Textron Inc.

Thank you for standing by. Welcome to the Textron fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question, please press 1, then 0 on your phone keypad. Should you require assistance, please press star, then 0. This conference is being recorded for digital replay and will be available after 10 a.m. Eastern time today. through January 24th, 2025 at midnight. You may access the replay service by dialing 866-207-1041 and enter the access code 406-5507. I would now like to turn the conference over to David Rosenberg, Vice President of Investor Relations. Please go ahead.

Thanks, Leah, 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. Revenues in the quarter were 3.9 billion, up 3.6 billion in last year's fourth quarter. Segment profit in the quarter was 384 million, up 78 million from the fourth quarter of 2022. During this year's fourth quarter, adjusted income from continuing operations was $1.60 per share, compared to $1.23 per share in last year's fourth quarter. Manufacturing cash flow before pension contributions totaled 380 million in the quarter, up 12 million from last year's fourth quarter. For the full year, revenues were $13.7 billion, up $814 million from last year. In 2023, segment profit was $1.3 billion, up $191 million from 22. Adjusted income from continuing operations was $5.59 per share, as compared to $4.45 per share in 22. Manufacturing cash flow before pension contributions was $931 million, down $247 million from 22. With that, I'll turn the call over to Scott.

Thanks, David, and good morning, everyone. Our business has closed out the year with another solid quarter with strong margin performance and cash generation. Throughout the year, our teams worked to mitigate supply chain challenges to deliver products to our customers. At Aviation, while we entered the year with an expectation of a book-to-bill one-to-one, solid order flow and customer demand across our product portfolio resulted in year-end backlog of $7.2 billion and an increase of $782 million. Textron Aviation Defense delivered 13 T-6 aircraft for the year, up 10 from a year ago. During 2023, solid aircraft utilization within the Textron Aviation product portfolio resulted in a 6.5% growth in aftermarket revenues. At Bell, revenues in the quarter were up, driven by higher commercial and military revenues. On the commercial side of Bell, we delivered 91 helicopters in the fourth quarter, up from 71 in last year's fourth quarter. For the full year, we delivered 171 helicopters in 2023, down from 179 in 2022. The higher military revenues reflected the continued ramp on our FAR program. On the FAR program, Bell completed the installation of the ITEP engine on the 360 Invictus. The team continues to conduct integration activities and prepare the aircraft for initial ground runs in 2024. Moving to Textron Systems, revenue and margin were flat with last year's fourth quarter. During the quarter, systems delivered the last detailed design and construction craft on the ship-to-shore connector program, following its successful completion of acceptance trials. Moving to industrial, we saw higher revenues in the quarter, driven by higher volume at Caltechs and favorable pricing in specialized vehicles. Moving to aviation, Pipistrel delivered 135 aircraft during the year, up from 61 in 2022. Also at aviation, during the quarter, the Pipistrel Velos Electro was selected to participate for a trial period to explore operational and and training uses for this all-electric aircraft as part of Agility Prime, the Air Force's vertical lift program. Summary, in 2023, we had a strong year across all of our businesses. We continue to execute on our growth strategy of ongoing investments in new products and programs to drive organic growth and margin expansion. During the year, aviation announced the new Cessna Citation Ascend at E-BASE and the Cessna Citation CJ-3 Gen II at NBAA. In May, aviation delivered the first passenger variant of the Cessna Skycarrier to Lanai Airlines, servicing the Hawaiian Islands. In the third quarter, aviation announced a new fleet agreement with NetJets for up to 1,500 aircraft over 15 years, including longitude, latitude, and the newly announced ascend, extending our 40-plus year relationship. In October, aviation delivered the 100th Cessna Citation longitude. At Bell, we began work on the FLAR program in April, The team continues to increase activity on the program, ramping up engineering resources, contracting with key suppliers, and ordering long-lead materials. At Textron Systems, we advanced through the future tactical unmanned aircraft system competition and are now one of two remaining competitors down from the initial five. Systems also continued to win on land vehicle programs, advancing to the next phase of the Army's XM-30 program as part of Team Links, and was selected as one of four competitors to build RCV light prototypes for the Army. At Textron Specialized Vehicles, we introduced the new Street Legal EasyGo Liberty LSV, powered by our elite lithium-ion battery system. At Caltex in 2023, we announced the first pentatonic order from an automotive OEM for a thermoplastic composite underbody battery protection skid plate, establishing Caltex as a supplier to the expanding battery electric vehicle market. At eAviation during the year, we began system-level integration of the first ANUVA prototype, our hybrid electric unmanned cargo VTOL aircraft, in preparation for first flight in 2024. As we closed out 2023, manufacturing performance was trending positively with improvements in labor productivity and supplier deliveries. Looking to 2024 at aviation, we're projecting growth driven by increased deliveries across all product lines and higher aftermarket volume. At Bell, we're projecting revenue growth in 2024 on higher military revenues from the FLORA program and higher commercial revenues from increased deliveries. At systems, we're expecting slightly higher revenue as new programs continue to ramp. At industrial, we're expecting flat revenues as growth in specialized vehicles is offset by lower-than-expected volume at Caltechs. At eAviation, we plan to continue investments in the development of technologies and products supporting sustainable flight solutions for unmanned cargo, next-generation electric trainers, eVTOL, and general aviation. We also expect higher aircraft deliveries at Pipistrel. With this overall backdrop, we're projecting revenues of about $14.6 billion, up 7% from 2023, for Textron's 2024 fiscal year. We're projecting adjusted EPS in the range of $6.20 to $6.40. Manufacturing cash flow before pension contributions is expected to be in the range of $900 million to $1 billion. With that, I'll turn the call over to Frank.

Thanks, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.5 billion were down $58 million from the fourth quarter of 2022, reflecting lower volume and mix of 158 million, partially offset by higher pricing of 100 million. Segment profit was 193 million in the fourth quarter, up 23 million from a year ago, reflecting a favorable impact from pricing, net of inflation of 51 million, partially offset by lower volume and mix of 22 million. Backlog in the segment end of the quarter at 7.2 billion. Moving to Bell, revenues were 1.1 billion, up 255 million from last year's fourth quarter, reflecting higher commercial revenues of $171 million, largely driven by increased deliveries, and higher military revenues of $84 million related to the FAR program. Segment profit of $118 million was up $55 million from a year ago, primarily driven by higher volume and mix of $39 million. Backlog in this segment ended the quarter at $4.8 billion. At Textron Systems, revenues were $314 million, flat with last year's fourth quarter. Segment profit of $35 million was equal to last year's fourth quarter. Backlog in the segment ended the quarter at $2 billion. Industrial revenues were $961 million, up $54 million from last year's fourth quarter, largely reflecting higher volume and mix at Caltechs and a favorable impact from pricing at Textron specialized vehicles. Segment profit of $57 million was up $14 million from the fourth quarter of 2022, primarily due to higher pricing, net of inflation of $18 million. Text on e-aviation segment revenues were $10 million, and the segment loss was $23 million in the fourth quarter of 23, which reflected the research and development costs for the initiatives related to the development of sustainable aviation solutions. Finance segment revenues were $12 million, and profit was $4 million. Moving below segment profit, corporate expenses were $45 million. Net interest expense was $13 million. LIFO inventory provision was $21 million. Intangible asset amortization was $9 million, and the non-service components of pension and post-retirement income was $60 million. In November, we announced a restructuring plan that resulted in pre-tax special charges of $126 million in the fourth quarter. We anticipate the restructuring plan will be substantially completed in the first half of 2024, resulting in annualized cost savings of approximately $75 million. Our manufacturing cash flow before pension contributions was $380 million in the quarter. For the year, manufacturing cash flow before pension contributions totaled $931 million, down $247 million from the prior year. In the quarter, we repurchased approximately 3.7 million shares, returning $283 million in cash to shareholders. For the full year, we repurchased approximately 16.2 million shares, returning $1.2 billion in cash to shareholders. Turning now to our 2024 outlook on slide 7, we're expecting adjusted earnings per share to be in the range of $6.20 to $6.40 per share. We're also expecting manufacturing cash flow before pension contributions to be about $900 to $1 billion. Moving to segment outlook on slide 8 and beginning with text-run aviation, we're expecting revenues of about $6 billion. Segment margin is expected to be in the range of approximately 12% to 13%. Looking to Bell, we expect revenues of about $3.5 billion. We're forecasting a margin in the range of 9.5 to 10.5 percent. At Systems, we're estimating revenues of about $1.25 billion, with a margin in a range of about 11 to 12 percent. At Industrial, we're expecting segment revenues of about $3.8 billion and a margin in a range of 6 to 7 percent. At eAviation, we're expecting revenues of $50 million and a segment loss of $25 million, reflecting our continued investment in sustainable aviation solutions. At finance, we're forecasting segment profit of about $30 million. Looking to slide eight, we're projecting about $160 million of corporate expense. We're also projecting about $90 million of net interest expense, $110 million of LIFO inventory provision, $35 million of intangible asset amortization, and $265 million of non-service pension income. We expect a full-year effective tax rate of approximately 17.5 percent. Turning to slide 10, R&D is expected to be about 550 million down from 570 million last year. We're estimating CapEx will be about 425 million up from 402 million in 2023. Our outlook assumes an average share count of about 191 million shares in 2024. That concludes our prepared remarks. Aliyah, we can open the line for questions.

Thank you. As a reminder, for those asking questions, we ask that you please take yourself off the speakerphone for the best sound quality. And I would now like to start with Sheila Kayagu with Jeffrey. Please go ahead.

Good morning, Scott, Frank, and welcome, David. Scott, maybe first one for you. How do we think about 2024 aviation deliveries and just book the bill in the context of your guidance?

Sure, I think we'll continue to see a ramp on the production side. As I noted, I think we did, you know, in the fourth quarter start to see some improved productivity in the line. There are still some supplier issues, but, you know, a number of parts coming into PO are improving somewhat. So I think that will help us continue to increase volume here as we go through into 2024. So I certainly see unit deliveries being up. you know, on a year-over-year basis. The market is still strong. I mean, obviously, our book-to-bill, you know, covers, you know, 24 deliveries quite well. But I think, you know, our expectation, as we said, coming into the year was kind of targeting a one-to-one book-to-bill. We did better than that, obviously, in 2023. But our assumption as we go into 2024 is that we'll see a one-to-one book-to-bill. So the market is still good. I think we're seeing nice stimulation and You know, some of the new products coming out, like CJ3 Gen 2 has been really well received. Ascend, I think, will start to also drive strong demand. And overall, the product lineup is in good shape. So I think, you know, market-wise, we're good. And we will see, you know, obviously to get to the guide of around $6 billion on the aviation side, we will see continued, you know, volume on both aircraft production as well as aftermarket growth.

Can we get to about 200 deliveries in 24? Do you think that's reasonable?

As you know, we don't put a number out there, but it will be increased from 2023. Got it.

And if I could ask one on FLORA, just, you know, good progress on the program with ITEP, but I think revenues were about $175 million in 2023, fell short of our expectations and How do we think about 2024? We have about $850 million of FLORA, according to the budget. So how's that going?

For sure. I think our revenues were higher than that on FLORA probably for the year. We won't break out all the details, but it was certainly just south of a few hundred million dollars. But we do expect, as we go into 2024, the program is ramping very nicely. As you know, the number was lighter than we originally expected just because of the delay you know, with the protest and, you know, in the early part of the year, but the ramp as, you know, as we've ramped after the contract award is going really well. So I would expect a number, you know, closer to the $900 million range in 2024 on the flower program.

Thank you.

Next, we go to a question from Peter Arment with the Baird. Please go ahead.

Yeah. Good morning, Scott, Frank, David. Um, Hey, just maybe just circle back just on how you're thinking about, you know, kind of the margin leverage in aviation. Scott, when you think about just because you called out some of the pricing that you continue to get, how are we thinking about just kind of that flowing through? I mean, just given the margin outlook at 12 to 13 percent, kind of at the low end of the range, it's flat. But at the upper end, obviously, 100 basis points. Just how are you thinking about that?

Sure. Well, Peter, I think we definitely expect to continue to see price, you know, net inflation as a positive for us. It won't be as significant as it was in 2023, but we still have good pricing, you know, in the backlog. And I think it will be a tailwind for us. So if you look at the guide and the numbers, Peter, you're right. Look, I mean, we're, as I said, I think we saw some improved performance in Q4 on the manufacturing, you know, conversion side. So, you know, we're bringing We're certainly baking some of that in as we go into 2024. But, you know, as you move towards the high side of the guidance, you know, you get up into that 20-plus percent conversion, which is where we historically like the business to be. So it's, you know, it's something we've got to work on, obviously. We still have some of those headwinds that we faced all this year on the operating side. But the combination of improved performance and continued price over inflation as a positive, while it's not as big a positive, I think will help us get towards that 20-plus range.

Got it. That's helpful. And then just, Frank, quickly, the interest expense increase, just maybe what's going on there specifically? Thanks.

Yeah, we've got slightly higher borrowing costs from the bond deal that we did last year, so that's a little bit of a rollover on the financing. It assumes slightly lower cash balances and, you know, a little bit of conservatism around the interest rate that we earn on that excess cash.

Thanks again. Thanks, Frank.

And next we go to David Strauss with Barclays. Please go ahead.

Thanks. Good morning, everyone. Good morning, David. Good morning. Scott, I wanted to ask about the V-22 grounding. Does that impact Bell at all? I know you have a pretty big aftermarket business on the V-22.

No, David, I don't think it's a material impact. The services, frankly, are using the opportunity of the grounding to continue to do their maintenance activities and get aircraft ready to fly. So we probably can't say much more about that situation than that. But no, I don't expect it to be a material impact.

Okay. And, Frank, free cash flow, the guidance for flat, you know, I know you had a pretty big inventory build in 23, but you also had positive advances. What are you assuming for working capital? And in terms of the adjust the UPS guide, what are you baking in as far as share count and share repo in 24? Thanks.

Yeah, from a cash standpoint, you know, we obviously are anticipating volume growth in the year. So that's going to put a little continued pressure on inventory levels as we look, you know, kind of to 24 and 25 volume growth. Not a lot. There is a little bit of working capital pressure with the timing and some customer issues. payment activity, particularly on the military side. Bell in particular had a very good year in 23 in terms of the timing of payment activity that puts a little bit of headwind on cash flow. And then as you heard, a little higher CapEx guidance kind of in terms of the spend there. So it's not any one item. It's kind of a little bit of headwinds on working capital associated with the things I mentioned and a little bit higher levels of investment. But we still think we're, you know, very solid cash flow performance for the year. In terms of the share count, we talked about 191 million average shares. So, you know, kind of roughly 5% or so reduction in average share count for the year.

Thank you.

Next, we go to Jason Gursky with Citi. Please go ahead.

Yeah, good morning, everybody.

Scott?

Scott, I was wondering if you could just spend a few more minutes on systems and talk about the pipeline of opportunities there and the timing of potential awards, kind of with the backdrop of what's going on with the budget in mind and whether things like continuing resolutions to go out half a year have any impact on kind of your expectations around this.

So the CR situation right now doesn't really worry me very much on the system side of things. As we indicated, Jason, we're going to be relatively flattish, you know, on the revenue in 2024. I'd say the pipeline is very strong. You know, you look at some of these down selects on FTOAS, the ARV program, what used to be the OMFV program, Nexum 30 program. You know, a lot of these things are, you know, significant opportunities for us. There are really important down selects that we achieved last year. We'll execute on those, and they're not big growth programs, so they don't really have a CR, you know, impact that I'm too concerned about, and they're virtually all programs that will have their next significant contractual award down select in 2025. So that's why you see us kind of flattish. You know, we had, I think 2023 was a hugely important year for down selects on those really important programs execute this year and you start to see the the revenue growth driven by you know ultimately you know being final selection awards emd programs that award in 2025. okay great thank you and then just quickly on ea uh e-aviation um we've got you know whitening profitability losses they're projected for 24 on higher revenue i was wondering if you just kind of give us a broad brush

update on the plans for that business and, you know, what point does, you know, the revenue potentially pick up here and we begin to see those profitability losses begin to contract and kind of your overall vision for that business over the next, I don't know, three to five years.

Sure, absolutely. Look, you know, keep in mind there's two things going on in that e-aviation segment, right? There's Pipistrel, which is, you know, our current you know, it's a real business, real sales, you know, roughly doubling the volume of aircraft sales from 22 to 23, you know, roughly doubling 23 to 24. So I think, you know, the product lineup at Pipistrel is doing quite well. We're expanding distribution channels. You know, look, it's a relatively small business, but it's doing well. What's driving the losses is these investments in R&D, particularly around the Nexus program. You know, that's something that won't generate revenue probably for for several years and, you know, investment on, say, the Nuva 300, which is our, you know, hybrid unmanned cargo, which, again, this is a few years from revenue. And so that's, you know, part of why just we broke this thing out, right, so that you guys see these investments, you know, which are, you know, frankly, not dependent or tied to the revenue within that segment. So the two big moving pieces in there in terms of the investment side are the Nuva on the unmanned cargo and the the Nexus on sort of the eVTOL side, which, again, I don't think that has to be necessarily dependent to urban air mobility, but just GA in general. Both those teams are making great shape. I think we'll see first flight of the Nuva in 2024. We've also begun the assembly and wings and fuselage build on the Nexus program in Wichita. So both programs are making very good progress, but they're both technology investment programs.

Okay, great. Thanks.

Sure. Next, we go to the line of Noah Poppenack with Goldman Sachs. Please go ahead.

Hey, good morning, everyone. Scott, we've heard some discussion in the business jet end market that even though 2023 was a decent order year, that there's actually maybe some pent-up demand because it was so consensus that there was going to be a recession or something like it. And, you know, that in 2024, if we're having an inflation decel and rate cuts and some version of a soft landing that you could have your normal underlying demand plus anybody that deferred from 23. And so I'm curious if you hear that from your customers or your sales force and there's an upside case for bookings or is that too aggressive and just stick with book to bill of one?

Well, look, no, I think, as I said at the beginning, we feel good about the end market. Customer dialogues are robust. You know, frankly, the only headwind I see we run into is just on availability, right? People would like to get aircraft, you know, sooner. So, you know, I think our sales folks are out there working hard. There's no doubt there's demand. I think that's, as I said earlier, helped by the fact that we've got some new models that are coming out that are going to be really well received in the market. So, Look, all in all, as we talked about, the book-to-bill number can change a little bit quarter to quarter, but I think we feel very good about the end market. I think we'll stick at this point with our kind of one-to-one in our base assumption, as we did in 2023. And if the market remains that robust, we can exceed that number, which would be great. So, look, I think the market remains strong. We feel good about it.

Okay. And I wondered if you could just maybe discuss a little more just how much better is supply chain labor, your ability to get airplanes out the door. You know, the delivery number was down in 23 despite all the demand, kind of to your point there on availability. Whatever the 24 delivery plan is, it's got to be up a lot to get to that revenue guidance. Do you feel like you really have that hitting the ground running in January here? And then as that pertains to the margin, why would price net of inflation not be better if that, you know, if pricing's still good, I know the rate of change matters, but if the cost inflation and disruption piece settles down significantly for you?

Well, look, I'd say I don't know how to quantify the exact number for you, Noah, but there's a couple dynamics here that make us feel good about it. Again, we saw better labor productivity You know, all of the metrics we track in terms of, you know, training hours, direct, you know, charging to interact, all those sorts of things, applied hours. We're positive in the quarter. You know, we do track, you know, number of parts that are late to PO. You know, these numbers are getting better. Plus, I think as you look at the 23 to 24, you know, we have net less hiring we need to do to hit the ramp Last year was a big year in terms of onboarding new people. As you can imagine, that's very disruptive. It's a lot of training. That takes not just the new people, but it takes a lot of our capable people to help train and develop them. We made a lot of investments in 2023 around new training facilities. But the absolute number, we still need to onboard new people for sure, but the number of them is less than what it was in 2023, and that should be helpful. The supply chain thing, as I said, it is getting better. but it's still susceptible to the wrong part not being available. I think it's going to help us do less out-of-station work, but we still have suppliers we're keeping a close eye on because a lack of delivery on their part can hold up an aircraft. We're still being cautious about how we work through that, but it is improving. Like I said, there is less hiring. I think most of our lines are flowing better as a result of all the things I just talked about. We do factor that into our ability to hit that. that larger number of aircraft deliveries in 24. And I think we'll get there.

Okay, that's good. I'm just going to ask one more. The Bell margin, you know, pretty strong in the quarter, closed 23 well ahead of the initial plan. This 24 guide, 9.5 to 10.5, you know, kind of flat year over year. You know, there was a view that this was going to 7, 8% as you ramped FLORA. You're ramping flora. That's not happening. Can you talk about how you're outperforming there and absorbing the flora ramp? Is 24 the trough, or does that still need to go down some number of hundreds of basis points before then going back up?

I think the team is doing everything they can to manage costs, control, do the right cost actions here as we see the ramp down on some of these military production programs. And we continue to do that. Those were certainly better mix than, you know, a big cost plus, you know, EMD program. So we still, you know, we'll have some pressure around the margin rate. But as we talked about that, you know, the growth benefit of seeing this program ramp up, you know, we believe we'll still generate accretive, you know, not dollars. So even if we see some pressure on the margin rate, the business will still be contributing to positively to the overall dollars and therefore EPS for the business.

Okay. All right. Thanks.

Next, we go to the line of Miles Walton with Wolf Research. Please go ahead.

Thanks. Good morning. I was hoping to circle on aviation. In the last few quarters, there's been more discussion of this performance as a negative variance to the profit walk. That wasn't Part of the conversation, it was clearly price offset by a little bit of volume. So is it fair to think that that bucket of performance that you all cite has materially become non-material?

Well, I wouldn't say non-material, but I would say, Miles, in 2023, we had pretty significant price over inflation benefits. And I think we did talk through the course of the year that that did help. to offset some of the performance issues that were driven by these labor inefficiencies and supplier impacts and stuff like that. So I think as you look at 2024, we're expecting improved margins. We're absolutely expecting significantly improved revenue and therefore operating profit in the business. But the trade you're going to see is there's probably still positive price over inflation, but not as big a number. But you're going to have less performance issue to have to cover you know, with that number because we do expect to see better efficiencies in the factories and lesser impact from the supply. So, you know, so, you know, now of all this stuff, I mean, there's a different dynamic, I believe, in 2024. That's how we're going to get there than 2023. But, you know, the bottom line is you're going to see significant, you know, revenue growth and significant operating profit, including expanding margin in 2024. Okay.

And then on the restructuring program you executed, I think about 60% maybe was directed at Bell. Of the 75 gross savings you talk about, How much net savings is Bell getting in 24, and also is Bell getting most of the lower R&D benefit?

Well, look, I mean, we're probably not going to break that all the way down, but certainly part of why the discussion I just had with Noel around why are we seeing some better margins and holding in there on the margin rates at Bell is that This is part of why we took that restructuring action to control cost and manage our way as we reduce the volume in some of these historic military production programs. And so that's part of what's helping to sustain a better margin rate, even as we see those programs ramped out. We just have to take the cost out of the business in the areas that we're largely supporting these big military production programs. So I won't put the exact number in there, but that's the dynamic that's helping to improve that margin.

And is R&D dropped there mostly in Bell?

Yeah, it is. I mean, as you know, we don't break that all the way out. But look, we still had, as you recall, the delay of the FLAR program in 2023. We had more of our own costs still sustaining and supporting that program in the earlier part of the year. Obviously, as that has ramped and become a full-blown contract, that's helping to reduce that number. The overall gross R&D, the business is still growing significantly. as FLORA ramps, but the net number in terms of the IRAD side is certainly shifted from that IRAD into the contract program. Makes sense. Thank you.

And the next question we have is from Christine Leweg with Morgan Stanley. Please go ahead.

Christine, you there?

She has disconnected. We will move on to the next line of Robert Dollard. with vertical research. Please go ahead.

Thanks so much. Good morning. Scott, I'd like to follow up on Noah's question about the supply chain and the parts that are behind at the moment. Are there any specific areas where you're seeing any problems like interiors that are holding things up?

Nothing that I would comment on on a call. We all have our problem children, Rob.

Yeah, understood. And then secondly, there's been some press reports that Textron has been looking at some M&A competitions in recent months. I don't expect you to comment on that, but I was wondering if you could maybe reiterate your priorities for capital deployment as we start 2024.

Sure. No, we definitely would not comment on that. And look, I think what we've talked about and Frank's indication on the share count at 191 million obviously indicates that our priority continues to be share buyback. And that makes, we think at this point, a pretty significant benefit for our shareholders, and that's what we expect to continue to do in 2024. Okay. That's great.

Thanks, Gil.

And our next question is from Seth Seifman with JPMorgan.

Please go ahead. Thanks very much, and good morning, everyone. Just asking about the performance at aviation and kind of the improvement in productivity and parts availability that you started to see in the fourth quarter, does that mean that in the first quarter, you know, we can expect to see kind of a nice increase in deliveries and something that would kind of, you know, affirm the, you know, the notion of being on track for the revenue guide for the year?

Well, we're not going to get into quarterly guidance for sure. I mean, you certainly should expect to see, you know, a nice progression in terms of the revenue, you know, on a quarter-to-quarter basis over 2023, consistent with, you know, the guide of $6 billion of revenue for the total year.

Okay. Okay. Great. And then maybe just following up a little bit different twist on Rob's question, I know you probably won't comment on specific M&A reports, but the reports that we have read tend to deal mainly with the space end market. I wonder if you'd comment on, you know, do you view that as an important and or attractive end market into which to expand?

I wouldn't comment.

Fair enough. All right. I'll stick to this. Thank you very much.

Thanks.

And next we go to the line of Christine Leweg with Morgan Stanley. Please go ahead.

Hey, guys. Can you hear me okay?

Yep, we can hear you fine.

Okay, great. Hey, Scott, Frank, Dave. Thanks. On your restructuring actions, can you provide more details on what you're doing and what your expectations are for the timing and the size of the payback from your investments?

Well, Christina, you know, as we kind of put out there, there's a sizable piece that's going into Bell, and that's, you know, really aligning our cost structure with the lower production rates on some of the historic military programs like H-1 and V-22. You know, that's a very, in terms of cost and the mix of people within the business, you know, the ramp obviously is net positive, but it's largely in the engineering industry. you know, program side of the flower program. So it's a necessary action to align cost with the old historic production programs. As we also indicated, you know, we're just aligning, you know, some of our plants on the auto side to understand where's demand, you know, around the world and rationalizing where we think it's appropriate to keep that business healthy with a high return and strong cash flow. So, you know, it's just, you know, there's bits in a number of other places, but And, you know, we believe on a run rate basis it's going to be about a $75 million a year, you know, positive impact to the business. And so that's, I think, a good return and why we decided to proceed with the program.

Great. Thanks for the color. And maybe on aviation, if I could do a follow-up, you know, $100 million in pricing power for new aircraft is very healthy. And so if we're seeing, if you're continuing to see bottlenecks in new aircraft production, can you talk about the demand environment for aircraft services then? And what's the pricing power in services, especially with the lack of new airplanes coming into the market?

Look, I think what we saw this year, which was strong growth, 6.5% on the services side, obviously that's a mixture between volume and pricing. I expect we'll continue to see good demand. On that side, we certainly have that baked into our forecast. Aircraft are flying. Our customers are running the aircraft. They're doing the necessary maintenance. So I think it will continue to be healthy parts. Certainly what we've incorporated in the guide for next year is good growth in the service business, both our service centers as well as the parts. And as always, that's going to be a function of both volume increases as well as annual expected pricing in the aftermarket side.

Great. Thanks, Scott.

Next we go to the line of George Shapiro with Shapiro Research. Please go ahead.

Yes, good morning. George. Scott, I was just curious. You were saying that the supply chain seems better, yet the deliveries in the fourth quarter were a lot lighter than what most of us were looking for. So if you could kind of just connect the two dots there.

Oh, look, George, as you know, it takes many months to build an aircraft. So... you know, the improvements in both the labor side and the parts side takes a while to push through the system. So the higher cost and a lot of the impacts that we kind of saw through the course of the year, you know, are, you know, were full year impacts. So, but I do feel like, you know, as we look at the numbers, you know, and what we experience on a, you know, on a day-to-day basis, we did see improvements. And I think that's, as a result, you'll start to see that improvement, you know, as you get into 2024. And then,

One other one, the book to bill in the quarter was, you know, 0.9 and the orders were like only 1.4 billion. So that was really down a lot from last year as well as from the third quarter. Now, I guess you're just looking at as timing or it have anything to do with Noah's comment that people concerned about a recession in the fourth quarter. We get a pickup this year, but you just comment on that as well.

George, I think it's largely timing. You know, we always have a little bit of lumpiness in, you know, in terms of when deposits are coming in on, you know, some of our larger customers, but there's, I don't think there's anything concerning there. We've said all along, we expect there's going to be some quarters where it's going to be, you know, below one to one, probably some quarters where it's above one to one. But again, our assumption, you know, full year going all the way back through 23 was one to one. We did better than that. Our assumption in 2024 is it's going to be one to one and you know, obviously we'll see how the market plays out, but I still think we feel, we feel good about the end market. We feel good about demand and, and, uh, I think it's, uh, it's, it's, it's healthy.

And one last one, the strong bell margin in the court. I mean, is that just really reflect the commercial delivery strength, which has much higher margins, more than offsetting the drag from the lower margin floor program and, uh, If that would continue next year, the margins would probably be somewhat higher than what you've got it to.

I think we're, we're, we're continuing to see good margins, you know, on our military business, obviously, you know, outside of the Florida side, it certainly helps to have, you know, higher commercial deliveries. Um, we, I think we'll get some benefit of higher commercial deliveries as we, as we talked about in 2024. But look, there's going to continue to be some pressure on the margin just because we're seeing significant growth in the FLORA program. The reason we did the cost actions and did the restructuring was to try to shore up the profitability of the business on the legacy production programs. And so part of the guide is obviously we continue to see some benefit of that. But again, there will be overall margin rate pressure going into the future. But I think, as we talked about, the Even with that and the growth of the FAR program, we're going to see significant revenue growth, and we're going to see absolute up-profit increases and accretion EPS for the business. So I think as we work through a transition from legacy production to a new EMD program, I think we can manage our way through that well. And obviously, long-term, it's going to be a great story for Pell.

Okay, thanks very much.

Next, we move to Pete Skibitsky with Olympic Global. Please go ahead.

Yeah, hi. Good morning, guys. Scott, can you expand on your opening comments regarding cow tax and your expectations there in 2024? It sounds like you think you might be a little bit weak there. Just was wondering what the drivers were.

Sure, Pete. Look, you know, that's one business where we really, you know, depend on sort of industry customer forecasts, you know, so... Our guide reflects that. We don't really apply a whole lot of our own judgment to that. We really go with where the industry tells us they're going, and we've got to see how the year plays out. I think we feel good about the business. Some of the restructuring we did was reflective of where the volume growth is and where the volume growth isn't, but the business is in a healthy place, and the margins have been doing better as we've come out of all the sort of the post COVID world and the volumes will be, you know, obviously consistent with global auto OEM numbers.

Okay. And then I had a couple of questions on aviation. Are you expecting caravan sales deliveries to be up in 24? I know you deliver a lot of them to Asia and we're seeing some, some softness in China. So just wondering what you're seeing there.

Well, look, Pete, I mean, we're not going to get into model by model, but I would say, you know, net of everything, the turboprop market is doing really, really well. As you know, that does tend to be a little bit more international. I think we usually give the numbers, you know, roughly 60%, you know, international versus the jet side is 80. But I think our turboprop business is in a really good place. I think caravans will do well. I think King Airs are going to be strong. We continue the ramp on the Sky Carrier. So... You know, we tend to get mostly questions around jet, but look, I think the turboprop business is in a very good place, and we certainly, you know, net expect to see that business continue to grow in 2024.

Okay, great. Thank you.

Next, we go to a question from Kai Von Rumer with TD Cohen. Please go ahead.

Yes, thanks so much. Scott, at Bell, are you looking for, you know, is part of the profit strength this year, 24, coming from closeouts on the V22 and the H1? And secondly, is there any risk to FLORA volume from an extended CR?

So Kai, you know, look, I think the 2024 you know, we obviously will see some contracts come to an end and there will be some MR release when you do that. But look, I think we can, you know, execute well on that performance. I mean, I think Q4 is a good example, Kai. We had about $8 million total in the company of EACs. That's not a particular material number and it's flat on a year-over-year basis. So do I think we'll have some, you know, some reserve release next year? Sure we will. I mean, we normally do as we perform through these But I think the cost out activity that we've been driving, you know, the absorption and growth on both the commercial revenue side as well as the FLORA, you know, revenue side will all, you know, help to contribute to preserving and getting a good margin rate for 2024. In terms of the CR, okay, I think we're okay. You know, I mean, as we talked about before, if the CR goes all the way through a full year, You know, that could put some pressure for sure. I think the Army probably has, you know, backup plans. They're trying to work in terms of how they would move money around. Obviously, FLAR is a, you know, is a very high priority, very important program, you know, to them as well. So the whole thing would be a heck of a lot easier if Congress would just pass a budget for sure. But right now, I think we're okay. And unless it really goes to a full year, I think we'll, you know, collectively return ourselves and the Army will be able to manage through it.

Got it. And last one, at aviation, can you give us some color in terms of where the order strength is in terms of fractionals versus high net worth versus corporate?

It's pretty stable, Kai. We aren't really seeing a change, you know, from where we were. We don't break all that out, obviously, but the demand has been, you know, pretty strong. In terms of mix, you know, the jet stuff tends to be more, you know, domestic stuff. roughly 80-20. The turboprop is more like 60-40 international. We haven't seen big changes in that. We haven't seen big changes in the mix between what goes through the fractional world and what goes through the whole aircraft side. End demand continues to be, we think, pretty strong across the board.

Thank you very much.

Next, we go to a question from Doug Harned with Bernstein. Please go ahead.

Good morning. Thank you. Scott, in the past you commented on the supply chain that you'd actually seen more challenges at Bell than you had in aviation. And given the strong margins at Bell, I mean, can you comment on where that stands today?

Well, look, this is the challenge of the world we're living in, right? I mean, we had some pretty significant impacts at Bell in the earlier part of the year around a very small number of suppliers, a couple of those suppliers, you know, either got healthier or in some cases we brought stuff inside and exited those suppliers. So, you know, when you do that, you know, we had a situation about with a couple of the aircraft models where we had very specific supply issues that were ever resolved. And as a result, Q4, you know, had a pretty strong delivery number on a year-over-year basis. So, you know, again, this is the challenge. So while the absolute number of parts might be, you know, getting less, you can still have a part problem that has a significant impact. So that's just the nature of, of, of the beast and what our guys work through every day. So I think we did resolve a couple of critical issues in the latter part of the year at Bell that enabled those higher deliveries. And obviously we got to keep working.

Well, and then if I, if I go back to the aviation side and the in-market, you know, one of the things we've seen is more pre-owned airplanes out there for sale, higher percentage. We're still not back at kind of historical norms, but, You were commenting that you're seeing a little bit less pricing benefit relative to inflation. Are you seeing any potential pressure here from pre-owned as you look at your market?

No, we're not. Look, first of all, as you noted, it's up versus where it was, which was at ridiculously low levels. It's still at historically lower levels than normal levels. And, you know, we keep a very close eye on this. They're mostly much older aircraft, right? So the phenomenon that people kind of refer back to says, geez, you know, do you have aircraft competing with new aircraft sales? Obviously, there was a time, going back a number of years ago now, where you had relatively new aircraft that were, you know, coming onto the market. And we're just, we're not seeing that dynamic. You know, when we look at what's out there, what's available for sale in the used market, the number is increasing, but they are considerably older and in large part out of production aircraft. So no, we're not really seeing an impact of used aircraft out there that are competing with new aircraft sales.

Okay, very good. Thank you.

And next we go to Gavin Parsons with UBS. Please go ahead.

Thank you. Good morning. Good morning. I just wanted to circle back to industrial margins and just get a better sense for what's driving that, given I think Cotex had been the segment underperforming. And then just thoughts on, it seems like in TSV, some of your recreational vehicle competitors are having headwinds. So what's driving the margins and growth there?

Well, look, I mean, every... Sorry. Look, we've We look at those end markets, be it in the auto side or in the vehicle side, and our view is, as I said, I think overall the industrial will be pretty flat but with improved margins, and that's largely, again, based on just industry forecasts. We think Caltech's volumes will be down somewhat, although we think margins will continue to improve in that business. On the vehicle side, I think we'll see modest growth, and that is because we do factor in You know, some of these, you know, higher dollar, you know, discretionary items, we don't expect to see growth in that area. But net of all of that, the business probably still sees some modest growth and, again, continued performance on the margin line. So, you know, those things that you guys might aggregate and look at in terms of other, you know, guys in that market are completely consistent with what we're seeing. But, again, that is absolutely factored into our guide.

Maybe just circling back to the NetJets, 1,500 over 15 years, I think typically they firm up about a year out. But on average, that would be 100 deliveries a year. Is that something you'd need more visibility from them on over that decade of orders?

Well, we don't, and you're right. So the way we treat the backlog is when those firm up, and that is roughly 12 months, where they actually put deposits down. That's the point at which we move those aircraft into actual backlog. In terms of, you know, looking out beyond that, we do absolutely work closely with them on forecasting what that demand is going to look like, even outside of that one year, you know, firm up period. So, you know, we certainly have very, very good dialogue and working with them to, you know, collectively anticipate what that demand is going to be on the on the fractional side. But then we don't firm up and put into that actual backlog number until roughly, as you said, that one-year window.

That makes sense. Thank you. Sure.

And ladies and gentlemen, as a reminder, this conference is available for digitized replay and will be available after 10 a.m. Eastern time today through January 24, 2025. You may access the replay by dialing 866- 207-1041 and enter the access code of 406-5507 and that does conclude your conference for today. Thank you for your participation. You may now disconnect.