of two competitors for the design, build, and testing of a prototype rotorcraft. The Bell 360 Invictus offering includes the proven high-performance rotor system and fly-by-wire controls from our 525 Relentless in an affordable, sustainable, and highly lethal design. At systems, while overall operations were strong for the quarter, with higher volume across most of our product lines, the lower operating margin of 7.9% in the quarter, most comparable to 9.1%, was unfavorably impacted by our simulation product line related to the downturn in commercial aviation. We've announced furloughs and suspended operations at our simulator manufacturing facility in Montreal, as airlines and training centers have significantly reduced their outlook for the acquisition of training devices amid this health crisis. In the quarter, Textron Marine and Land Systems delivered the first ship-to-shore connector, Craft 100, to the U.S. Navy, and Craft 101 is scheduled to enter builder's trials in the second quarter. Also on ship-to-shore connector, the $820 million follow-on production contract for the next 15 craft was fully definitized in mid-April. This is a critical milestone and we believe demonstrates the Navy's commitment to the program. This now brings the total number of craft to be built at Textron Systems to 25 of the 73 craft program of record. Electron Aviation, we announced employee furloughs in late March to address expected lower demand for new aircraft and related service activities. In the quarter, revenues were $872 million, down $262 million from the first quarter of last year. We delivered 23 jets, down from 44 last year, and 16 commercial turboprops, down from 44 in last year's first quarter. Entering the quarter, we expected lower unit deliveries from both the change in the mix of aircraft sold and the availability of completed aircraft as we work to recover our composite manufacturing operations. following the accident that we experienced at the end of 2019. During the quarter, we also experienced delays in aircraft deliveries due to customers' inability to accept their new aircraft in Wichita based on COVID-19-related travel restrictions. We expect these aircraft will deliver as the travel restrictions begin to lift. Looking to the market, aftermarket, revenues were down about 3% as compared to last year's first quarter. Service activity was strong through the first two months of the quarter, but began to slow in March, as the effects of the pandemic on air travel continued to expand. Moving to backlog, there was a $290 million decrease from the fourth quarter balance of $1.7 billion, primarily due to a revised demand outlook from a fractional jet customer resulting from the pandemic. As government travel restrictions and other social distancing guidelines were implemented, we experienced a pause in sales activity as face-to-face meetings and demonstration flights became increasingly difficult to conduct. These actions led to the decline of retail order activity in the quarter. On the new product front, the Cessna Skycarrier completed engine ground runs in March and is on track for first flight in the second quarter. Moving to industrial, revenues of $740 million were down $172 million from last year's first quarter, largely related to lower volume in our fuel systems and functional components product line. Auto manufacturers began to shut their factories in response to the COVID-19 crisis at the end of January, beginning in China. As a tier one supplier to the industry, Caltechs closed their facilities accordingly. In China, the Caltech facilities have recently come back online and are ramping up based on demand signals from the customers. In Europe and the Americas, the auto OEM shutdown began in mid-March and are expected to last through early May in most cases, with our facilities restarting accordingly. Textron Specialized Vehicles began employee furloughs in March to address the lower expected demand across our business. For ground support, equipment business has been impacted particularly hard as commercial air travel has slowed and airlines have pulled back on equipment purchases. Production has been suspended, and we will continue to monitor the demand outlook. And after our power sports, the distribution channel, including both retail stores and dealers, has been impacted by the crisis, as consumer spending has significantly slowed, and many dealers and stores have been required to close due to government shutdown orders and other operating restrictions. Production of the off-road products has been temporarily halted, Golf and PTV are continuing to operate with some inefficiencies driven by required social distancing guidelines as they work to meet customer commitments. The team is doing a good job of working through these difficult times. In summary, COVID-19 has had a significant impact on our employees, operations, suppliers, and customers across each of our segments. With the continued uncertainty around the pandemic, we are confident in the actions that we've taken to protect our workers and maintain our businesses while continuing to meet our customer commitments. With that, I'll turn the call over to Frank.