Textron Inc.

Good morning, everyone. Welcome to the Textron Q4 2024 earnings release call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. Also, today's call is being recorded, and if you should need any operator assistance during the call today, please press star 0 at any time. Now, at this time, I'll turn things over to Mr. Dave Rosenberg, Vice President, Investor Relations. Please go ahead, sir.

Thanks, Beau, 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, Textrun'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 3.6 billion, down from 3.9 billion in last year's fourth quarter. Segment profit in the quarter was 283 million, down 101 million from the fourth quarter of 2023. During this year's fourth quarter, adjusted income from continuing operations was $1.34 per share, compared to $1.60 per share in last year's fourth quarter. Manufacturing cash flow before pension contributions totaled 306 million in the quarter, down 74 million from last year's fourth quarter. For the full year, revenues were $13.7 billion, up $19 million from last year. In 2024, segment profit was $1.2 billion, down $127 million from 2023. Adjusted income from continuing operations was $5.48 per share as compared to $5.59 per share in 2023. Manufacturing cash flow before pension contributions was $692 million, down $239 million from 2023. With that, I'll turn the call over to Scott.

Thanks, David. Good morning, everyone. 2024 results were impacted by work stoppage at aviation and difficult end markets in our industrial segment. During the quarter, aviation reached an agreement with the IM on a new five-year contract. While the strike was unfortunate, we did take this opportunity to significantly improve our parts flow to the production line, which we expect will reduce our out-of-station work and improve efficiency going forward. Aviation saw steady customer demand continue in the quarter, supported by new product launches, and our portfolio resulted in a year-end backlog of $7.8 billion, an increase of $676 million from 2023. In December, aviation secured an order from Naval Air Systems Command for an additional 26 multi-engine training system Beechcraft King Air 260s. Also in the quarter, aviation continued to expand the global market for its versatile twin-engine large utility turboprop, the Cessna Skycarrier, achieving type certification by the Transport Canada Civil Aviation. During 2024, steady aircraft utilization within the Textron Aviation product portfolio resulted in a 6.3% growth in aftermarket revenues. At Bell, in 2024, we saw significant growth with the continued expansion of the FLORA program largely driving a 13.7% increase in revenues for the year. During the quarter, Bell received a follow-on award for the FLORA program as the U.S. Army exercised option two, an option for two limited-user test aircraft. On the commercial side, Bell continued to see steady order activity in 2024. For the year, Bell delivered 172 commercial helicopters compared to 171 in 2023. Moving to systems, the team delivered another strong quarter with a 13.5% segment profit margin. During the quarter, systems completed options three and four of the future tactical uncrewed aircraft system program with the delivery of a production representative system to the US Army in December. Also during the quarter, systems received an award from the Naval Sea Systems Command for the next production lot of nine ship-to-shore connector crafts with a total contract value of $960 million. Systems was also awarded a contract value of up to $106 million for mine-sweeping payload delivery systems from the U.S. Navy to support its mine-sweeping operations. At industrial, the segment experienced lower revenues and operating profit in the quarter, primarily driven by the ongoing softness in specialized vehicles and markets. We are in the process of conducting a strategic review of our PowerSports product line. At eAviation, Pipistol delivered 42 aircraft during the fourth quarter and 120 aircraft for the full year, while continuing our investment in electric and hybrid aviation platforms. Despite the challenges facing 2020 Ford Aviation and Industrial, the company exit of the year well positioned for future growth in the aerospace and defense businesses, with strong order activity generating total company backlog of $17.9 billion, up $4 billion in 2023. On the new product front at MBAA in October, aviation announced a significant advancement in aviation technology with the Gen 3 platform upgrades to the M2, CJ3, and CJ4 aircraft, adding Garmin emergency auto land along with other avionics and aircraft enhancements. During the year, we continued to make progress on the Citation Ascend and Beechcraft Denali development programs. Ascend has logged over 700 hours of flight testing, while Denali finished the year having logged over 2,500 hours of flight testing. At Bell, the U.S. Army announced approval of Milestone B in August for the FLORA program. Bell is now executing on the engineering and manufacturing development phase of the program and progressing towards the first prototype aircraft build. Bell's H-1 and V-22 military program highlights include an FMS award for the production and delivery of 12 AH-1 Zulu helicopters to Nigeria and over $1 billion in sustainment awards on the H-1 and V-22 programs. On the commercial side, Bell saw steady demand throughout the year, including its first 525 helicopter order for 10 units to Equinor, the Norwegian state energy company. In 2024, Tektron Systems made significant progress on several key pursuits. On the U.S. Army's robotic command vehicle development program, Systems announced the delivery of two Ripsaw M3 prototype vehicles to the Army for Phase 1 of the competitive development effort ahead of a down select expected in the first half of 2025. As part of the XM30 program, Team Link's advanced to the detailed design phase is expected to conclude with a critical design review in the first half of 2025. On the advanced reconnaissance vehicle program, systems continued its development work as one of two vendors selected to design, develop, and manufacture a 30-millimeter autocannon prototype variant for expected delivery in 2025. Moving to FDUAS, systems fulfilled its contractual delivery commitments as weighting a waiting decision on a final downside for a production award on the competitive program by the U.S. Army in the second half of 2025. Systems also secured the next production contract award for the ship-to-shore connector and expanded maritime-aerosine operations with the U.S. Navy. Moving to industrial, throughout the year, we continue to focus on our cost structure to offset challenging end markets. At E-Aviation, Pipistreau was granted an airworthiness exemption by the FAA for its fellow selector trainer. which allows US flight schools to use the aircraft in certified pilot training programs. During the year, Aviation acquired Amazilia Aerospace, developer of digital flight controls, flight guidance, and vehicle management systems for both manned and unmanned aircraft. Looking to 2025 at Aviation, we're projecting growth driven by increased deliveries across all product lines and higher aftermarket volume with improved productivity and manufacturing efficiency. Moving to Bell, we expect revenue growth driven by the FLORA program and higher commercial volume. At systems, we expect low single-digit revenue growth with strong margins as we continue to pursue new program opportunities. In our industrial segment, we are projecting lower revenues largely driven by the suspension of power sports production at TSV and lower automotive volume at Caltechs and expect cost reductions to drive improvement in segment profit margin for 2025. At aviation, we plan to continue our investment in the development of new hybrid and electric technologies for manned and unmanned aviation platforms. With this overall backdrop, we're projecting revenues of about $14.7 billion, up 7% from 2024 for Textron's 2025 fiscal year. We're projecting adjusted EPS in the range of $6 or $6.20. Manufacturing cash flow before pension contributions is expected to be in the range of $800 to $900 million. With that, I'll turn the call over to Frank.

Thank you, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of 1.3 billion were down 242 million from the fourth quarter of 2023, reflecting lower volume and mix of 282 million, which was principally a result of production disruptions related to the strike. Segment profit was 100 million in the fourth quarter, down 93 million from a year ago, primarily due to lower volume and mix and manufacturing inefficiencies, which included idle facility costs, and higher costs associated with the labor disruption resulting from the strike. Backlog in the segment ended the quarter at $7.8 billion, up $219 million from the prior quarter. Moving to Bell, revenues were $1.1 billion, up $58 million from last year's fourth quarter, reflecting higher military and support program revenues of $67 million, primarily due to higher volume on the FLORA program, partially offset by lower volume on the V-22 program. Segment profit of $110 million was down $8 million from a year ago, primarily driven by MIPS, as lower volume on the V22 program offset higher volume on the FLORA program. Backlog in this segment ended the quarter at $7.5 billion. At Textron Systems, revenues were $311 million, down $3 million from last year's fourth quarter. Segment profit of $42 million was up $7 million from last year's fourth quarter. Backlog in this segment ended the quarter at $2.6 billion. Industrial revenues were $869 million, down $92 million from last year's fourth quarter, largely reflecting lower volume. Segment profit of $48 million was down $9 million from the fourth quarter of 2023, reflecting lower volume and mix and inflation, partially offset by manufacturing efficiencies and lower selling and administrative expense, largely due to cost reduction activities. Textron e-aviation segment revenues were $11 million in the fourth quarter of 2024, with a segment loss of $22 million, largely associated with research and development expense on new products. Finance segment revenues were $11 million, and the profit was $5 million in the fourth quarter of 2024. Moving below segment profit, corporate expenses were $17 million. Net interest expense for the manufacturing group was $21 million. LIFO inventory provision was $80 million, and tangible asset amortization was $8 million, and the non-service components of pension and post-retirement income were $65 million. In December, we announced a strategic review of our PowerSports product line within the industrial segment that resulted in additional restructuring actions. With these actions, we recorded total pre-tax special charges of $53 million and an inventory valuation charge of $38 million in the fourth quarter. Our manufacturing cash flow before pension contributions was $306 million in the quarter. For the year, manufacturing cash flow before pension contributions totaled $692 million, down $239 million from the prior year. In the quarter, we repurchased approximately 2.8 million shares, returning $232 million in cash to shareholders. For the full year, we repurchased approximately 12.9 million shares, returning $1.1 billion in cash to shareholders. With that, I'll turn the call over to David.

Thank you, Frank. Turning now to our 2025 outlook on slide seven. We're expecting adjusted earnings per share to be in a range of $6 to $6.20. We're also expecting manufacturing cash flow before pension contributions to be about $800 to $900 million. Moving to segment outlook on slide eight and beginning with Textron Aviation, we're expecting revenues of about $6.1 billion. Segment margin is expected to be in a range of 12% to 13%. Looking to Bell, we expect revenues of about $4 billion. We're forecasting a margin in a range of 8.5% to 9.5%. At Systems, we're estimating revenues of about $1.3 billion, with a margin in a range of 12% to 13%. At Industrial, we are expecting segment revenues of about $3.2 billion and margins to be in a range of about 4.5% to 5.5%. At EA Aviation, we expect revenues of $45 million and a segment loss of $70 million, reflecting our continued investment in sustainable aviation solutions. At Finance, we are forecasting segment profit of about $25 million. Looking at slide 9, we're projecting about $160 million of corporate expense. We're also projecting about $130 million of net interest expense for the manufacturing group, $165 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 18%. Turning to slide 10, R&D is expected to be about 500 million up from 491 million last year. We're estimating CapEx will be about 425 million up from 364 million in 2024. Our outlook assumes an average share count of about 184 million shares in 2025. That concludes our prepared remarks, so operator, we can open the line for questions.

Certainly. Ladies and gentlemen, at this time, if you would like to ask a question, simply press star 1 on your telephone keypad. You may remove yourself from the queue by pressing star 2. Once again, that's star 1 for questions, and we'll go first this morning to Sheila Kayalu of Jefferies.

Good morning, Scott, Frank, and David. Maybe, Scott, if you could start off with the aviation guidance. Can we talk about the 2025 deliveries. I think it's implied around 190 deliveries versus 151 in 2024. Can you talk about the quarterly cadence of jet deliveries as well as maybe turboprops just given the Q4 delivery number?

Well, I do think that the numbers obviously will ramp up through the course of the year. Sheila, you know, we're recovering. I'd say the factors are getting back to You know, towards full operation coming out of the strike, you know, we will continue as we, you know, have been for some time, you know, expanding our production capacity as we go through the year. And that's largely driven by parts, which I think we're in fairly good shape and ramping up the workforce. And again, I would say early signs, you know, you know, coming out of the contract agreement, we're seeing a little more stability in the workforce, which is good. And that should enable us to see that ramp on the over the course of the year. As we talked about in the last call, we're probably going to see also significant progression in terms of margins as we go through the year. We will have a lot of deliveries here in the first quarter that would have been 2024 deliveries. So obviously they're priced at 2024 levels. So I would expect to see both volume and margin progress through the course of the year.

Maybe if I could just follow up on the margin ramp. Can you talk about that bridge as we think about the 7.8% exit rate for Q4 for aviation? how we think about that progressing and the contributors to that.

Well, for sure, the 7.8 is an anomaly, right? I mean, we had obviously unusually low volumes with the strike affecting, you know, a third or more of the quarter. And certainly we took, you know, an inefficient, you know, current period expense with all of our overhead that wasn't burdened, you know, we couldn't burden on volume. So the 7.8 is certainly an anomaly. I would expect you know, as you think about us, you know, going through the year, it will, you know, see progression. If you look at the guide, obviously we're probably, you know, one to 200 basis points probably below the guide and probably finishing up more like 100 to 200 basis above the guide as you progress through the year to get to that average.

Great. Thank you.

Sure. Thank you. We go next now to Peter Arment of Baird. Yes. Good morning, Scott, David, and Frank.

Frank, good luck with your retirement. Thanks for all your help over the years. Could you talk a little bit about the Scott just, or David, maybe you want to weigh in on just the, your outlook for, you know, cashflow for the year, just, just given the earnings you're projecting, which is obviously a pretty nice snapback, just some of the moving parts, it seems, you know, maybe it was a little lower than we were estimating, but maybe we didn't have all the, all the inputs, but thanks.

Well, you know, again, it'll progress through the year. The cash, you know, was obviously in Q4 lighter than we normally have. You know, that's largely reflective of a lot of inventory that was in aviation for jets that didn't deliver, you know, in Q4. So we'll see our normal, you know, relatively light cash in Q1, and that will grow over the course of the year. But I think we're pretty confident we'll be in that $900 million range. But, you know, as is normal, it will be more back-end loaded.

Okay, I appreciate that. And then maybe just, Scott, in general, I know Sheila talked about aviation. Maybe you just talk about, I mean, you obviously have very strong bookings in refreshed product lines, obviously drawing a lot of new interest. Maybe just if you want to highlight just what you're seeing on the demand environment, whether it's broad-based or any particular markets that are stronger than others. Thanks.

Thanks, Peter. Look, it's been pretty much across the product line. I think we feel like we're in pretty good shape. The demand and order activity across every model has been has been good. We saw some very strong demand, obviously, in that light jet with the Gen 3 announcements. So that was very, very well received by customers. So we, in particular, had a very strong quarter in sort of that CJ3, CJ4 product line. But again, it's been pretty strong in most of the portfolio. And I think we, again, just given where customers are and the level of activity and the level of dialogue, I think we'll continue to sustain, you know, demand through the course of the year. You know, again, we're probably looking at a one-to-one book to build just because we think that's about where things ought to land, you know, given the lead times of where most availabilities are for our different products. So one-to-one is what we're, you know, baking into our basic plan. Appreciate it, Colin. Thanks, Scott.

Thank you. We'll go next now to Robert Stollard of Vertical Research.

Thanks so much. Good morning.

Morning, Robert.

And Frank, best of luck for your retirement. It's been quite a ride. Let's start off with Bell. I was wondering if you could talk about what the risks and opportunities could be within that 2025 guidance, both for revenues and margins.

You know, Robert, I don't think there's a whole lot. I mean, you know, this is all, you know, mostly backlogged business. Obviously, the FLOR program is You know, the ramp that we have baked into there is supported by what's in the, you know, sort of the pending 25 appropriations budgets and all the guidance we're receiving from the customer. So I don't think, you know, there's risk around that. Most of the commercial business is well booked. You know, certainly sustainment around V22 and H1 is very predictable business and, again, largely booked. So I think as we work our way through the course of the year, we're in, you know, I don't think there's a lot of risk to the downside of, where we are on the bell numbers.

Okay. And there's a follow-up. I was wondering if you've seen any sign of demand changing at aviation or industrial since we've had the U.S. election.

No, no, we really didn't, Robert. It's actually kind of interesting. I mean, normally we see more of a slowdown a little bit before the election just because people don't like a lot of uncertainty. I think probably largely in part, you know, as a result of the you know, the size of the backlog and the stuff that, you know, aircraft that are available well out, you know, past that period, obviously, that we didn't see quite the drop and pop that we often see around a presidential election. So I would say it was, you know, relatively steady, and we really haven't seen, you know, any change that I'm aware of in the demand environment in terms of the industrial side.

Okay, that's great. Thank you.

Thank you. We go next now to Noah Poppenack at Goldman Sachs. Hey, good morning, everyone.

Hey, just back to the cash flow guidance, I guess. It would be lower than 2023 and the conversion from net income or the free cash margin, I think a little light of where you've talked about being over time. And I would have expected you'd be recovering some inventory from 24. That would help. So Is there a net negative working capital assumption still in 25, or what else are we all missing in that bridge?

On the working capital side, there's a little bit of headwind associated with the timing of some military payments from an inventory standpoint. Obviously, we'll be ramping production through the year, as we talked about, so Even though we had some higher inventory levels going into the end of 24 than we would have originally anticipated, we do need to have some higher inventory levels at the end of 25 for anticipated ramps. So you won't see a lot of inventory benefit. There is some military payment timing, as I said, and then we are expecting higher capital expenditures relative to what you saw back in the 23 timeframe associated with just the growth of the business and, in particular, kind of flora prep activities at Bell.

Justin Capposian, Okay, that makes sense, and then I just was hoping to get a little more detail on the bell margin, you know that's been quite resilient as you've ramped the early stages of flora rapidly which. Justin Capposian, We had all anticipated would would dilute that margin. Justin Capposian, But so far it hasn't so. Justin Capposian, Maybe just walk us through the pieces that would bring the bell margin down that much in 2025.

Well, I think if you look at the bell through 2024, we were helped by a little bit of improvement on some of the H1 side. Obviously, with the Nigerian deal, that allowed us to maintain some more of that H1 volume, which is better volume for us. But you still, at a macro level, do have E22 coming down. H1 will start to come down. We did have strong aftermarket in 2024. I think we'll still have strong aftermarket in 2025, but it's going to be flatter from where it was in 2024. So you really see a ton of the growth coming from the FLORA ramp and commercial OEM deliveries. And as you know, commercial OEM deliveries tend to be dilutive to our margins. They generate a lot of aftermarket, so long-term, very good for the business. But the two real growth drivers in 2025 are that ramp on FLORA and increased commercial deliveries, both of which are obviously dilutive. So as we've said, we've always expected that this margin will come down somewhat based on that mix, but we're trying to target not having that be a dilution or problem at the EPS level. So I think we're still more or less in that range of holding the operating profit dollars. It's a little pressured year over year just because we sort of outperformed on 2024, and that kind of raises the bar on that 2025 target, but I still think we're going to be in that range of being able to at least hold not dollars even as we grow the revenue on lower margin business.

Okay, great. I'll add my congrats to Frank and Dave on the retirement and the new appointments, and thanks so much for working with us over the years, Frank, and thanks for taking my questions.

Thanks, Noah.

Thanks, Noah. Thank you. We go next now to Seth Seifman at JPMorgan.

Hey, thanks very much and good morning and congratulations, Frank. Just to maybe come at Bell from the other side, it was strong performance through most of the year and certainly at the high end relative to the initial guide. But I think the guide went up in Q3 to about 10 and a half to 11, I think, and came in slightly lower. Was there something that changed in Q4 at Bell that led to that shortfall?

Well, I mean, we did have some program adjustments in Q4 that weren't favorable at Bell that largely had to do around FLARA. I mean, we did exercise the limited user test. That is a fixed price option that was exercised. And as we would expect, the fixed price options are not at not a great margin, so that did create some dilution, which when you do the program accounting, did put a little bit of a drag in Q4 for us.

Okay. Thanks. And maybe to follow up just at aviation, the orders have been quite steady through the year. When we think about the composition of those orders in terms of net jets versus retail, is that Is that a pretty steady composition? Is it a pretty, both in terms of, you know, how it's been trending versus itself and then how it's been trending versus the level of deliveries that we're seeing?

Well, in general, it holds about flat, right? Because as you guys know, we put these into the backlog, you know, based on sort of a 12-year, you know, forward. You know, NetJets puts orders in, generally speaking, every month. It's usually fairly linear, but not always, right? And so, you know, there can be from quarter to quarter some variation based on how many deliveries we have to make in that quarter versus how many, you know, new exercises they happen to put. So it's not a perfectly linear, you know, process, but it generates a little bit of variability from quarter to quarter. But over the course of the year, it's been pretty stable.

Okay. Great. Great. Thanks very much.

Thank you. We go next now to Miles Walton with Wolf Research.

Thanks. Good morning. On R&D, I know you started off the year with a 550 number for R&D. It came in at 490. I'm curious to the underrun there. And this would be a few years in a row of declines on the R&D front. I imagine much of it from Bell. It looks like you're looking for a stable outlook for 25 at 500. Is that a good number going forward? And also, what was the cause of the underrun in 24?

I think it's a good number going forward. I think the Bell dynamic with the end of the FAR program is certainly what drove a significant change in the R&D on a year-over-year basis as that program was wrapped up. And so I think on a go-forward basis, we'll see more normalized R&D spending at Bell as well as across the rest of the businesses. So for sure, part of what drove the lower R&D in the year and drove some of the higher margin, frankly, at Bell was that we did see a step down, you know, associated with the funding that we were having to put in, you know, net to the FAR program.

Okay. And then relative to systems, I know the decisions on FTAS and maybe RCV are kind of sort of dictate how the year goes, maybe how 26 goes. How sensitive to this year are the outcomes on those programs for your outlook for systems top line of... at $1.3 billion?

I don't think there's a huge sensitivity to it. Obviously, the RCV program, we expect to be in the first half of 2025. FTOES is probably more of the second half, latter in the year. And of course, those programs have to ramp up. So in the early phases, they're not huge numbers. And particularly in the case of FTOES, because it's late in the year, there's not a huge sensitivity to them. They're certainly much more important to us from a standpoint of you know, what growth looks like as we go into 26 and beyond. So I guess I think of them as important, you know, milestones for us in the course of 2025, but not having a huge impact on revenue and margin in the year.

All right. Thank you.

We'll go next now to David Strauss at Barclays.

Thanks. Good morning, everyone. Good morning. Scott, aviation revenues in the fourth quarter, they came in a little bit light, I assume. It looks like maybe you missed relative to what you were thinking, 10 to 15 jet deliveries. What happened there? Was that supply chain, or was that more on kind of your own in terms of getting the factory restarted post the strike?

Well, certainly versus our original guidance for the year, yeah, it was probably more in that mid-teens aircraft, and that was largely driven by the fact that We really didn't get the factory running again until the beginning of November. We really lost a third of the quarter with having the workforce out. As I said earlier, I think the good news is the folks are back. It's good to have the contract agreement in place for five years. I think the workforce is pleased with the outcome. We're fine with the outcome. Everybody's ramping up. But, you know, we're really we did for sure lose a third of the quarter with not having a production operation in place.

Yeah. Yeah. I was just looking at you took down the revenue forecast to five and a half and you were a little short of that. I guess I guess just following up there, how do you feel about the aviation supply chain in terms of the ramp you're looking at in terms of deliveries for for 2025?

I think we feel good about it. I mean, that's where we're guiding where we are. I would say that the third-party parts, supply chain pieces coming into the factory are certainly in a much better position than they were throughout the course of 2024. So that feels very good. The other critical part is obviously stability of our workforce and retention. And again, you know, since the, you know, the contract has been signed, we were very happy with, you know, the number of people that came back, even folks that had been with us for a very short period of time before the strike, you know, hung in there and came back once the agreement was put in place. And, you know, the attrition numbers we're seeing are certainly improved from where they had been through the course of the rest of 2024. So I think the momentum is in the right direction. Now we got, you know, a lot of work in front of us here to you know, to get deliveries that were supposed to be in, in 24 done and ramp it up. But I say, you know, the early look in terms of, you know, aircraft coming out of the production lines, the tack times, which clearly have to improve over the course of the year are, are operating as we would expect. And so I think we're at this point feeling pretty good that we're going to be able to make that ramp and deliver on the guide at the 6.1 billion.

Okay. And, um, Timing for a SEND certification, what are you looking at and is the aviation guide sensitive at all to that timing?

Well, I mean, obviously we're expecting it to be, you know, in the course of the year. You know, we've got to work this through the FAA. If there's not an issue or a problem, it's going well. But, you know, clearly the actual certification is an FAA action. I think we feel great about the flight testing. The program is going very well. We do have a few aircraft in the year, so yes, it's part of our guide, but certainly not material. But we would certainly expect to get the first few aircraft delivered late this year.

Great. Thanks very much.

Thank you. We go next now to Ron Epstein of Bank of America.

Yay. Good morning, guys. Morning, Ron. Is there anything, Scott, you've seen with maybe the change in administration that could be an added little tailwind for private aviation? So as an example, have you heard any discussion around some form of accelerated depreciation coming back or something like that that historically has been a nice catalyst for private aviation?

I don't know specifically that, you know, the accelerated depreciation, you know, impact. But I would have to say, Ron, I think in general, you know, most of our customers are, you know, small to mid-sized businesses, entrepreneurial, you know, high net wealth. I mean, it's, you know, a broad, you know, range of customers, obviously. But, you know, I think that in general, tax policy, regulatory policy is encouraging to them, and therefore they feel good about their businesses. Their businesses are likely to be And that certainly is nothing but helpful in terms of, you know, how they get their head around, you know, CapEx expenditures like new aircraft. So I would say I wouldn't point out one particular item, you know, and it's obviously it's quite early here and we don't know how all the tax stuff is going to work its way out. But I think in general, just the nature of our kinds of customers that they think the outlook for business is good and that's good for the prospects of private aviation.

Yeah, that makes a ton of sense. And if I can, a follow-up, a change in directions just a little bit. A while ago, right, you guys did Scorpion, and I always thought that was kind of cool. And the DoD at the time didn't seem to have a big appetite for that. It does seem, however, there does maybe potentially seem to be a change in more, maybe a push towards more commercial terms contracting, contractors taking more risk. Do you see any opportunities for you guys with maybe like a Scorpion 2.0, you know, parenthetically, something like that with maybe the changing environment with potentially more commercial type contracting?

Well, I don't know about a specific around a Scorpion, Ron. I would say that in this administration four years ago, eight years ago to four years ago, however you want to think about it, You know, there was certainly a mindset that we have to find ways to go faster, right? And so our acquisition system, you know, this was part of the OTAs and the MTAs and, you know, the Army's creation of things like Futures Command that, frankly, helped to accelerate and drive a lot of the things that we're working on today. So, again, it's very early, obviously. Everybody talks about acquisition reform. I wouldn't say I expect huge things in terms of real change to policy, but expectations that what's good for the warfighter, good for the taxpayer, is to figure out how to accelerate programs. And so, again, it's early. We don't have any data yet, but I'm certainly hopeful that the incoming administration and within the building is interested in figuring out how to accelerate things. Commerciality is certainly a part of that. But just frankly, how do you make the process run faster and get things out to the warfighter quicker? And I think we would clearly be a beneficiary of that. We have a bunch of great programs that I think the warfighter side of the military would love to see them get out into the hands in the actual combatant commands, and hopefully we'll see some of that happen.

Yeah, thanks. Thanks a lot, Scott. Thank you.

Thank you. We go next now to Gavin Parsons of UBS.

Thanks. Morning. Morning. Just maybe two questions on the aviation margin. You mentioned still having some impact of the disrupted 24 deliveries slipping into 25. Just was hoping you could give us some sense of how much of that excess cost you're absorbing in that 12% to 13% margin guide.

Well, we're not. It was a big driver, Gavin, of the Q4 number because we did take and period expense, you know, a lot of overhead, which otherwise would have been, you know, into our sort of base cost spread across aircraft deliveries. And given that we were light, we did take a pretty significant hit on period expense. But as we think about, you know, the go-forward number, we expect and have built a plan, you know, around margin rates and normal volumes of aircraft delivery. So I wouldn't expect to see, you know, any significant period expense thing associated back, you know, with the lower volumes of 2024.

And then anything that you can give us on what you're expecting on net price and performance for 2025?

No, look, I mean, as I said, we certainly expect performance, you know, and factory efficiencies to be up significantly versus 2024. And that's a driver of a lot of where we're, you know, where we think we'll end up with the margin that we have guided, you know, in terms of price, the price is still is still good in the industry, but there's also inflation out there. So as we've talked about before, I don't expect a huge spread on the net of that. I think most of our performance improvement, most of our margin improvement, getting back to where we should be here in 2025 is a result of much better factory performance.

Thank you. Sure.

And we'll take our final question this morning from Pete Skibitsky of Olympic Global.

Hey, good morning, guys. Congrats, Frank. Hey, guys, this longer fiscal 25 continuing resolution, is that impacting your military programs at all?

You know, Pete, I have not seen it have a big impact. I mean, look, we hate the uncertainty of it and I think certainly our customer hates it because they're constantly in, you know, I mean, they're trying to now do 2026 budgets when they haven't been allowed to finalize 2025. But I think, you know, the expectations, the customer appears to be executing to what they expect their 2025 budget to be and has sort of been appropriated and sitting on the shelf waiting for, you know, the final action. So it's very disruptive, I think. It's a It's a horrible process, obviously, and it takes a lot of time and energy, you know, away from the customer could be focused on other things. But, you know, the good news is most of our programs are already funded programs. They're not new starts. You know, there are some things, you know, as you get further into the year that will become new starts, but we certainly expect that the CR will be resolved. You'll have an actual budget before that becomes a problem.

Got it. Okay, thank you. Just one last one for me. Across the whole company, in terms of the new administration, Is there anything on your radar in terms of new regulations or policies or the tariff issue that could be either positive or negative for the business that's on your radar? I think maybe one thing in terms of if we get tariffs towards Canada, does that impact Bell Commercial at all? Is there anything on your radar that you can share with us? Thanks.

Yeah, sure. Look, Pete, I think on the positive side, again, we talked about just sort of what our expectations are for the overall business climate, less regulation, probably a better tax resolution than maybe otherwise could have happened. So I think from an overall business environment standpoint, that's very positive on the tax front, on the regulatory front, on the military front. As I said, I think we have an administration coming in that has in the past been pro how do we figure out how to accelerate, how do we go faster, which would be, again, net good for us. Look, a tariff is very much a wild card. I mean, we don't know We don't know the specifics. Clearly, you know, we have operations in Mexico. We have, as you noted, a pretty significant operation in Canada, particularly on the Bell commercial side. A lot of the value of the dollars are things that go over, you know, from the U.S. into Canada and then back. I assume those don't get hit. But we do have some big important suppliers like Pratt Canada, you know, that sell a lot of engines to us in both rotor and fixed wing. And we do have our Bell Mirabell operations on the commercial side of Bell. So, Look, it's an unknown, and so we're not really taking a position one way or the other. We've got to see how this plays out. And, again, I think a lot of this is around negotiations and working on how do you deal with the free trade agreements on a go-forward basis. So we're just going to kind of hang in there and see how it plays out.

Got it. Got it. Mouthful. Thanks, guys. Thanks.

Thank you. And ladies and gentlemen, that will bring us to the conclusion of today's Textron Q4 2024 earnings release call. We'd like to thank you all so much for joining us today and wish you all a great remainder of your day. Just a reminder, today's call will be available for replay beginning later today by calling 1-800-839-5125 or 402-220-1502. Again, thanks for joining us, everyone. We wish you all a great day. Goodbye.