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    TEXTRON (TXT)

    Q3 2024 Earnings Summary

    Reported on Jan 6, 2025 (Before Market Open)
    Pre-Earnings Price$86.87Last close (Oct 23, 2024)
    Post-Earnings Price$82.00Open (Oct 24, 2024)
    Price Change
    $-4.87(-5.61%)

    What went well

    • Textron's Aviation segment is experiencing strong demand, with over $1 billion in orders during Q3 2024, a quarter that is usually lighter due to the summer, driven by significant updates to models like the M2, CJ3, CJ4, and the new Ascend.
    • The company expects robust profitability in its Aviation business, maintaining a conversion rate of 20-plus percent of revenue, given the mix of gross margin across the business.
    • The commercial market at Bell is strong, with significant wins such as the contract with Nigeria, which will grow H1 original equipment volumes over the next 2-3 years.

    What went wrong

    • Ongoing softness in Industrial segment end markets: The company expects certain segments of the Industrial business to remain soft for a while, necessitating further restructuring to maximize performance.
    • Challenges in the European automotive market: Auto sales are down globally, with Europe being the most challenged market, leading to volumes being below where we would like them to be in the Kautex business.
    • Significant impact from the Aviation strike: A 5-week strike at Textron Aviation has resulted in $0.5 billion of revenue adjustment, causing inefficiencies and delays in ramping back up, contributing to a lowered 2024 earnings guidance from $6.20-$6.40 to $5.40-$5.60 per share.

    Q&A Summary

    1. Aviation Strike Impact
      Q: How has the strike affected Aviation production and recovery plans?
      A: The five-week strike at Aviation led to a $0.5 billion revenue drop due to production halts and delays. Management expects the workforce to be fully back and operations to ramp up, reaching normal productivity by January. The lost sales are not lost but pushed into 2025, with plans to deliver those aircraft and even exceed original 2024 guidance in 2025.

    2. 2025 Revenue Outlook
      Q: Will 2025 revenues recover from 2024 disruptions?
      A: Despite the 2024 interruptions, management expects revenue growth in 2025 above the original 2024 guidance. The company plans to expand capacity and deliver more products, with the production ramp still on track.

    3. Aviation Margins
      Q: What is the outlook for Aviation margins amid cost pressures?
      A: The company continues to target a conversion rate of 20-plus percent for Aviation. The strike has led to lower volumes with fixed costs remaining, impacting margins in Q3 and the full year. Management emphasizes driving productivity and efficiency to maintain margins.

    4. FLRAA Program Growth
      Q: How will the FLRAA program impact Systems growth?
      A: The FLRAA program is expected to generate around $900 million in revenue this year, increasing by $100 to $200 million next year. This growth, along with other key programs, is crucial for driving future growth in the Systems segment.

    5. Demand Environment and Orders
      Q: What is the current demand environment for Aviation products?
      A: The company saw over $1 billion in orders in Q3, indicating strong demand. New product refreshes like the M2, CJ3, and CJ4, as well as the upcoming Ascend, are well-received, contributing to healthy market activity.

    6. Pricing and Inflation
      Q: How is pricing net of inflation affecting margins?
      A: Pricing remains strong, but the price versus inflation spread is compressing. The company emphasizes the need to drive productivity and efficiency rather than relying on pricing to improve margins. This quarter saw net zero price impact due to lower volumes from the strike.

    7. Supply Chain Improvements
      Q: Are supply chain issues being resolved?
      A: Management worked during the strike to improve supplier parts delivery, reducing part shortages that previously caused inefficiencies. They feel much better about the supply chain, expecting fewer disruptions moving forward.

    8. Labor Productivity
      Q: How is labor productivity recovering post-pandemic?
      A: Labor productivity had been impacted by turnover and training of new hires. The new labor contract is expected to improve retention and attraction, stabilizing the workforce and enhancing productivity.

    9. Industrial Segment Challenges
      Q: What is the outlook for the Industrial segment amid market softness?
      A: The Industrial segment has experienced softness all year, particularly in certain end markets. The company is cutting back on production volumes and continuing restructuring efforts to navigate the challenging environment.

    10. Bell 525 Certification
      Q: Is the Bell 525 certification on track?
      A: The flight test program is progressing well, but certification may slip into 2025 due to the extensive approvals required.

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