Textron - Q2 2023
July 27, 2023
Transcript
Operator (participant)
Ladies and gentlemen, thank you for standing by. Welcome to the Q2 2023 Textron Earnings Release. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you wish to ask a question, please press one and then zero on your touchtone phone. You will hear an acknowledgment that you've been placed into queue, and you can remove yourself from that queue at any time by repeating the one-zero command. Should you require assistance during the conference, please press star, then zero, and an operator will assist you offline. As a reminder, today's conference is being recorded, and I would now like to turn the conference over to our host, Vice President of Investor Relations, Eric Salander. Please go ahead.
Eric Salander (VP of of Investor Relations)
Thanks, Kelly. Good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO, and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.4 billion, up $270 million from last year's second quarter. Segment profit in the quarter was $352 million, up $71 million from the second quarter of 2022. During this year's second quarter, we reported income from continuing operations of $1.30 per share.
Adjusted income from continuing operations, a non-GAAP measure, was $1.46 per share, compared to $1.11 per share in last year's second quarter. Manufacturing cash flow before pension contributions, a non-GAAP measure, totaled $242 million in the quarter, compared to $309 million in the second quarter of 2022. With that, I'll turn the call over to Scott.
Scott C. Donnelly (CEO)
Thanks, Eric. Good morning, everyone. Second quarter was a strong quarter, with revenue up across all our businesses and solid execution, generating a segment profit margin of 10.3%, up 140 basis points from the second quarter of 2022. At Aviation, in the quarter, we delivered 44 jets, down from 48 last year, and 37 commercial turboprops, up from 35 in last year's second quarter. Aviation continues to see solid demand across jet and turboprop products. Backlog grew $315 million, ending the second quarter at $6.8 billion. In the quarter, Aviation received an order for 11 Special Mission King Air 360s, expected to deliver in 2024 and 2025. During the quarter, Aviation delivered the first passenger-configured Cessna SkyCourier to Lanai Air for its Hawaiian inter-island routes.
On the new product front, Aviation announced the Cessna Citation Ascend at EBACE in May. Ascend will feature the latest Garmin G5000 avionics suite, a 4-passenger range of 1,900 nautical miles, comfortable cabin experience with large windows and a flat floor, and the new Pratt 545D engine that features improved thrust and increased time between overhauls and enhanced fuel efficiency. The aircraft is expected to enter into service in 2025. Moving to Bell, revenues were slightly higher in the quarter. Bell began ramping activity on the FLRAA program, including onboarding engineers, contracting with major suppliers, and ordering long-lead materials. Bell also added $1.2 billion of backlog related to the FLRAA contract during the quarter. Also in the quarter, Bell received an initial contract authorization for 4 additional V-22 aircraft.
On the commercial side of Bell, we delivered 35 helicopters, up from 34 in last year's second quarter. At Textron Systems, we saw continued solid margin performance on slightly higher revenues. In June, Systems delivered Craft 107 to the U.S. Navy Ship-to-Shore Connector program, the eighth craft delivered to the Navy. Also, during the quarter, Systems' Aerosonde hybrid quad UAS was among four competing unmanned aerial systems that were awarded a design contract under the first option of the U.S. Army's Future Tactical Unmanned Aircraft System program. Systems also advanced as part of Team Lynx, led by American Rheinmetall Vehicles. In the next phase of the U.S. Army's XM30 program, Textron Systems is the designated manufacturer of Team Lynx. The Army downselected two competitors for the next phase of the program, which includes detailed design and prototype builds.
Moving to Industrial, we saw higher revenues in the quarter, driven by higher volume at both Kautex and Specialized Vehicles. At Specialized Vehicles, we announced the new Liberty LSV, a street-legal vehicle powered by our ELiTE battery system with four forward-facing seats. Within Kautex, we saw increased volumes year-over-year across all our geographic end markets. Moving to eAviation, we began wind tunnel testing on the Nexus eVTOL aircraft. These tests represent a significant step in the aircraft development process and supporting design validation activities. Additionally, we continued the prototype assembly and systems integration of the Nuuva, our hybrid electric unmanned cargo eVTOL aircraft, at our facilities in Slovenia. With that, I'll turn the call over to Frank.
Frank Connor (CFO)
Thanks, Scott, good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues to Textron Aviation of $1.4 billion were up $78 million from the second quarter of 2022, reflecting higher pricing of $95 million, partially offset by lower volume and mix. Segment profit was $171 million in the second quarter, up $22 million from a year ago, largely due to favorable pricing, net of inflation of $52 million, partially offset by an unfavorable impact from performance of $23 million. Performance included unfavorable manufacturing performance, largely related to supply chain and labor inefficiencies. Backlog in the segment ended the quarter at $6.8 billion.
Moving to Bell, revenues were $701 million, up $14 million from last year, due to higher pricing of $21 million, partially offset by lower military revenue of $7 million. Segment profit of $65 million was up $11 million from last year's second quarter due to a favorable impact from performance of $13 million.
... largely reflecting lower research and development costs and a favorable impact from pricing, net of inflation of $9 million, partially offset by lower volume and mix. Backlog in the segment ended the quarter at $5.6 billion. At Textron Systems, revenues were $306 million, up $13 million from last year's second quarter, largely reflecting higher volume. Segment profit of $37 million was down $1 million from a year ago. Backlog in the segment ended the quarter at $1.9 billion. Industrial revenues were $1 billion, up $155 million from last year's second quarter, largely due to higher volume and mix at both Kautex and Textron Specialized Vehicles of $121 million, and a favorable impact from pricing of $37 million.
Segment profit of $79 million was up $42 million from the second quarter of 2022, primarily due to higher volume and mix of $32 million, and a favorable impact from pricing, net of inflation of $17 million, principally at Kautex, partially offset by an unfavorable impact of $10 million from performance. Textron eAviation segment revenues were $11 million, and segment loss was $12 million in the quarter, primarily reflecting research and development costs. Finance segment revenues were $18 million, and profit was $12 million. Moving below segment profit, corporate expenses were $21 million, net interest expense was $16 million, LIFO inventory provision was $35 million, intangible asset amortization was $10 million, and the non-service components of pension and post-retirement income were $59 million. In the quarter, we repurchased approximately 4.2 million shares, returning $273 million in cash to shareholders.
Year to date, we have repurchased approximately 9.4 million shares, returning $650 million in cash to shareholders. Earlier this week, Textron's board of directors approved a new authorization for the repurchase of up to 35 million shares, under which the company intends to repurchase shares to offset the impact of dilution from stock-based compensation and benefit plans, and for opportunistic capital management purposes. To wrap up with guidance, we are increasing our expected full-year adjusted earnings per share to be in a range of $5.20-$5.30 per share, up from our prior range of $5.00-$5.20 per share. We also continue to expect full-year manufacturing cash flow before pension contributions of $9 million-$1 billion. That concludes our remarks, so operator, we can open the line for questions.
Operator (participant)
Thank you. Again, ladies and gentlemen, if you wish to ask a question, please press one and then zero on your touch-tone phone. You'll hear an acknowledgment that you've been placed into queue. You can remove yourself from queue at any time by repeating the one zero command. We ask if you're on a speakerphone, to pick up your handset before pressing the numbers. Once again, for questions, it's one and then zero. Our first question will come from the line of Peter Arment with Baird.
Peter Arment (Senior Analyst)
Yeah, good morning, Scott, Frank.
Frank Connor (CFO)
Good morning.
Peter Arment (Senior Analyst)
Scott, I guess, you know, start with Aviation. Really strong performance on margins and top line. Do you still, you know, kind of tracking, I mean, I guess with the supply chain, the way there's been so much volatility, how are you thinking about just kind of your delivery targets and just managing your skyline? I know you're probably sold out now, much farther out, just given your backlog. Maybe just some overall comments. Thanks.
Scott C. Donnelly (CEO)
Sure, Peter. Look, I think on the, on the order activity, the market is still quite strong. We're, you know, I think we're posted a strong book-to-bill. You know, again, in the quarter, it's, it's both jets and turboprops, so I think we continue to be, you know, really happy with how the, the market is, is behaving in terms of demand and, and pricing. That's, that's all good. As I think you're hearing from everybody, the, the, the biggest challenge still remains on the supply chain side of things. I'd say it's, it's not getting worse. It's probably modestly getting better, but as you know, the challenge is every part's important, right? You may not have as many problems, which still are, you know, kind of hit by that weakest link.
If you look at our numbers, we're probably, you know, a few jets lighter in each quarter than we would like to be. That's obviously creating a little bit of inventory, but, you know, these things ultimately will sell. I think when we think about the guide and what's going forward, we're still very happy with the margins and the execution performance, despite inefficiencies and, you know, dealing with some of those supply chain issues. You know, I think for the year, it'll be a little light on the revenue side versus where we would like to be, but those things will push into 2024, obviously.
You know, net, net of everything, it's a, it's still a good, strong demand environment, and we'll, you know, continue to fight our way through some of the supply chain challenges through the, through the course of the year.
Peter Arment (Senior Analyst)
Appreciate that. Just one quick follow-up. Frank, did you disclose what the aftermarket growth was in the quarter for Aviation at all?
Frank Connor (CFO)
Aftermarket for the quarter was about 3% growth and 32% of total revenue.
Peter Arment (Senior Analyst)
Appreciate it. Thanks again.
Frank Connor (CFO)
Yep.
Operator (participant)
Thank you. We'll go next to the line of Sheila Kahyaoglu with Jefferies.
Sheila Kahyaoglu (Managing Director)
Good morning, guys, and thank you. Maybe just to start off, a specific one on Bell. How do we think about the V-22 year? The House Appropriations Bill included about $700 million for potentially 5 V-22s. How do we think about how that could add legs to this program and transition to FLRAA?
Scott C. Donnelly (CEO)
Well, you know, what's going on there, Sheila, is the, you know, the Navy, of course, you know, has now had, you know, a, a good while of deploying the CMV-22s into the Navy applications. As you know, that program was originally awarded, and the program of record was based on replacing the C-2 COD. The number of aircraft was really sort of designed just to replace that mission. You know, what we're hearing, you know, from the Navy, and they've been fairly public about this, there's been some nice articles out there, is that, you know, as they're getting the CMV-22 into the fleet, they're realizing there's a lot of things you can do.
... with a V-22 that you couldn't do with a, with a COD, which was restricted to, you know, big deck carriers and airports, you know, onshore. You know, the versatility and the performance of the V-22 is leading the Navy to say, "Look, we've got other applications that would cause us to, to like to have more of these aircraft." That hasn't been formalized yet on the Navy side of things. I mean, there's a lot of dialogue around that. What you're seeing in the, in the House Appropriations is those five, you know, CMV-22s, which would be above program of record, is because of the, the versatility and the, and the desire, ultimately, of the Navy to have more of these crafts.
You know, we'll see how this plays out, you know, over time, but, you know, we're obviously, you know, we're very happy with the performance of the aircraft, the U.S. Navy is very happy with the performance of the aircraft, and so hopefully we'll see, you know, some continuing level of production now that we're, you know, sort of beyond the program of record.
Sheila Kahyaoglu (Managing Director)
That's great. Thank you for that color. Maybe a bigger picture one. Frank, if you could start, and I know you'll be verbose, so give Scott some time on this, too. You announced a pretty large repurchase program in the quarter. How are you thinking about capital allocation? Scott, obviously, with Ascend, you know, capital allocation for repo versus new product.
Frank Connor (CFO)
Capital allocation, it really remains the same, Sheila. You know, we've obviously continued to generate very good free cash flow. We've talked about, you know, obviously, we invest significant capital back into the business in R&D and CapEx. That's going to continue. Beyond that, we're generating a lot of free cash flow that we've been returning through share repurchase activity. We talked about, you know, kind of baseline of 5%-6% or so of our share base a year from a repurchase standpoint. We came out of the pandemic, more liquid than we usually are and need to be. You've seen in the first half of the year, we've repurchased a lot of stock, and, you know, we expect to continue to be in the market opportunistically.
The $35 million reflects, you know, kind of the need to have the shares authorization available to do that. You know, we were down to 2.7 million shares on the last repurchase, and we're rolling through it pretty quickly.
Sheila Kahyaoglu (Managing Director)
Cool. Thank you.
Scott C. Donnelly (CEO)
As Frank said, Sheila, I mean, I certainly don't see it as a trade with R&D. As you know, we're a, we're a fairly high R&D company. We think investing in new products is the key to growth. I think we're seeing that play out right now. You know, you look at Aviation with the investments in Latitudes and Longitudes, a lot of the upgrades of a lot of our current products, both on the jet and the turboprop side. SkyCourier now, you know, driving nice growth for us. The Ascend that we just announced. If you look at Bell, obviously, we've made a huge investment over the years in the FLRAA program and the FARA program. That's obviously now turning into a great growth driver for us.
You know, across all the businesses, you know, we're not gonna change our strategy here in terms of, of R&D. We'll keep making the investments that we think we need to make in the product side, but, you know, despite all that, we're obviously making strong profits and strong cash flow, and that gives us a great deal of flexibility to allocate and drive some of that back through the share repurchase program and do what's right, we think, for the shareholders.
Sheila Kahyaoglu (Managing Director)
Great. Thank you.
Operator (participant)
Thanks. We'll go next to the line of Jason Gursky with Citi.
Jason Gursky (Managing Director and Equity Analyst)
Hey, good morning, everybody.
Frank Connor (CFO)
Good morning.
Jason Gursky (Managing Director and Equity Analyst)
Scott, I was wondering if you could provide kind of a general update on the general Aviation market. I think there was a show here recently up in Oshkosh. I was wondering if you had any general learnings from either that show or your general view of the general Aviation market. Second one would be just kind of an update from your perspective on the market for pilots, both for, you know, as they come in through the general Aviation market and make their way maybe up into the biz jets and other aircraft that are more important to you.
Scott C. Donnelly (CEO)
Sure. Look, Jason, I think one of the nice parts about the market right now is this, you know, as much as we talk about the jets and the turboprops, and, and obviously that's the, the bulk of our, our business, but, you know, when you look at an Oshkosh, which is really a show that's, you know, aimed around the propeller, you know, marketplace, and Cessna 172s, and Pipistrel electric aircraft, and all that kind of good stuff, you know, the demand is strong from top to bottom. You know, I mean, we, you know, we're, you know, and have a great, you know, book-to-bill in our 172s, 182s, 206s. So you see really, really strong demand from that, that GA customer that we've always had. There's very strong demand from training schools.
If we kind of shift into your pilot discussion, you know, there's no doubt, you know, people have talked for many, many years about, you know, the shortages of pilots is coming up, and we're seeing that, right? The training schools are putting a lot of orders in. They're increasing the size of their fleet so they can get more pilots through. There's a lot of activity with, frankly, some of the airlines buying a lot of aircraft so that they can get pilots, not just pilots that come into the industry, but pilots that need to get the hours in order to be eligible to fly, you know, for the actual airlines. Those hours are best built by, you know, using, you know, less expensive per hour, you know, sorts of aircraft.
We have a lot of demand on that side as well. I think, you know, the nice part here is it's a, it's a robust market. Everything from a, you know, a Cessna 172 or a, a, a small Pipistrel Velis, all the way up, you know, through Longitude. The demand is very, very broad.
Jason Gursky (Managing Director and Equity Analyst)
Great. Thank you.
Operator (participant)
Thank you. We'll go next to the line of David Strauss with Barclays.
Peter Arment (Senior Analyst)
Hey, good morning, Scott and Frank. This is Bradley Barton for David.
Scott C. Donnelly (CEO)
Hi, Brad.
Peter Arment (Senior Analyst)
Just quickly starting off on Bell. You know, it looks like quarter might have been a little light. Can you just talk about how much FLRAA added in the quarter, and, you know, how Bell's gonna ramp from here and hitting the $3.3 billion?
Scott C. Donnelly (CEO)
sure. Look, I think, you know, Bell's, you know, pretty in line with where we expect them to be. The FLRAA program, you know, is certainly ramping. We've added a lot of engineering resource and, you know, and we were able to ramp reasonably quickly because we, you know, we still had a lot of engineering talent that had been, you know, going through the FLRAA design, you know, the CRR risk reduction programs that we retained through that period. I'd say the team's ramping really well. You know, the Army's been great about, you know, working to quickly get authorizations out there for us to award contracts to our major sub- subcontractors, which is a huge part of the program, obviously, as it goes out through the industrial base.
You know, they've authorized, you know, critical long lead materials that we need to support the initial flight aircraft. You know, the, the, the program is probably ramping about as fast as I can imagine ramping such a large program. I think we still feel very comfortable with the, the guide that we provided in terms of where we're gonna end up the year on, on revenue, as that program, you know, drives a lot of the growth, frankly, that's, that's ramping up. You know, and look, as the way to think about this program is it, it certainly it's ramping here as we go through, you know, 2023, but, you know, the JADOCS are out there, right? In the next few years, this is sort of a billion-dollar a year program.
Obviously, part of that, you know, is retained by the government to run their program offices and things like that. I think we'll very rapidly ramp up and be, you know, have FLRAA exactly where we expect it to be, which is in that, you know, probably $800 million-$900 million a year of revenue.
Brad Barton (Equity Research Analyst)
Okay. Just a, a follow-up on, there's been some reports in the press about potential interest in some properties out there. Just wondering if you could talk a little bit how you see the portfolio shaping up.
Scott C. Donnelly (CEO)
we probably won't provide any commentary on various rumors that are out there in terms of M&A activity at this point.
Brad Barton (Equity Research Analyst)
All right. Thanks for the time.
Scott C. Donnelly (CEO)
Sure.
Operator (participant)
Thank you. We'll go next to the line of Noah Poponak with Goldman Sachs.
Noah Poponak (Managing Director and Senior Equity Research Analyst)
Hey, good morning, everyone.
Scott C. Donnelly (CEO)
Hi, Noah.
Noah Poponak (Managing Director and Senior Equity Research Analyst)
Hi, Noah. The Aviation margin is that's one of the highest levels in a while. The incremental, I think, is a little higher than your kind of long-term framework, and I guess that's despite the performance number you cited. If I add that back, I'm more in the mid-teens. I guess as I think about where that margin goes over time, obviously, the, you know, labor and supply chain inefficiencies you're citing, won't be solved immediately, but also won't last forever. Is it reasonable to think about the margin adjusted for that in the quarter as kind of a baseline, you know, plus an incremental for where you can go, you know, late next year into the middle of the decade?
Scott C. Donnelly (CEO)
Well, I'm probably not ready to guide into the middle of the decade just yet, Noah. Look.
Noah Poponak (Managing Director and Senior Equity Research Analyst)
Well, you have a pretty big backlog in that business now.
Scott C. Donnelly (CEO)
Well, look, there, you know, look, I think the margins are very good. The guys, you're right, are working through, you know, challenges, which we would certainly hope will abate, you know, somewhat over time. I mean, you know, obviously, there's, you know, inflation that's baked into, you know, the numbers at this stage of the game. I, I think we'll, we'll probably avoid doing, you know, too much in terms of, you know, guiding out to the future other than that, look, these are good gross margin products. I mean, I think we'll be. You know, the way the long-term think about this is gonna be around that 20%-25% conversion. You know, we're sort of looking at, you know, certainly, you know, growth as we look into, into 2024 and beyond.
Again, it's gonna be in some part constrained by supply, and also ours, just looking and making sure that we're, you know, we're tracking to where the demand is in the marketplace. Again, we've talked before about the health of this industry should be running with a substantial backlog, and then we are now running with a substantial backlog, and that's a, that's a good place for the whole industry to be.
Noah Poponak (Managing Director and Senior Equity Research Analyst)
In the near term, is it reasonable to expect that price net of inflation number to grow? I think the pricing in your backlog is still better than what's hitting the P&L now. Although, correct me if that's wrong. Then if inflation is decelerating, it would seem like both the top end, bottom end of that number would be widening.
Scott C. Donnelly (CEO)
Look, I think we do feel good about the pricing that's going into the backlog, but we are still seeing inflationary pressures. The rate of inflation is certainly coming down, but there is still inflationary pressure out there.
Frank Connor (CFO)
Yeah, remember-
Scott C. Donnelly (CEO)
Okay.
Frank Connor (CFO)
we, you know, we have some longer-term supply contracts, so we, we did a nice job of responding to, you know, a, a demand in the market and created a more appropriate pricing environment. There is some lag effect associated with our contracts and just the flowing in of inflation. We, we still feel very good about where we are price, you know, net of inflation, but, but there is a lagging impact on some of those cost inputs.
Scott C. Donnelly (CEO)
Yeah.
Noah Poponak (Managing Director and Senior Equity Research Analyst)
Okay. Just last piece on it. Is your price, your rate of change in price decelerating, with a, you know, maybe some normalization in the market? Did you, you know, not increase it so fast that it needs to slow and the rate of change is just kind of holding at this point?
Scott C. Donnelly (CEO)
I don't know. I have not run a first derivative on our price at this point, but I don't know. I, you know, we probably won't go into that level, quite that level of detail, but suffice to say, you know, we're still getting price and feel good about, you know, how that price demand is working in the market.
Noah Poponak (Managing Director and Senior Equity Research Analyst)
All right. I appreciate it. Thank you.
Operator (participant)
We'll go next to the line of Robert Stallard with Vertical Research.
Robert Stallard (Partner and Senior Equity Analyst)
Thanks so much. Good morning.
Scott C. Donnelly (CEO)
Hi, good morning.
Robert Stallard (Partner and Senior Equity Analyst)
Scott, on in the industrials, a good quarter there, both on the top line and the margin. How sustainable do you think this is going forward? Do you just see this as a sign that the U.S. consumer is still holding in there, pretty resilient?
Scott C. Donnelly (CEO)
Well, look, I, I do think it's a, a good sign for sure, Robert. I mean, the automotive guys, recovery as kind of every geography is, is encouraging to see those volumes going up in there. I think the Kautex guys did a nice job of converting on that. We still continue to see strong demand, you know, across golf and, and turf and consumer products. I mean, yeah, I mean, it's they're, they're hanging in there, right? I mean, I think we all still worry a little bit about the, you know, that high-end consumer, but things have been, have been pretty reasonable. You know, as you know, there is a certain seasonality to these businesses. In auto, we do a lot of summer shutdowns and, you know, things like that.
You know, you know, second quarter is usually a stronger quarter. Third quarter is usually a little bit lighter in terms of, you know, the, the revenue on those businesses. Look, net of the whole thing, I think the, the demand environment, you know, has been improving, and our teams are doing a nice job of executing on that.
Robert Stallard (Partner and Senior Equity Analyst)
Yep. Frank, a technical question for you. You raised the EPS guide by $0.10. Can you give us some idea of where that's coming from within the operations?
Frank Connor (CFO)
I mean, it's, it reflects, you know, kind of strong first half and, you know, the earnings obviously that we just reported. There's a little bit in there for, you know, kind of share count and some other things, but it's, it reflects a solid first half of the year and just, continuing good execution in the second half of the year. As Scott said, I think, you know, kind of there's a little bit of volume, you know, at Aviation that is gonna probably be light relative to our guide, but Industrial is probably coming in stronger than we had first thought from a top-line standpoint and overall solid execution across the businesses.
Robert Stallard (Partner and Senior Equity Analyst)
That's great. Thanks so much.
Scott C. Donnelly (CEO)
Sure.
Operator (participant)
Thank you. We'll go next to the line of George Shapiro with Shapiro Research.
George Shapiro (Managing Director and Senior Analyst)
Good morning and good numbers. Scott, you think we still do 200 deliveries, or we should knock, maybe call that 190 or something, given that we seem to be missing a couple each quarter?
Scott C. Donnelly (CEO)
Yeah, I think the number is gonna be a little bit lighter than we originally, you know, had in there, George. I don't, I don't think it's gonna be 200. As I said, I think their execution is strong. You know, I think the, you know, margins and, you know, contribution to earnings are gonna be where we expected them to be, but it's gonna be with a little bit lighter top line, just driven by, you know, again, trying to get the aircraft out. Obviously, those are aircraft that'll move into 2024. Sales that are still gonna happen, but I do think we'll be a little bit lighter on the year than what we originally guided on the top line.
George Shapiro (Managing Director and Senior Analyst)
At Bell, is the margin guide still good, assuming that this quarter was particularly strong because FLRAA hasn't fully built yet, so margins will weaken in subsequent quarters?
Scott C. Donnelly (CEO)
No, look, I think Bell is tracking right on where we expected from a, from a guide standpoint. You know, we're still seeing, you know, good execution on a lot of the production side of things. Obviously, FLRAA, you know, coming in is nice in terms of driving the top line. It, clearly, it absorbs a lot of overhead in the business, which helps, you know, maintain the level of profitability in some of the other product lines. You know, as we've talked about, the, you know, the absolute number is, you know, we don't have as much V-22 H-1 production as we had, but we're going to still, I think, post a number that's very much in line with what we guided.
George Shapiro (Managing Director and Senior Analyst)
Just one follow-up on industrial. I mean, it was particularly strong. I mean, I went back and looked. It was the best quarter since, like, Q2 of 2018, and that the business wasn't even the same at that point, although Kautex was obviously there. You comment anymore, I mean, it would seem like the sales, you would beat $3.6 billion guide here for the year, and the margin certainly would look like it could beat based on what the margin was this quarter. If you'd comment a little bit more on that.
Scott C. Donnelly (CEO)
Yeah, look, I think we do have, you know, as I said, look, Aviation is probably a little bit light on the revenue line. I think industrial will be a little bit stronger on the revenue line to offset that as we go through the year. I do think that the, you know, the margins, there's probably a little bit of upside to the margin, but certainly just conversion on that revenue will give us a little bit of upside on the year. Again, that's part of what's factored into, you know, the raise on our guidance at the EPS level. I think we're, you know, we're happy with how that's going on, on the industrial side. Again, it's strong demand, you know, recovering in the auto side.
You don't see as much, you know, drag on automotive manufacturing, and that's good for us at Kautex. You know, golf and turf and, you know, these markets are staying pretty robust. I do think that's, you know, kind of the way we think about mostly offset here. We'll see some nice upside on the revenue there, and that will bring with it, you know, some increase in NOP, that's certainly incorporated in part of our raise for the year.
George Shapiro (Managing Director and Senior Analyst)
Okay, thanks very much.
Operator (participant)
We'll go next to the line of Myles Walton with Wolfe Research.
Louis Raffetto (Equity Research Analyst)
Hey, you have a Louis Raffetto on for Myles. How are you?
Scott C. Donnelly (CEO)
Good morning.
Louis Raffetto (Equity Research Analyst)
I think you kind of covered this a little bit with the ongoing disruption, I guess, within Aviation, but at what point do you think that the pricing benefit will sort of overcome or more than overcome the sort of the negative on the performance side?
Scott C. Donnelly (CEO)
Well, I mean, it is, right? I mean, our. You know, when you look at our, you know, pricing right now is, even net of inflation, is still enough to overcome. You know, some of the challenges in terms of the inefficiencies driven by some of the ongoing supply stuff. I think that's a trend that, you know, we've had here for a while, and I expect we'll continue to see that as we go into the future.
Myles Walton (Managing Director)
I think you mentioned, is, is 190 the right number to think about, or will it be maybe a little bit higher than that for the year?
Scott C. Donnelly (CEO)
we're not going to guide a specific number, but, you know, I mean, I don't think it's, you know, being light by a couple hundred million dollars is probably the right way to think about the top line. Again, I think from a performance standpoint, margin standpoint, we'll, you know, we should be more or less than, where we guided.
Myles Walton (Managing Director)
Okay. Thank you very much.
Scott C. Donnelly (CEO)
Sure.
Operator (participant)
Thank you. We'll go next to the line of Cai von Rumohr with TD Cowen.
Cai von Rumohr (Managing Director and Senior Research Analyst)
Yes, thanks so much. Scott, a strategic question. You know, obviously, your A&D business is growing with FLRAA, you know, some opportunity at OMFV, a number of other programs, and yet when you look at your business, you're not really a niche player, and you're also not up, you know, with a GD, a Lockheed, those guys. Strategically, you know, I think you said you'd like to increase A&D. How big would you like to get, and what sorts of things would you consider buying to bolster your A&D business?
Scott C. Donnelly (CEO)
Well, that's a good question, Cai von Rumohr. Well, obviously, we'd like to be bigger, and I think that, you know, the approach we're taking here is investments that we've made in our existing businesses is driving a lot of that growth. I think if you look at Aviation, all the investments that we've made and continue to make in those new platforms, you know, you referenced a couple of other names. Look, I think you know, obviously, we've made a huge investment in FLRAA over the years. That's gonna drive a ton of growth and shows that we can go, you know, head-to-head on a program-by-program basis and win and drive a lot of organic growth.
I think when you look at systems, some of the things that, you know, we talked around OMFV or what's now referred to as XM30 and ARV with the Marine Corps, you know, there's things out there that are, you know, potentially significant growth drivers, where we're going head-to-head with, you know, some of the guys that are the, you know, the biggest, you know, names in the business, and I think we can win against them. You know, our focus continues to be making sure that we're making the right investments so that we can drive the organic growth. Will we do acquisitions if there's the right opportunity that comes along? Absolutely.
You know, we've got to, you know, I've, as you know, I've always felt that, you know, you don't want to have to do a deal, right? I think that our strategy is continue to make the right investments on the organic side so that we can drive really good growth. If something comes along that makes sense from an exit standpoint, we're happy to look at that.
Cai von Rumohr (Managing Director and Senior Research Analyst)
When you look at things, do you look at it sort of from a holding company perspective, this would be a good business, or, you know, are there specific skill sets that you think would be complementary to what you currently do that would make you a stronger player in helicopters and whatever?
Scott C. Donnelly (CEO)
Well, look, I think, Cai, right now it's primarily looking, you know, in the A&D space, you know, things that would help diversify us in terms of this, our strength in A&D. I don't think it's likely that you see something that's specifically in, say, the helicopter space. I, you know, I just don't know that there's targets out there where you do that, and from a, you know, a government standpoint and antitrust standpoint, you know, I don't, I don't think you would probably see much activity in that space. I'd be kind of surprised, but I think you look at complementary A&D capabilities, certainly where we bring technological capability, where the target would bring technological capability, that's, you know, some synergistic, but I think in large part, you know, providing, you know, a more well-rounded, more diversified A&D company.
Cai von Rumohr (Managing Director and Senior Research Analyst)
Great. Thank you very much.
Operator (participant)
Thank you. Our last question will come from the line of Kristine Liwag with Morgan Stanley.
Kristine Liwag (Executive Director and Head of Aerospace and Defense Equity Research)
Great, thanks. You know, Scott, with the macroeconomic uncertainty and increasing interest rates, I mean, ultimately the demand and pricing for business jets and general Aviation continue to be robust, you know, a surprise for the bears, pretty much. What do you think is driving this sustained demand, and how under supplied do you think the market continues to be?
Scott C. Donnelly (CEO)
Well, look, I think the demand environment is driven by the fact that people, you know, particularly people who've come into this market and started using aircraft and experienced what private Aviation was all about, have had a great experience. You know, I mean, they're time machines, right? It allows you to do things that you just can't do if you're using, you know, commercial transportation. The productivity, the efficiency, the ability to get from anywhere to anywhere on your time and, you know, in an expeditious way, is something that the, you know, the more and more people... I think, again, this is if you go back to the COVID, you had a lot of people got exposed to this market that had not in the past, and they're turning out to be a great tool.
I think that's what continues to fuel a lot of the demand in this marketplace. It's, you know, obviously we, you know, offer a lot of products across a broad range of price points and performance, and I think that's why we're seeing just a fundamentally very strong demand environment. As you know, it's not just our company and our products, but across the, you know, very broad range of general Aviation.
Kristine Liwag (Executive Director and Head of Aerospace and Defense Equity Research)
Yeah, I guess when you look at the portfolio, you know, light, medium, and large cabin, that large cabin end of the market continues to also be robust. At this point, when you look at this, the Cessna portfolio, what's your appetite to go bigger? I mean, you know, we had the Columbus and the Hemisphere that didn't come about, but. Is there a right moment to reintroduce an airplane of that size or even larger, and move up the portfolio to the larger cabin jets?
Scott C. Donnelly (CEO)
No, I don't think there is. Look, I, you know, we did look at one point, as you know, you know, would we stretch the top end of our platform? You know, we did have programs at the time, and it, you know, for technical reasons and, we, you know, we ended up not doing those programs. I think that part of the market now, particularly as you go larger in that market, which is kind of the choice we were faced with, is a very well-served market. I think we're better off focusing all of our R&D and our energy and our investments in the, you know, sort of up to that super mid-size on the Longitude.
We've been doing, as you know, a lot of great upgrades to a lot of those programs of platforms all across our portfolio. You know, we continue to make the right investments. Denali is still, you know, in development. You know, that's going to be a home run for us. The Ascend, which we just, you know, announced, I mean, that's right in the sweet spot of our market. You know, that's a segment of the market that we've had a great track record in the past with previous aircraft. I think the Ascend will be really well received and drive a ton of growth for us. You know, this is.
I think that, and we're very focused on, you know, making those investments across, you know, everything from our little Cessna 172s, and now, of course, in the electric space with Pipistrel and eAviation, you know, up through Longitude. I think that's a pretty good place for us to be, and that's where we're going to focus our R&D efforts.
Kristine Liwag (Executive Director and Head of Aerospace and Defense Equity Research)
Great. Thanks, Scott.
Operator (participant)
Thank you. Ladies and gentlemen, today's conference will be available today, 10:00 A.M. Eastern Time, running through July 27, 2024 at midnight. You may access the AT&T replay system by dialing 1-866-207-1041 and entering the access code of 8467989. International dialers may call 402-970-0847. Those numbers again are 1-866-207-1041 or 402-970-0847, with the access code of 8467989. That does conclude your conference for today. Thank you for your participation and for using AT&T event conferencing. You may now disconnect.