Textron Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Textron Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you have a question, please press 1 and then 0 on your touchtone phone. You may remove yourself from queue at any time by repeating that 1-0 command. If you're using a speakerphone, we ask that you please pick up your handset before pressing the numbers. As a reminder, if you need assistance from an operator, please press star and then zero. This conference is being recorded, and I would now like to turn the conference over to the Vice President of Investor Relations, Mr. Eric Salander. Please go ahead.

Eric Salander Thanks, Kaylee, 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. Textron's revenues in the quarter were $3.7 billion, down $368 million from last year. During this year's fourth quarter, we recorded $23 million in pre-tax special charges, largely related to restructuring activities on industrial and Textron aviation, or $0.07 per share after tax. We also recognized a one-time favorable tax benefit related to the sale of True Canada of $0.04 per share. Excluding special charges and the one-time favorable benefit, adjusted net income was $1.06 per share compared to $1.11 in last year's fourth quarter. Manufacturing cash flow before pension contributions was $467 million, down $183 million from last year's fourth quarter. For the full year, revenues were $11.7 billion, down from $13.6 billion a year ago. Adjusted net income was $2.07 per share, compared to $3.74 last year. Manufacturing cash flow before pension contributions was $596 million, as compared to $642 million last year. With that, I'll turn the call over to Scott.

Thanks, Eric, and good morning, everyone. Our business has closed out the year with a strong operating performance in the fourth quarter, as we saw margin improvement at Systems, Industrial, and Bell that drove an increase in Textron's manufacturing margin to 8.8% on lower revenues. At Bell, margins of 12.6% were up 30 basis points as compared to the prior year, despite lower military revenues and commercial volume. We delivered 57 commercial helicopters down from 76 in last year's fourth quarter. On the military side, the Japanese officially began V-22 flight operations in November, This continues the growth of the worldwide fleet of operating aircraft, which has amassed over 560,000 flight hours. Looking to future vertical lift, I'll mark the third anniversary of the V-280's first flight in December, with the aircraft having now flown more than 200 hours. Army leadership and Congress have been very supportive of future vertical lift, and we expect this will continue under the new administration. In December, the U.S. Army provided the draft RRP for the FLORA program for review and comment. The Army continues to anticipate a down select and floor program award in mid-2022. At systems, revenues are down primarily on lower volume at the true simulation training business. In November, systems announced the sale of its commercial air transport simulator business to CAE. This transaction closed in January. In the quarter, ATAC won the re-compete of the U.S. Navy and Marine Corps Flight Fighter Jet Training Services Program. This contract expands the scope of the services we currently provide under the program and is worth up to $440 million over the next five years. Also in the quarter, Unmanned Systems was awarded a $66 million contract for the U.S. Army for 36 shadow aircraft. The shadow platform now has over 1.2 million flight hours globally. Moving to industrial, revenues were down primarily due to reduced demand and the ground support equipment business within specialized vehicles. Caltech's automotive production outlook has steadily improved since the low point in May, and demand from our customers continues to ramp in the fourth quarter as revenues approach their prior year levels. Moving to Textron Aviation, revenues were down in the quarter, primarily on lower jet deliveries and aftermarket volume. We delivered 61 jets, down from 71 last year, and 61 commercial turboprops, up from 59 in last year's fourth quarter. On the new product front, aviation began deliveries of the new King Air 360 with eight units in the quarter, and announced the new King Air 260. The Cessna Skycurve program continues to progress with three aircraft flying in the certification program. The flight test program has completed over 400 flight hours, and the aircraft is on track for entry into service in the second half of 2021. In summary, 2020 was a difficult year with many challenges for our operations, and I'm proud of the way our teams responded. Through a focus on working capital management and cost control, the businesses generated a strong manufacturing cash flow performance for the year. At our defense businesses, we were able to maintain our operations, getting our customer commitments, and delivering strong results. On the commercial side, we overcame temporary manufacturing shutdowns and disruptions in our end markets to deliver strong fourth quarter results and look forward to carrying that momentum into 2021. With this backdrop, we're projecting revenues of about $12.5 billion for Textron's 2021 financial guidance. At aviation, we are projecting growth from increased aircraft deliveries on both jets and turboprops, including the entry into service of our new Cessna Sky Courier, and higher aftermarket revenues driven by increased fleet utilizations. At systems, we're expecting higher revenues and margin expansion, primarily driven by growth in ATAC and marine and land systems. At Bell, we expect solid margin performance despite lower military and commercial revenues, while continuing to invest in future vertical lift. At industrial, we're expecting revenue growth and margin improvement at Caltechs as auto demand continues to recover from two pre-COVID levels. At Textron Specialized Vehicles, we're also expecting revenue growth and margin improvement as we continue to grow our power sports business with Bass Pro Shops. We're projecting adjusted EPS in the range of $2.70 to $2.90 per share. Manufacturing cash flow before pension contributions is expected to be in the range of $600 to $700 million. With that, I'll turn the call over to Frank.