Textron - Earnings Call - Q2 2025
July 24, 2025
Transcript
Operator (participant)
Hello everyone and welcome to the Textron Second Quarter 2025 earnings call. My name is Emily and I'll be moderating your call today. After the prepared remarks, you will have the opportunity to ask any questions, which you can do so by pressing star followed by the number one on your telephone keypad. I will now hand over to Scott Hegstrom, Vice President of Investor Relations and Treasurer, to begin. Please go ahead.
Scott Hegstrom (VP of Investor Relations and Treasurer)
Thanks, Emily, and good morning everyone. Before we begin, I'd like to mention that 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 David Rosenberg, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.7 billion, up 5.4%, or $189 million from last year's second quarter. Segment profit in the quarter was $346 million, up $3 million from the second quarter of 2024. Adjusted income from continuing operations was $1.55 per share compared to $1.54 per share in last year's second quarter.
Manufacturing cash flow before pension contributions totaled $336 million in the quarter compared to $320 million in last year's second quarter. With that, I'll turn the call over to Scott.
Scott Donnelly (Chairman and CEO)
Thanks, Scott, and good morning everyone. The second quarter was a good quarter for Textron with revenue growth in both our commercial aircraft and helicopter businesses, as well as in Bell's FLRAA program, which is now known as the MV-75. Aviation had segment revenues of $1.5 billion, up 2.8%, from the second quarter of 2024, reflecting higher sales for both aircraft and aftermarket. In the factory, operations continue to improve as we ramp production. We delivered 49 jets and 34 commercial turboprops compared to 42 jets and 44 commercial turboprops in last year's second quarter. Aviation continued to see solid demand across all products, with backlog ending the quarter at $7.85 billion. In the quarter, Aviation announced a purchase agreement with a customer in Mexico for four Citation jets and an option for eight additional jets, with deliveries expected to begin in 2026.
Also during the quarter, the SkyCourier hit a number of important milestones, including the first delivery in South America, the first aeromedical order, which was also our first order in Africa, and as we marked our fifth anniversary of the first flight. On the new product front, we continue to make progress on certification for the M2 Gen2, M2 Gen2, CJ3 Gen2, and the Ascend, with deliveries of these aircraft expected to begin in the second half of this year. At Bell, revenues were up $222 million, or 28%, compared to last year's second quarter, driven by growth in both the MV-75 program and our commercial helicopter business. On the military side, the U.S. Army announced its intention to accelerate the MV-75 program and also announced that the 101st Airborne will be the first division to operate the MV-75.
In the quarter, Bell delivered two MV-75 virtual prototypes to the Army, which are advanced simulators based on a digital twin of the MV-75. These simulators will be used to support the training and development of tactics, techniques, and procedures, leveraging the tiltrotor's significant performance benefits in advanced fielding aircraft. We continue to have ongoing dialogue with the Army on specifics related to the acceleration of the MV-75 program. This includes acceleration of the development program, pull forward of initial low-rate production, and rapid fielding of units to the warfighter. Bell was recently down-selected as a sole company for the next phase of DARPA's Speed and Runway Independent Technologies X-Plane program. During this next phase, Bell will design, construct, and perform ground testing of an X-Plane demonstrator.
On the commercial side of the business, revenues increased $73 million, primarily due to the mix of aircraft sold at Bell, as Bell delivered 32 helicopters in both the second quarter of 2025 and 2024. During the quarter, Bell received an order for 12 Bell 412EPXs from the Tunisian Air Force, with deliveries expected to begin in early 2027. In June, Bell signed a five-year contract with United Auto Workers for its operations in Fort Worth, Texas. Moving to systems, revenues in the quarter were slightly lower as compared to last year, while segment profit margin was 12.5%, up 170 basis points. Earlier this month, systems received a $354 million contract modification from the U.S. Navy to add three Ship-to-Shore Connector craft. In addition, the Ship-to-Shore Connector program received $300 million through the recently enacted reconciliation bill. During the quarter, the U.S.
Army announced approval of Milestone B for the XM-30 program and transitioned the program to the engineering and manufacturing development phase. Also, in the second quarter, systems sold the first Tsunami aircraft, Tsunami Craft, to the U.S. Navy. The Tsunami is an attributable, rapidly deployable, autonomous, unmanned surface vehicle. Moving to industrial, we saw lower revenues in the quarter compared to last year's second quarter, reflecting the impact of the disposition of Textron Specialized Vehicles, power sports business, and lower volume. At Kautex, we recently received a Panasonic award from a leading European automotive OEM for a battery electric vehicle composite lower battery housing unit. This marks the second OEM platform for Panasonic, and this win secures a major foothold on what is anticipated to become one of the leading global BEV platforms. Segment profit margin was 6.4%, up 180 basis points.
At Aviation, the Nuuva V300, a long-range, large-capacity hybrid electric VTOL unmanned aircraft, continued its flight test program and made its debut at the Paris Air Show in June. With that, I'll turn the call over to David.
David Rosenberg (CFO)
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 $1.5 billion were up $42 million from the second quarter of 2024, reflecting higher aircraft revenues of $35 million and higher aftermarket parts and service revenues of $7 million. Segment profit was $180 million in the second quarter, down $15 million from a year ago, primarily due to the mix of aircraft sold and higher warranty costs, partially offset by the favorable impact of manufacturing efficiencies and higher pricing net of inflation. Backlog in the segment ended the quarter at $7.85 billion. Moving to Bell, revenues were $1 billion, up $222 million from the second quarter of 2024.
The revenue increase in the quarter was driven by higher military revenues of $149 million, primarily due to higher volume from MV-75 and higher commercial revenues of $73 million, primarily due to the mix of aircraft sold. Segment profit of $80 million was down $2 million from last year's second quarter, primarily reflecting higher research and development costs, partially offset by higher volume and mix. Backlog in the segment ended the quarter at $6.9 billion. At Textron Systems, revenues were $321 million, down $2 million from last year's second quarter. Segment profit of $40 million was up $5 million compared with the second quarter of 2024, primarily due to lower selling and administrative expense. Backlog in the segment ended the quarter at $2.2 billion. Industrial revenues were $839 million, down $75 million from last year's second quarter.
Largely at Textron Specialized Vehicles where revenues decreased $66 million, reflecting the impact from the disposition of the power sports business and lower volume primarily in golf products. Segment profit of $54 million was up $12 million from the second quarter of 2024, primarily reflecting the impact from the disposition of the power sports business and the benefit of cost reductions from restructuring activities, partially offset by lower volume and mix. Textron eAviation segment revenues were $8 million in the second quarter of 2025, as compared to $9 million in last year's second quarter, and segment loss was $16 million as compared with a segment loss of $18 million in the second quarter of 2024.
Finance segment revenues were $15 million, and profit was $8 million in the second quarter of 2025, as compared to segment revenues of $12 million and profit of $7 million in the second quarter of 2024. Moving below segment profit, corporate expenses were $36 million, net interest expense for the manufacturing group was $26 million, LIFO inventory provision was $38 million, and intangible asset amortization was $8 million. Net special charges were $4 million, and the non-service component of pension and post-retirement income were $67 million. Our adjusted effective tax rate for the second quarter of 2025 was 20%. During the quarter, we repurchased approximately 2.9 million shares, returning $214 million in cash to shareholders. Year to date, we have repurchased approximately 5.8 million shares, returning $429 million to shareholders.
To wrap up with guidance, we are reiterating our expected full-year adjusted earnings per share to be in the range of $6-$6.20. We are increasing our expected full-year manufacturing cash flow before pension contributions to be in the range of $900 million-$1 billion, up from our previous range of $800-$900 million. This reiterated adjusted EPS outlook and increased cash outlook incorporates the estimated impact associated with recently enacted tax legislation. The One Big Beautiful Bill Act that was signed into law includes several provisions that benefit cash flow and has some elements that impact our adjusted effective tax rate for the year. As a result, we now expect an adjusted effective tax rate in the range of 20%-21% for the year. Our adjusted EPS outlook of $6-$6.20 incorporates this higher adjusted effective tax rate. That concludes our prepared remarks. So, operator, we can open the line for questions.
Operator (participant)
Thank you. We will now begin the question and answer session. As a reminder, if you would like to ask a question today, please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press star followed by two to withdraw yourself from the queue. Our first question today comes from David Strauss with Barclays. Please go ahead.
David Strauss (Managing Director and Equity Research of Aerospace & Defense)
Morning.
David Rosenberg (CFO)
Morning.
David Strauss (Managing Director and Equity Research of Aerospace & Defense)
Scott, I wanted to ask you about the potential acceleration on MV-75, what that could look like, what that could mean for your numbers, and if you could remind us of the contract structure as you move into ELRIP.
Scott Donnelly (Chairman and CEO)
Sure. I mean, this is very much a work in process, I would say, on the development side. We already have very good visibility around that, I suppose, in agreement with the Army on how to proceed on accelerating EMD. That's partly why you're seeing the increased EMD revenue here in 2025, and certainly we will see an acceleration of that in 2026 as we try to get that first aircraft completed and turned over and ready for tests. I think on the EMD front, it's pretty clear we know what we've got to go do, and both we and the Army are working to execute against that. In terms of the production acceleration, you may recall the ELRIP, which was eight aircraft, which was bid in the initial contract. Production of that wouldn't have started until really triggering off Milestone C.
That was going to reflect probably about an 18-month or so gap between the last of the EMD-delivered aircraft and ELRIP. We're now pulling that forward. The intent is to basically be able to smoothly transition from that last EMD aircraft into the first of the ELRIP. That'll probably pull in something on the order of 18 months. We're also working, talking about what does the ramp look like. It's not just going to be those eight, but what do you think about in terms of the next lot and the next lot right behind that? Those discussions are still ongoing with the Army.
I think what you're seeing primarily in the FY26 budget ask is the increased dollars to support that acceleration of the EMD, and you would expect to see increase and additional production dollars in the FY27 budget ask to support what I just talked about, an acceleration of that first lot, but also lining up the second and the third lots of production.
David Strauss (Managing Director and Equity Research of Aerospace & Defense)
Okay. Thanks for that. Dave, could you touch on maybe what some of the offsets were to the higher tax rate to hold the guidance? It seems like Bell's maybe coming in better than you expected.
David Rosenberg (CFO)
As we sit right now, the biggest offset is the timing of our share repurchase this year has been a little ahead of what we originally planned. From an average share account perspective, we should be better than where we started the year at. That, in essence, gave us the ability to hold the guide while at the same time taking this 200-300 basis point increase in the effective tax rate.
David Strauss (Managing Director and Equity Research of Aerospace & Defense)
Okay. Thanks very much.
Operator (participant)
Thank you. Our next question comes from Peter Arment with Baird. Please go ahead, Peter.
Peter Arment (Senior Research Analyst)
Yep. Good morning, Scott. Dave, nice results. Hey, Scott, could you maybe give us a little your thoughts around just kind of the margins at aviation? I know that you had kind of talked to us about some of the pricing that was going to be lingering from last year flowing through. How do we think about that as we move forward in the second half?
Scott Donnelly (Chairman and CEO)
Sure. I think we're right on track with where we're expected to be on aviation as we guided at the beginning of the year with the recovery kind of coming off of the strike and some of those issues, as you mentioned, pricing of aircraft that moved into this year. We knew we would be a little more margin challenged in the first half and the second half. I think we're right on track with that. I think the production ramp is going well. King Airs is probably the only one where we've been a little behind. That's a tougher line to get going. Picking back up, the good news is I think that's now running well. We certainly, in line with what we expected, will see good jet deliveries in the back half of the year, but also much stronger turboprop deliveries in the back half of the year.
In all those dynamics that we were kind of factoring into our plan are playing out exactly as we expected. We certainly expect to see nice volume increases here through Q3 and Q4 with that margin step-ups that will put us right on our target for the full year.
Peter Arment (Senior Research Analyst)
I appreciate that, Scott. Just maybe just as a follow-up and staying with aviation, just talk about, I guess, the demand environment continuing to have very good bookings and just what you're seeing in terms of customer interest in the new models.
Scott Donnelly (Chairman and CEO)
Yeah. The demand has been strong. We are seeing good order flow. I think customers are very excited about the Gen2s of both the M2 and the CJ3 coming out. Ascend also getting close to certification here, and we have a good backlog on that as well. I think the aircraft portfolio is doing really well in the market.
Peter Arment (Senior Research Analyst)
Appreciate it. I'll jump back in the queue. Thanks, Scott.
Operator (participant)
Thank you. Our next question comes from Sheila Kahyaoglu with Jefferies. Please go ahead.
Sheila Kahyaoglu (Aerospace & Defense and Airlines Equity Research)
Good morning, Scott and David. Maybe let's stick to aviation. Scott, on that last point, are you seeing any changes given the tariffs on competitors and yourselves? How are you thinking about tariffs and what were the higher warranty costs you mentioned for the aviation margins?
Scott Donnelly (Chairman and CEO)
We have not really seen an impact yet on the tariff front. I would say that there are certainly some customers in, let's say, particularly in some Latin American countries that are concerned. We will see how that plays out. I guess our view of these things at the moment is to sort of not panic and give it a little time to let things settle out. We will continue to kind of watch it and see. We certainly have not yet seen any kind of dramatic impact. As you know, Sheila, the bulk of our deliveries are U.S. The bulk of our manufacturing is U.S. I think in the grand scheme of things, while the tariff stuff can create some concerns and some noise, I think we are actually pretty well positioned with our large North American manufacturing base and our largely North American-based delivery.
I think in that respect, we are in pretty good shape. On the warranty, there are always a few things moving around in there. We have had an issue that we have been dealing with probably for a couple of years that we feel like some of the work we are doing in the shops is coming in a little higher than what we originally expected, and we felt it was appropriate at this point just to sort of true up the reserves on that to make sure we can cover the balance of work that needs to be done there.
Sheila Kahyaoglu (Aerospace & Defense and Airlines Equity Research)
Got it. Maybe if I could ask one on Bell margins. They fell below 8% in the quarter. You called out R&D costs. How should we expect that to progress through the remainder of the year?
Scott Donnelly (Chairman and CEO)
I mean, I do think we saw the, as we talked about, much higher revenue than we originally had in there on the EMD side of FLRAA, which is obviously a fantastic program for us, but a little more margin challenged. I think we'll see the balance of the year up a little bit from where we are certainly this quarter. To be honest, given the fact that we're going to have probably higher than our revenue guide, largely driven by the EMV piece of FLRAA, we'll have higher revenues, but we'll probably be towards the lower end of the Bell range driven by that.
Sheila Kahyaoglu (Aerospace & Defense and Airlines Equity Research)
Thank you.
Scott Donnelly (Chairman and CEO)
Sure.
Operator (participant)
Thank you. Our next question comes from Seth Seifman with JPMorgan. Please go ahead.
Seth Seifman (Executive Director)
Hey, thanks very much, and good morning.
Scott Donnelly (Chairman and CEO)
Good morning.
Seth Seifman (Executive Director)
I wanted to ask about Systems. And I think two of the competitions that you've been looking at for decisions this year, programs are either canceled or under review, but there's maybe some other opportunities emerging that you talked about. How are you thinking about the Systems outlook and the opportunities for growth there?
Scott Donnelly (Chairman and CEO)
Yeah, Seth look, I think obviously we were surprised by the situation on RCV and FTUAS to see those programs be terminated. In both those cases, I do not think it is the end. I mean, certainly the Army is going to continue to invest in robotics, and we will look for ways to participate in those future activities. The same is true on FTUAS. While the FTUAS program was terminated, the Army, again, is putting more money into tactical UAS systems. It is going to be acquired a different way, different competition, and clearly we will compete with our products in those opportunities. It certainly impacted us in terms of what we would have expected timing of those programs, which we kind of had in the win column. There are other opportunities that we will pursue in both those spaces.
What is happening in the year is that we are seeing nice growth and a number of big wins in other portions of the systems portfolio that I think will effectively offset the terminations this year of RCV and FTUAS. There have been a number of things, competitions that are already awarded. Obviously, the Ship-to-Shore Connector program continues to grow. The Sentinel program continues to grow. I think we will see some nice wins in other pieces of the portfolio as we go through the balance of the year.
Seth Seifman (Executive Director)
Okay. Okay. This was the, I think that this was probably the highest earnings quarter for Industrial in a little while. Is there, do you feel like there's potentially some upside there versus the initial outlook?
Scott Donnelly (Chairman and CEO)
Look, we're probably not revising our guides at the time, but I think the industrial business, as you know, we've done a fair bit on post-power sports, taking costs out of the business and restructuring. This is a year where you have this cyclical low on the golf side. That is actually a very predictable cycle and totally consistent with our plan. I think the team is executing well here post-power sports, and we're certainly feeling good about being in the range despite taking the revenue loss on the disposition of the business.
Seth Seifman (Executive Director)
Okay. Great. Thanks very much.
Operator (participant)
Thank you. Our next question comes from Robert Stallard with Vertical Research. Please go ahead, Robert.
Robert Stallard (Partner)
Thanks so much. Good morning.
Scott Donnelly (Chairman and CEO)
Good morning.
Robert Stallard (Partner)
Scott, first of all, on FLRAA, which I now should call MV-75. With the acceleration plan, would this require Textron to put in more capital to enable this 18-month acceleration?
Scott Donnelly (Chairman and CEO)
Yeah, Robert, I would say sure. I mean, we've always had a capital plan that ties in with the production program and ramping that. Certainly, in terms of how we were thinking about the long term, this would accelerate those plans, let's say, on the order of around 18 months. We've always anticipated that this was coming, but it's a manageable number, and it's something that we factor into our long-range plan. That would be a fantastic outcome if we have to spend more capital sooner to ramp this program.
Robert Stallard (Partner)
Right. Yeah. And then secondly, on aviation, we've seen some of your peers signing up to new big fleet purchases. Is this something you'd be interested in doing more of going forward?
Scott Donnelly (Chairman and CEO)
Look, I think we're only interested in fleet business if it's good business. I mean, our demand continues to be strong. Our retail demand is strong. We're always happy to look at fleet deals. As you know, we do some fleet deals, but it needs to make economic sense for us to participate in those. In the meantime, we're very happy with our retail business. The demand is there. The backlog is there. We always look at every opportunity, whether it's a one-off aircraft or a fleet.
Robert Stallard (Partner)
Yeah. Okay. Thanks very much, Scott.
Scott Donnelly (Chairman and CEO)
Sure.
Operator (participant)
Thank you. Our next question comes from Myles Walton with Wolfe Research. Please go ahead.
Myles Walton (Managing Director)
Thanks. Good morning. Scott, I was wondering, given your experience in the Group 3 UAS market, is there any interest, given the attention of the administration and the SecDef, on a smaller drone market for higher levels of investment at Textron more broadly?
Scott Donnelly (Chairman and CEO)
Okay. The Group 3 has obviously been our strong suit. There are opportunities. There is R&D work going on, looking at some of the smaller classes or, frankly, places where we might participate in some of these programs, but nothing that we would announce or specifically comment on at this time, I guess.
Myles Walton (Managing Director)
Okay. Good enough. Then, I guess, from a perspective of the 525, is there any update you can offer on that certification? That does seem like the FAA maybe is moving along with things and maybe there's more adjudication that's being done?
Scott Donnelly (Chairman and CEO)
I mean, it's hard for us to comment. I mean, obviously, that's very much an FAA process at this stage of the game. I'd like to think we're in kind of the last stages here and obviously a lot of documentation going back and forth and trying to get through final test criteria. We're just going to continue to work that with the FAA.
Myles Walton (Managing Director)
All right. Thank you.
Operator (participant)
Thank you. Our next question comes from Ronald Epstein with Bank of America. Please go ahead.
Samantha Stiroh (Equity Research Associate)
Hi, good morning. This is Samantha Stiroh. I'm for Ron today. I was just wanting to ask about capital deployment. You did about $200 million of share repurchases in the quarter. How are you thinking about that going forward? And then M&A opportunities. Thanks.
Scott Donnelly (Chairman and CEO)
Sure. Look, as we've said, I think our primary focus on capital deployment is opportunistic share buyback. Obviously, that's certainly what we did in the first half of the year. I would expect we will continue that through the second half of the year. From an acquisition standpoint, if something made sense, I think we have plenty of capacity to be able to do something like that. In the meantime, the most logical thing for us to do, and I think the best return for our shareholders in terms of where we are, is to continue to focus capital in redeployment via share buyback. Hello?
Operator (participant)
Thank you. Our next question comes from Doug Harned with Bernstein. Please go ahead.
Doug Harned (Managing Director)
Good morning. Thank you. Going back to demand. You've talked about it. It looks strong. We've heard some of that from others. When you consider your—could you describe your discussions with corporate customers? On one hand, they've got uncertainty in this environment, this tariff environment, on when to make capital investments. On the other hand, you've got bonus depreciation. How do you see these different factors playing into those decisions at your corporate customers?
Scott Donnelly (Chairman and CEO)
I think none of everything is positive. I think the corporate world is healthy right now. Sure. Everybody, obviously, depending on companies, has a lot of different exposures or not relative to the tariff situation. But the demand, the dialogues are good. Flying is very strong, right, which helps to drive our aftermarket. It sure appears to us that the corporate world is flying and buying and managing their fleets, as you would expect, in pretty good times.
Doug Harned (Managing Director)
Then separately at Bell. You had high R&D in the quarter. Where are you directing that? Is that connected at all to MV-25, or is that on the commercial side? What are you looking at in terms of investment there?
Scott Donnelly (Chairman and CEO)
MV-25 is primarily contracted now, right? That is all under the EMD phase. The R&D spending, obviously, it looked lighter, I mean, in the quarter. A year ago, that was largely because of the termination of the FLRAA program and sort of the closeout of that contract and whatnot. When you look at and think about the balance of our year, we will have higher R&D spending. The R&D spending on the commercial side is largely focused around the 525 and completing that program. On the military side, it is really focused around the R&D programs that we need to execute to support the development of the high-speed VTOL program, especially now with having been selected for the DARPA SPRINT program.
I would expect R&D to be fairly flat on a quarter-to-quarter, certainly up over last year, again, largely because of the increased spend on R&D associated with the high-speed VTOL program.
Doug Harned (Managing Director)
Okay. Very good. Thank you.
Operator (participant)
Thank you. Our next question comes from Noah Poponak with Goldman Sachs. Please go ahead, Noah.
Noah Poponak (Managing Director and Aerospace & Defense Equity Research)
Hey, good morning, everyone. On MV-75. When you put the pieces together of movement in timing of EMD and LREP, does total program revenue grow each of the next few years, or does it decline at any point in the window as you're shifting from development to ELRIP and before you make it to full-rate production?
Scott Donnelly (Chairman and CEO)
I do not know the exact answer to that yet, Noah. I think we have to continue to work on what the production acceleration looks like. EMD clearly is up here in the next couple of years. The pull forward of the ELRIP volumes would obviously add to that. I mean, I guess I feel fairly confident saying it is going to continue to grow for the next couple of years, but we have got to get that—I mean, from an Army budgeting standpoint, this is very much a work in process, right, as they look at their 2027, 2028 and on program budgets. Certainly, what the secretary and the chief would like to go do when they talk about the volumes and getting things delivered out to the 101st would drive incremental volume here for the next several years.
Noah Poponak (Managing Director and Aerospace & Defense Equity Research)
Okay. Scott, the industry has had these other examples of programs that fixed the ELRIP pricing at the time of the bid. Where by the time you get to ELRIP, there's been cost creep, so your ELRIPs are break-even or loss-making. Can you talk about where you see price cost right now on the ELRIPs compared to when you bid?
Scott Donnelly (Chairman and CEO)
I'm not sure we go into that level of detail, no. I mean, we expect—and like you know, the ELRIP, the eight ELRIP aircraft were bid as a fixed price as part of the original contract. You would not expect margins to be very good there. I think part of what you see in our margin rates is pretty conservative assumptions on our part to have the appropriate amount of MR to support those programs. Those have not been definitized yet. Supplier pricing has been locked in. I do not have specific numbers for you, but we would expect those—and I always have expected those—to be pretty challenging for those first eight aircraft.
Noah Poponak (Managing Director and Aerospace & Defense Equity Research)
Okay. And then just last one, I was hoping to ask you about, Scott, just how you're thinking about setting supply and deliveries at Cessna for the rest of this year and into next year. Just we've had this window with the strike and supply chain. It's a little tricky to sort of have a sense for where you think supply should be, I guess, on a run-rate basis from here.
Scott Donnelly (Chairman and CEO)
Yeah. Look, I mean, obviously, as we got it all the way back to the beginning of the year, we certainly have a production plan that has a ramp going through the course of the year. That has been well communicated to all of our suppliers, obviously. As you know, probably a lot of our stuff is in that two-year for some of that long-cycle material. Certainly, those suppliers are understanding with where we are on the ramp this year and even out through 2026 as well. I think supplier communication and recognition of what that supply chain ramp needs to look like is pretty well understood. Not everybody is totally there, obviously. The supply chain, I would say, is in much better condition than it was going back a couple of years ago, but you still have issues that pop up.
As we always say, it is good not to have too many supplier problems, but every supplier part is an important part, right? I think it is not because of a lack of understanding of what the ramp needs to be. It is execution. Obviously, we work through that every day.
Noah Poponak (Managing Director and Aerospace & Defense Equity Research)
Should we still be thinking about the 2019 just over 200 units being recovered in the medium term?
Scott Donnelly (Chairman and CEO)
I'm not sure we're prepared to give guidance for 2026 just yet.
Noah Poponak (Managing Director and Aerospace & Defense Equity Research)
Okay. Fair enough. Thank you very much.
Scott Donnelly (Chairman and CEO)
Okay. Okay.
Operator (participant)
Thank you. Our next question comes from Gotham Connor with TD Cowen. Please go ahead.
Good morning. Thanks, guys.
Scott Donnelly (Chairman and CEO)
Sure.
David Rosenberg (CFO)
Good morning.
Was wondering if you could elaborate a little bit on commercial helicopter demand, how that's trending.
Scott Donnelly (Chairman and CEO)
I'd say it's strong, actually, across all the models. Everything from the 412s all the way down to the 505s. I think the commercial helicopter business is in good shape. We had strong delivery on a year-over-year basis here in Q1 and Q2. Q3, Q4 was much stronger last year. I think we'll have more comparable comps on a year-over-year basis. Certainly, for the total year, helicopter deliveries are looking good. Order activity is very good. I think that business is in good shape.
Just stepping back broadly, would you say that you haven't really seen much demand erosion due to tariffs and all the trade policy uncertainty across the portfolio? Or have you seen evidence of that?
Not at this point. No. We have not seen evidence of that yet. I'm not saying it can't happen, but I think most customers are sort of taking sort of a wait-and-see with some of these things or just assuming that things are going to get resolved. If you look at a lot of our stuff, particularly the fixed-wing world and business jets, we're largely North American anyway. A lot of our international helicopter things end up being either FMS or some foreign military. I think that activity, that order rate, seems to be continuing despite a lot of the tariff dialogue.
Thank you.
Sure.
Operator (participant)
Thank you. Our next question comes from Christine LuEG with Morgan Stanley. Please go ahead.
Christine Lueg (Research Analyst)
Hey, good morning, everyone. Scott, maybe on tariffs and aviation, I mean, tariffs are increasing the cost for your European and Brazilian competitors. As these things shake out and some of the tariffs stick, ultimately, they'll probably see an incremental higher cost for U.S. customers. When we think about this shaking out in the next few years, do you see this as an opportunity to gain market share, or is this an opportunity to get more price and also get more margin?
Scott Donnelly (Chairman and CEO)
Look, Christine, I think, again, I think we need to give this time and see where all the tariff dialogues settle out. I'm a little reluctant to think about a year, two years, three years down the road on these things. I mean, there are certainly cases where we have foreign competition that just has a lower cost basis and tends to be more aggressive on price. We kind of hold the line in there and have tried to be focused on making sure we're running a profitable business and the business can afford to keep reinvesting in product lines, and we'll continue to do that. Do long-term tariffs start to play a little more of a normalizing in terms of some of the cost and pricing that we see? I mean, that could be.
I'd say it's too early in the process to really know the answer to that question.
Christine Lueg (Research Analyst)
Thanks. Maybe switching gears to eAviation. Earlier this year, you had the Nuuva V300 get its first flight. How's been the customer reception of this aircraft? Are you expecting this to enter into service this year? Should it enter into service this year, what kind of customer milestones or production rate are you thinking about for an aircraft like this?
Scott Donnelly (Chairman and CEO)
Oh, look, the flight test program continues. There is a lot of work going on. We continue to fly regularly. Obviously, we have done a fair bit of hover flying. We do need to go into conversion mode. I think, Christine, in terms of certifications of aircraft of this class, that is just something I do not see in the near term. I do think we see some interest on some military applications. I mean, given the range and the payload capability of this craft compared to others, I think we could have a real advantage there. We are in early dialogues with those prospective customers as they start to see what this aircraft could really do from a performance standpoint. I mean, right now, on a commercial basis, I see no pathway to how you certify these kinds of aircraft.
I certainly would not expect something that could happen anywhere near this year or next year.
Christine Lueg (Research Analyst)
Great. Thanks for the color.
Scott Donnelly (Chairman and CEO)
Sure.
Operator (participant)
Thank you. Our next question comes from Gavin Parsons with UBS. Please go ahead.
Gavin Parsons (Director and Aerospace & Defense Equity Research)
Thanks. Good morning.
David Rosenberg (CFO)
Good morning.
Scott Donnelly (Chairman and CEO)
Morning.
Gavin Parsons (Director and Aerospace & Defense Equity Research)
I guess it's been kind of four quarters now that aviation margins have been pretty disrupted. Is the second half of this year pretty normal? As we think about going beyond 2025, is that a good baseline?
Scott Donnelly (Chairman and CEO)
I think our progression of margin through the course of the year is playing out as we expected. I think the issues that we had around the impacts of the strike and what that meant to our shift in our production to the right and a lot of the disruption and things of that nature are fairly well behind us. I think we're very much on plan to hit the guide numbers that we gave you guys. Certainly, with those disruptions behind us, you would expect to see good margins for the business as we go on into 2026. We're not going to guide yet, but obviously you guys will definitely see the kind of margins that we expected for the full year to come in well within that range that we guided.
I think considering all the disruptions and challenges from the strike and the holdover and ongoing supply chain issues, to be posting about 12% margins, I think the business is doing pretty well. Certainly, we expect that margin rate to expand over the course of the year.
Gavin Parsons (Director and Aerospace & Defense Equity Research)
Okay. Thanks. Once you get through Denali, any categories where you see the opportunity for a new aircraft in aviation?
Scott Donnelly (Chairman and CEO)
Not that we are prepared to announce at this time.
Gavin Parsons (Director and Aerospace & Defense Equity Research)
Okay. Thank you.
Operator (participant)
Thank you. Our next question comes from David Strauss with Barclays. Please go ahead.
David Strauss (Managing Director and Equity Research of Aerospace & Defense)
Thanks. Thanks for taking the follow-up. Scott, what's the outlook for King Air? I mean, the volumes have come down a fair amount there. Where could that settle out for the year?
Scott Donnelly (Chairman and CEO)
Sure, David. Look, I think the King Air line, as I kind of mentioned earlier, is one of the more challenging lines. I mean, it's just an older product line in terms of tooling and documentation. I mean, it's always been a great product, but it probably was impacted more than anything else in terms of just the challenges of going through the strike and all the COVID, the turnovers, and all that kind of stuff. I think that line has stabilized and is running much better than it was. I think we'll have strong deliveries in Q3 and Q4 on the King Air line. As I said, it's probably the last line to recover from a lot of the disruptions. It is now flowing well. Like I say, I think it supports considerably higher deliveries in Q3 and Q4.
David Strauss (Managing Director and Equity Research of Aerospace & Defense)
Okay. And Kautex, was that flat or maybe just down a little bit in the quarter?
Scott Donnelly (Chairman and CEO)
It was down a little bit in the quarter, which, again, is what we expected. I think the global automotive markets are more or less behaving as had been expected. That team continues to do a nice job in terms of managing cost and capital deployment and all that kind of stuff. I'd say on the positive side there, we've been investing, as you guys know, for a number of years around Panasonic to make sure that we have a good play in the pure battery electric vehicle market. We do continue to see nice momentum shift in hybrid, which is an important piece of the tank business for us. Not just the tank piece, but also the opportunity to participate in the battery portion of a hybrid vehicle.
The win this past quarter with a major OEM on their EV platforms, I think, is encouraging for the future of that business.
David Strauss (Managing Director and Equity Research of Aerospace & Defense)
Okay. And then last one. Dave, on the tax rate step-up, is there fairly ratable Q3, Q4, or is there a big catch-up in Q3?
David Rosenberg (CFO)
You're right, David. It's going to be a big catch-up in Q3, reflecting the cumulative impact to date for the year. It will be Q3 skewed.
Scott Donnelly (Chairman and CEO)
I think on the tax thing, guys, everybody—I mean, I know there is a dialogue with a lot of companies, right? The tax bill is a very good thing, right? I mean, it is going to give us a significant impact on cash for the next several years. The bonus depreciation is clearly positive for our customers who buy our large capital assets. It is also good for us because we do deploy capital. I think this is mostly good. We are going to take this near-term perturbation of a tax rate increase, which, as David said, is probably 200-300 basis points. It is what it is. I think, net of everything, the tax bill is a good thing for our company.
David Strauss (Managing Director and Equity Research of Aerospace & Defense)
Sorry, on the back of that, I got to ask one more. On Section 174, I thought the benefit might be larger than the $100 million that you took cash flow up by. Is there any offset to that running through the numbers?
David Rosenberg (CFO)
That's where we see it right now, where it's a relatively complicated bill. We are continuing to evaluate it, and we'll continue to try to drive additional opportunity. That's how we see the impact, at least for this year at this point. As Scott mentioned, overall, it's a significant positive on cash flow as we go forward.
David Strauss (Managing Director and Equity Research of Aerospace & Defense)
Okay. Thanks, guys. Appreciate it.
Scott Donnelly (Chairman and CEO)
Sure.
Operator (participant)
Thank you. Our next question comes from Pete Skibitzki with Alembic Global. Please go ahead.
Pete Skibitski (Director and Aerospace & Defense Equity Research)
Hey, good morning, guys. Scott, just one. Just one quick one from me. In the second quarter, one of your engine suppliers, Williams International, announced a pretty sizable—I think they're calling it a billion-dollar expansion—into Florida and some of their other facilities as well. Obviously, they have other customers, but I was wondering if you'd give us any color at all in terms of what that might mean for Citation and just the visibility to continue to grow. Maybe beyond the near term.
Scott Donnelly (Chairman and CEO)
I mean, obviously, I won't comment on their particular expansion works. Look, Williams is a very important supplier to us. They've been a very good supplier to us. They deliver a great product. It has a history of delivering great performance. It's a good relationship and one that I expect to see continue to grow into the future. Williams does a great job of supporting our new product programs and expect they'll continue to do so in the future as well.
Pete Skibitski (Director and Aerospace & Defense Equity Research)
Thank you.
Operator (participant)
Thank you. At this time, we have no further questions. This concludes our call. Thank you all for your participation. You may now disconnect your line.