Textron Q1 2023 Earnings Call Transcript

Presentation

[Operator]

Thank you for standing by and welcome to the Q123 Textron Earnings Release Conference Call. [Operator Instructions].

I would now like to turn the conference over to your host, Mr. Eric Salander, Vice President of Investor Relations. Please go ahead, sir.

[Eric Salander, Vice President, Investor Relations at Textron]

Thanks, Bradley, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website.

Revenues in the quarter with $3 billion up $23 million from last year's first quarter. Segment profit in the quarter was $259 million down $18 million from the first quarter of 2022. During this year's first quarter, we reported net income of $0.92 per share. Adjusted net income, a non-GAAP measure, was $1.5 per share compared to $0.97 per share in last year's first quarter. Manufacturing cash flow before pension contributions, a non-GAAP measure, totaled a $104 million in the quarter compared to $209 million in the first quarter of 2022. With that, I'll turn the call over to Scott.

[Scott C. Donnelly, Chairman and CEO at Textron]

Thanks, Eric, and good morning, everyone. We had a solid first quarter. Revenues up aviation Industrial Systems, largely offset by lower revenues at Bell, consistent with our expectations. At Aviation in the quarter, we delivered 35 jets, down from 39 last year and 34 commercial turboprops up from 31% in last year's first quarter. Aviation continued to see solid demand across jet and turboprop products. Backlog grew $136 million and in the first quarter at $6.5 billion. In the quarter, Aviation received the national award on US Navy multi-engine training system contract for 10 King Air, 260 aircraft and associated support equipment. This contract includes options for up to 64 aircraft deliveries in 2024 through 2026. Textron Aviation's fleet utilization remains strong in the quarter contributing to aftermarket revenue growth of 9% as compared to last year's first quarter.

Moving to Bell, we announced the appointment of Lisa Atherton, CEO succeeding Mitch Snyder who will retire at the end of April. Lisa return to Bell in January after more than five years as the President, CEO of Textron Systems. She has done an outstanding job building strong teams at Bell and Textron Systems and 16 years to the company and is only confidence for military customers. I want to thank, Mitch, for his leadership during his tenure, he oversaw significant wins of those military business along with development of new technologies and product innovations.

Earlier this month, the FLRAA contract protest was denied and US Army subsequently cancel the stop work order allowing work on the contract to proceed. On the commercial side of Bell, we delivered 22 helicopters down from 25 in last year's first quarter. During the quarter, we saw solid customer activity across all our commercial products and markets including order from the Polish National Police for four additional Bell 407s, which will expand their fleet to seven aircraft.

Textron Systems, we saw good margin performance on higher revenues across our programs. During the quarter, Systems' Aerosonde Hybrid Quad was among five competing unmanned aerial systems were down selected for Increment-2 of the Army's Future Tactical Unmanned Aircraft System competition. Also during the quarter, Systems delivered Craft-105 of the US Navy Ship to Shore Connector Program. The seventh craft delivered to the Navy. There are now two craft remaining to be delivered under the detailed design and construction contract.

Moving to industrial, we saw higher revenues in the quarter, driven by higher-volume, both the specialized vehicles and Kautex. Specialized Vehicles, the golf business continues to see strong demand and pricing for its lithium product. The Kautex, we announced the first Pentatonic order from an automotive OEM for a thermoplastic composite underbody battery protection skid plate. The skid plate is part of the company's new Pentatonic battery system product line supporting battery electric vehicle production.

Moving to Aviation, during the quarter, we announced two new US distribution partners on the East Coast to further expand the patrol existing distribution network. Also in the quarter, we finalized a deal with [Indecipherable] Airlines for 25 Alpha Trainer aircraft and an option for 75 additional aircraft. At some point during the quarter, we displayed the Pipistrel Panthera and Bell's electro aircraft receiving [Indecipherable] customer interest in both models. With that, I'll turn the call over to Frank.

[Frank Connor, Chief Financial Officer at Textron]

Thank you, Scott, and good morning, everyone. Let's review how each of the segments contribute starting with Textron Aviation. Revenues at Textron Aviation of $1.1 billion were up $109 million from the first quarter of 2022, reflecting higher pricing of $58 million and higher volume of $51 million which included higher defense in aftermarket volume. Segment profit was $125 million in the first quarter, up $15 million from a year ago, largely due to favorable pricing net of inflation of $17 million and the impact from the higher volume and mix, partially offset by an unfavorable impact from performance of $17 million. Backlog in the segment ended the quarter at $6.5 billion.

Moving to Bell, revenues were $621 million down $213 million from last year's - from last year as expected on lower military revenues reflecting lower spares and support volume and V-22 and H1 production volume. Segment profit of $60 million was down $31 million from last year's first quarter primarily reflecting lower volume and mix, partially offset by a favorable impact from performance of $29 million reflecting lower research and development costs. Backlog in the segment ended the quarter at $4.6 billion.

At Textron Systems, revenues were $306 million up $33 million from last year's first quarter largely reflecting higher volume. Segment profit of $34 million was up $6 million from a year ago, primarily due to a favorable impact from performance. Backlog in the segment ended the quarter at $2 billion.

Industrial revenues were $932 million up $94 million from last year's first quarter largely due to higher volume and mix at both Textron Specialized Vehicles at Kautex. Segment profit of $41 million was up $2 million from the first quarter of 2022 primarily due to higher volume and mix and a favorable impact from pricing, net of inflation, principally in specialized vehicles product line, partially offset by an unfavorable impact from performance.

Textron E-Aviation segment revenues were $4 million and segment loss was $9 million in the quarter primarily reflecting research and development costs. Finance segment revenues were $12 million and profit was $8 million. Moving below segment profit, corporate expenses were $39 million. Net interest expense was $17 million LIFO inventory provision was $25 million, intangible asset amortization was $10 million and the non-service component of pension and post-retirement income were $59 million.

In the quarter, we repurchased approximately 5.2 million shares returning $377 million in cash to shareholders. To wrap-up with guidance, we are reiterating our expected full-year adjusted earnings per share to be in a range of $5 to $5.20. We also continue to expect full year manufacturing cash flow before pension contributions of $900 million to a $1 billion. That concludes our prepared remarks. So Bradley, we can open the line for questions. Bradley.

Questions and Answers

[Operator]

Of course. And our first question comes from the line of Sheila Kahyaoglu from Jefferies. Please go ahead.

[Sheila Kahyaoglu, Managing Director at Textron]

Thank you and good morning, guys.

[Frank Connor, Chief Financial Officer at Textron]

Good morning.

[Sheila Kahyaoglu, Managing Director at Textron]

I wanted to ask about Bell profitability. Frank, I think you mentioned some favorable performance in there, but with the FLRAA protest, now cleared, how does this change in the trajectory of at Bell profit and how are you thinking about the dilution just given the development work and just thinking about the bed overall Textron's development value was nearly two times blocky. So how do we think about this in terms of revenue contribution?

[Frank Connor, Chief Financial Officer at Textron]

Well, I'd say that we had anticipated or we had planned basically for a delay in FLRAA. When we gave our guidance, so FLRAA is going to roll-in consistent with how we had seen Bell in terms of the $3.3 billion of revenue and 8 a quarter and 9 a quarter not guidance, obviously we had margins above that for this quarter. So, we do expect to be within that margin range that we had guided to. We do expect to see revenue growth that we think this will be the low quarter for Bell from the revenue standpoint. So as FLRAA kicks-in, we've talked about that being a lower contribution margin will see ultimately kind of where we get in terms of booking rates on that, but we do expect volume growth with some margin headwinds associated with that revenue coming in. But overall, the team did a really nice job from a cost structure standpoint this quarter offsetting that decline in volume. And we feel good about kind of how Bell is positioned in the performance of the business.

[Sheila Kahyaoglu, Managing Director at Textron]

And then just maybe Scott, one for you. How do we think about Aviation pricing, I think you mentioned $58 million of gross price of 5%, is that sort of what we should expect on the growth side and how do we think about that as the dynamics of the market are changing?

[Scott C. Donnelly, Chairman and CEO at Textron]

Yeah I think so Sheila, I mean obviously the pricing is well built into the backlog. I think we are on track in terms of our expectations on costs, so I would continue to expect to see pricing of net of inflation as a positive. Demand is still good in the marketplace. I think pricing is, is - is stable out there as we look out into the future bookings, so again I think the it's a reasonable expectation to think that we're going to continue to see price net of inflation as a positive going-forward.

[Sheila Kahyaoglu, Managing Director at Textron]

Thank you.

[Scott C. Donnelly, Chairman and CEO at Textron]

Sure.

[Operator]

And our next question comes from the line of Doug Harned from Bernstein. Please go ahead.

[Doug Harned, Managing Director at Textron]

Good morning, and thank you.

[Scott C. Donnelly, Chairman and CEO at Textron]

Good morning.

[Doug Harned, Managing Director at Textron]

When you - when you look at the first quarter, an orders in Aviation, yesterday we heard from General Dynamics that Gulfstream had some hiccups around the banking crisis that Silicon Valley Bank that actually delayed a lot of decision making in pushing orders through. How did you find that period at Aviation. Have you seen similar things there in terms of order flow?

[Scott C. Donnelly, Chairman and CEO at Textron]

Look. I don't know that I would pin something specifically to Silicon Valley Bank but when we had a positive greater than one-to-one book-to-bill in the quarter, which is good. We kind of guided to around a one-to-one book-to-bill. I think the lead-time that we have right now on aircraft is in a pretty healthy place and that's kind of what we're - what we're targeting. I guess I would say that anytime you have financial disruption in are - adverse events out there in the economy in general is certainly easy for people to say, hey look let me - let me think about it or wait a little bit. I think the good position we have right now is we have enough backlog out there that even if you have a quarter where you're down below one-to-one. That's not the end-of-the world like if somebody differs out there for few months. That's not a problem and that's the beauty of having a backlog. So unlike previous periods where you had some interruption and you'd see a delay, then that would hit you in terms of revenue and profit in the near term. I think we have sufficient backlog out there that even if you do have something were somebody waits a little bit then that's fine.

[Doug Harned, Managing Director at Textron]

And then when you look - when you look forward and you're talking about the book-to-bill in the order of one this year. When you look beyond that if it, how do you think about the aftermarket. I mean, we might look at this as the aftermarket should grow somewhat proportionate to the fleet, but do you expect other factors to give you more growth there, such as more content for airplane or pricing?

[Scott C. Donnelly, Chairman and CEO at Textron]

Well, Doug I think it's a lot more driven around utilization right. So flight hours is more closely correlated with the growth in the aftermarket as opposed to necessarily the fleet numbers. I mean, our fleet is so huge that even adding small numbers in any given quarter doesn't make any real impact, so I think it's primarily driven around utilization and utilization and the fleet remains very high.

[Doug Harned, Managing Director at Textron]

Very good. Thank you.

[Scott C. Donnelly, Chairman and CEO at Textron]

Sure.

[Operator]

And our next question comes from the line of Seth Seifman with JP Morgan. Please go ahead.

[Seth Seifman, Executive Directory at Textron]

Okay. Thanks very much, and good morning. You saw the share repurchase amount top up nicely this quarter. I guess you talk about your - your thinking around that and maybe where you expect share repo to come in for the year. I guess you guys might have some some additional cash coming in from recent verdict and so what were your thoughts are on repo this year and whether maybe it's time to step things up.

[Scott C. Donnelly, Chairman and CEO at Textron]

Well, so I think what you did see us do is step things up here in the first quarter. We've always said that that's our primary return of capital will be through share repurchase and to do that opportunistically we feel we've still been sort of in a good place to be volume. So we stepped up $377 million in the quarter. Our cash flow and the company continues to be strong. We have a lot of cash on the balance sheet as you guys know and so I think consistent with what we guided at the - at the beginning of the year, we expect to probably buy-back somewhere in that 5% to 6% of the outstanding shares. So the first-quarter was indicative of doing that.

In terms of what's been out there in the media, in the press around this intellectual property verdict, obviously we're not going to comment much on that as it goes on through the legal process but that's not something that we would expect to see cash come in anytime in the near future, appeal processes, who knows how that's going to play out. So that doesn't - that doesn't factor into our thinking in terms of share repossession at this time.

[Seth Seifman, Executive Directory at Textron]

Okay, great. I'll leave it there this morning and pass it on. Thanks very much.

[Scott C. Donnelly, Chairman and CEO at Textron]

Great thank you.

[Operator]

And our next question comes from the line of Cai von Rumohr with Cowen. Please go ahead.

[Cai von Rumohr, Managing Director at Textron]

Thanks for taking the question and nice results. So at Aviation maybe give us some color in terms of relative trend you're seeing in supply chain and also what was the commercial, this jet book-to-bill because obviously you also got some Defense orders there in the quarter?

[Scott C. Donnelly, Chairman and CEO at Textron]

So the supply chain side Cai, is largely unchanged. I would say that, kind of, as we've talked about earlier I think our labor position is in a much better place than it was. We did bring a lot of resources in the - in the third and fourth quarter last year, obviously that does create some disruption, which as you know, it affects some of our conversion here, some of that inefficiency on, here in the first half of this year, but we're largely staffed the levels where we want to be. So I would say on that front things are certainly improved, but we continue to have suppliers, have issues that are causing us to do things out of sequence and driving still some inefficiencies in and how we operate the plant, so it's - I'd say it's not getting worse, but it's not necessarily getting better, sometimes it's frustrating that you get one kind of resolve and other supplier becomes a problem and I - we kind of expect that to be ongoing issue through most of the balance of this year. So I don't think there's any big surprises there but it's still a challenge.

As far as order look, our book-to-bill was greater than one we feel good about that. It's - we don't break it out down to the individual models or programs, but certainly we're - I'd say we're happy with how the demand is going in both jets and turboprops. So would - I think we're in a pretty good place.

[Cai von Rumohr, Managing Director at Textron]

Okay and then a follow-up to Seth's question, 5.2 million shares is like 2.5%, so essentially in one quarter you've done half of your buyback target for the year, you won FLRAA, you had this bluebird of the DJI patent suit. What's the chance that basically the 5% to 6% is exceeded in terms of the repo?

[Scott C. Donnelly, Chairman and CEO at Textron]

Well look, I think again we're going to continue to press on this opportunistically, Cai, and we'll see how it plays out through the balance of the year, but I mean, as you know, it's not really formal guidance which kind of indicates you guys to tell how we're thinking and there is no change in how we're thinking continuing to be our primary means of returning value to shareholders.

[Cai von Rumohr, Managing Director at Textron]

Fabulous. Thank you very much.

[Operator]

And our next question comes from the line of Robert Stallard with Vertical Research. Please go ahead.

[Robert Stallard, Partner at Textron]

Thanks so much. Good morning.

[Scott C. Donnelly, Chairman and CEO at Textron]

Morning.

[Frank Connor, Chief Financial Officer at Textron]

Morning

[Robert Stallard, Partner at Textron]

First of all, Frank, you said you're holding the EPS and cash flow guidance for the year. Are there any changes in the divisional guidance for 2023.

[Frank Connor, Chief Financial Officer at Textron]

No, it's roughly in-line with where we had been.

[Robert Stallard, Partner at Textron]

Okay and then, Scott, one for you, industrial, double-digit growth in the quarter is pretty healthy performance. How sustainable do you think that is given the economic backdrop that we're seeing particularly on your shorter-cycle products?

[Scott C. Donnelly, Chairman and CEO at Textron]

Look it's something to keep an eye on. I'd say that we're, we're kind of roughly to the plan that we thought. I think here we certainly expect to see and have seen softness in some of the short cycle consumer sided things, but we're seeing strong performance still for, let's say, in some of the industrial and commercial applications. And when we look at our production allocations for instance we're - we're certainly pushing some of our capacity, our volume to serve commercial industrial applications, more so than on some of the consumer side. So, no, that's one where obviously there some uncertainty, we keep a close eye on it. But net of all those things, there's - there's enough demand across all of the different markets that we serve to drive that kind of growth and I think we'll continue to see that through the balance of the year.

[Robert Stallard, Partner at Textron]

Okay, that's great. Thank you.

[Operator]

And our next question comes from the line of David Strauss with Barclays. Please go ahead.

[David Strauss, Managing Director at Textron]

Thanks, good morning.

[Scott C. Donnelly, Chairman and CEO at Textron]

Morning.

[David Strauss, Managing Director at Textron]

Scott. This jet deliveries in the quarter were those a little lighter than you were anticipating just, just looking at how much inventory. I know you always built some inventory in Q1, but there was - there was a pretty big inventory build in the [Indecipherable] with some deliveries, you missed some deliveries are kind of where you came in relative to what you were thinking.

[Scott C. Donnelly, Chairman and CEO at Textron]

Well I mean, it's for sure, but it's a couple of aircraft right I mean. I think it's something is going to pressure us all year long, but we also factored in, in terms of our plans what we thought we would see in terms of headwinds. So I don't think we're - we're very disconnected from what we indicated in terms of the guide for the year.

[David Strauss, Managing Director at Textron]

Okay, was that supply chain related customer decision what drove those delays.

[Scott C. Donnelly, Chairman and CEO at Textron]

Most of the delays we're going to see through the course of the year are supply chain related, just getting parts and being able to get things sequenced in and through test, we haven't seen any real change in customer behavior that's impacted anything.

[David Strauss, Managing Director at Textron]

Okay. And then. I was wondering if you could maybe give a big-picture or look or how we should think about Bell, given all the various moving pieces thinking beyond this year obviously with FLRAA now - now in-house H1 and B-22 rolling-off. I think you are not sure what the outlook is for B-22 aftermarket, but how should we think about the growth profile for Bell, thinking out over the next couple of years given all these moving pieces.

[Scott C. Donnelly, Chairman and CEO at Textron]

Sure, look I think didn't Frank kind of indicated this as well there. We certainly expect revenues to be increasing in Bell through the balance of the year and into next year as the flyer program is ramping up. So I think on the revenue growth side we feel very good about that clearly, as we bring in a higher proportion of primarily cost plus development effort that's going to be at lower margins and those production program volumes on - on B-22 and H1 that have been going down. So you do have that mix issue, that's kind of where that led us to the guide we have out there this year and I think that's kind of where we would expect to be as we go forward, so we're - we're going to get this thing back into - into a growth mode but it is going to be heavily weighted towards cost-plus relatively lower-margin piece of the business, that's going to be offsetting lost revenue that's a higher-margin, but - but I think it stays a healthy business, but it's certainly not going to be at the margin levels that we've seen in the in the past number of years.

[David Strauss, Managing Director at Textron]

Okay, that's helpful. Thank you.

[Scott C. Donnelly, Chairman and CEO at Textron]

Sure.

[Operator]

And our next question comes from the line of Myles Walton with Wolfe Research. Please go ahead.

[Myles Walton, Analyst at Wolfe Research]

Thanks, good morning.

[Scott C. Donnelly, Chairman and CEO at Textron]

Morning.

[Frank Connor, Chief Financial Officer at Textron]

Morning.

[Myles Walton, Analyst at Wolfe Research]

Scott. Scott in the last 12 months I guess or 18 months, last two additions to your Board of Directors were a couple of defense executives and Richard Ambrose and Tom Kennedy. And I'm curious if sort of the trend there is indicative of where you want to be taking the portfolio directionally, more towards Defense and if so, is it indicative of the organics with FLRAA obviously being a contributor or more inorganic from an M&A interest. Thanks.

[Scott C. Donnelly, Chairman and CEO at Textron]

Sure, look, these are both guys who have to your point, a lot of deep experience in the Aerospace and Defense world. Our company has always been sort of a - that 30% Defense with the growth that we're expecting to see in the systems business. With the growth obviously we're expected to see in FLRAA and ongoing opportunities in the near future here. I think of future opportunities in Bell and Systems, I felt like it made a lot of sense for us to to beef up little bit more on the - on the A&D side of the company, both these guys are recent retirees, their current, they know acquisition, they know Defense and then Aerospace technology, so I think there are two great adds on to the Board. So there is no real super underlying message, but obviously these are couple of real high-quality individuals that know our space very well.

[Myles Walton, Analyst at Wolfe Research]

Okay, very good and there was just one clarification if I could on the FLRAA disclosures from the protest, it talked about a cost plus incentive version and fixed price incentive version. Can you just illuminate us on maybe where the fixed price risk you're taking on is and isn't? Thanks.

[Scott C. Donnelly, Chairman and CEO at Textron]

Well I think it is two principal pieces of fixed price. One is kind of a program management and operation layer, which I think is low risk we sort of understand what that is. And then as you guys know there are several deliverables under this full program, there's the EMD phase which has about eight aircraft that are part of the development tests, limited user test for the Army and then there's aircraft that are - so they are [Indecipherable] first initial production craft and the the material that's in there is - is at fixed price, so. But it's heavily weighted towards the cost plus, so.

[Myles Walton, Analyst at Wolfe Research]

Thanks again.

[Scott C. Donnelly, Chairman and CEO at Textron]

Sure.

[Operator]

And our next question comes from the line of George Shapiro with Shapiro Research. Please go ahead.

[George Shapiro, Managing Partner at Textron]

Yeah, yeah, good morning. Yeah. The supply chain issues, I mean, led to an incremental margin of 14% in Aviation this quarter, that's the same that you had in the fourth quarter in the performance impacts $16 and $17 million, it's similar. So do you expect that the rest of the year or can you overcome some of the supply chain issues that you had mentioned, we are going - are going to continue.

[Scott C. Donnelly, Chairman and CEO at Textron]

Sure, George. Look I think it will - it will abate in the back half of the year as we talked about a lot of those efficiencies are things that were experienced in the back half of last year, a lot of that obviously goes through inventories so that releases with the aircraft deliveries here in the first half of of this year. Obviously, that anticipates the performance and disruption will be less in the first half of this year than it was in the last half of last year and I think no more or less so far we're seeing that. I think our factory is running better, that's largely, as I said attributable the fact that we've got the resources on board. There are still issues as turnover is higher than we would like. There's still more churn than historical, But certainly, the plant is running in a more efficient way. Now supplier issues still pop-up, as I said, but net of all that I think that we will see better lower impacts of those efficiencies in the back half of the year than the first half of the year or so even with that 14% which again is kind of where we expect it to be. I think for the total year, the overall conversion, which is sort of 24%, which is appropriate for our business is still something we expect to realize for the total year.

[George Shapiro, Managing Partner at Textron]

Okay, and then have you changed anything about deliveries expectations for the year.

[Scott C. Donnelly, Chairman and CEO at Textron]

No, not really. I think we're still tracking to what we guided.

[George Shapiro, Managing Partner at Textron]

Okay, thanks very much. Good report.

[Operator]

And our next question comes from the line of Peter Arment with Baird. Please go ahead.

[Peter Arment, Managing Director at Textron]

Yeah, thanks. Good morning, Scott and Frank, nice results.

[Scott C. Donnelly, Chairman and CEO at Textron]

Morning.

[Peter Arment, Managing Director at Textron]

Scott, my question is on Aviation, I'll just ask one quick one, there's been a slight kind of increase in used aircraft out there. I'm sure it's in production aircraft still remains very low, just maybe any comments that you're watching or from your perspective on the used market.

[Scott C. Donnelly, Chairman and CEO at Textron]

Sure, Peter. Look, obviously we watch this very carefully and and you see numbers coming out and they looked like the percentage, of course big percentage as on first of all numbers. So I think when we look at the used available - when you look at kind of 0 to - to 10 years-old, it's less than - it's around a couple of tenths of a percent of our of - our fleet. So it's - it's a really-really small number. I mean, we're talking about nine aircraft that we know of right now that are under - under 10 years old versus our fleet size of over 7,000 aircraft. So look at the trend of - of that - we see in the marketplace but remember these are absolute - on an absolute basis, these are our very small numbers, right. So the available for sale is is less than a few percent and about half of those are our 20 -25 plus year old aircraft so. Still very-very positive environment in terms of used aircraft available for sale.

[Peter Arment, Managing Director at Textron]

Thanks so much. Appreciate the color.

[Scott C. Donnelly, Chairman and CEO at Textron]

Sure.

[Operator]

And our next question comes from the line of Pete Skibitski with Alembic Global. Please go ahead.

[Pete Skibitski, Director at Textron]

Good morning, Scott and Frank, and Eric. Little bit on a follow-on to I think it was Myles question on FLRAA. Typically - congrats, you get past GEO review on FLRAA, big milestone there but now you have to kind of switch to keep sold strategy, right. So I'm just wondering, Scott, from your perspective, what your view is on that technical and schedule risk to the development contract, as you kind of move from the - the aircraft in your configuration to the exact production configuration that the Army wants. So I'm just wondering kind of how you gauge the risks and if there are any important milestones that we should be on lookout for.

[Scott C. Donnelly, Chairman and CEO at Textron]

Sure Pete, look I think the way the Army has conducted this acquisition and as you guys know this goes back a decade really right of both sky is going through of design, development, producing prototype aircraft, flying them lots of soldier touchpoints, Army pilots flying them. As you know, as we went even through the formalities of - of the formal RPE and during this whole period of time the proposal valuation there was ongoing effort under the OTA for the - for the Sierra program, which was continuing to reduce risk and finalize design, activities and risk reduction even whilst the proposal valuation was going on and so I think the good news here is we have a really-really solid technical baseline for the aircraft itself, we have a great team that's in-place, ready to go, that is being reassemble here then outgoes to execute EMD program, obviously there's a lot of new stuff here around the Mission Systems and development of that capability in the MOSA system for the and ensures the the architecture of the - of the Mission Systems and how they accommodate changes over time, but I think that we have a really-really good technical baseline the aircraft, we're about to go design and build and fly is is very-very close to the aircraft that we've already designed and built, flown. So I think there's a big chunk of - of risk that has been very effectively reduced and we're ready to - to go get out it.

[Pete Skibitski, Director at Textron]

Okay. I appreciate the color.

[Scott C. Donnelly, Chairman and CEO at Textron]

Sure.

[Operator]

Our next question comes from the line of Kristine Liwag with Morgan Stanley. Please go ahead.

[Kristine Liwag, Executive Director at Textron]

Hey, good morning, Scott, Frank. When you look at the portfolio today, it's clearly stronger this cycle versus the last Aviation has got a backlog, Bell secured FLRAA, industrials are stable now, with the balance sheet pretty low what's your appetite to expand into another vertical and tap into secular growth markets?

[Scott C. Donnelly, Chairman and CEO at Textron]

Well look. I think that we, as we've always said, will we keep an eye on things, as things come to market or there's opportunities out there but obviously our plan is still built around organic growth, investment in the businesses that we have, which I think we've been making substantial investments and those are paying off for us in terms of what organic growth - growth we're seeing. And at this point, look I think we do have a very strong balance sheet, we have a lot of cash on hand. We have strong cash generation in the business, we'll continue to execute on our buyback programs if something came along that we felt made sense, that was frankly in the A&D space and was something that we knew could be accretive and better value to our shareholders and just continuing share buyback, we would look at it, but as I said it would have to be something were it, it's a clear win and always contrasting that with what's going on with our share buyback program.

[Kristine Liwag, Executive Director at Textron]

Great, thank you.

[Scott C. Donnelly, Chairman and CEO at Textron]

Sure.

[Operator]

And with that our last question comes from the line of Ron Epstein with Bank of America. Please go ahead.

[Ron Epstein, Analyst at Bank of America]

Hey, good morning, guys.

[Scott C. Donnelly, Chairman and CEO at Textron]

Morning.

[Frank Connor, Chief Financial Officer at Textron]

Morning.

[Ron Epstein, Analyst at Bank of America]

Could you Scott, could you kind of walk through you mentioned earlier on the call is kind of back to Myles' question about positioning the company for some more growth in Defense and the opportunities ahead of us, ahead of you in Bell and Systems. But if you could walk-through a couple of those that maybe you find particularly interesting for the company.

[Scott C. Donnelly, Chairman and CEO at Textron]

Sure, well I - I would say that the FLRAA win on a standalone basis is hugely important to our future. I think our guys have done a great job over the past decade and investing in positioning for that. Obviously, as you know the FLRAA program continues, it's a few years behind the FLRAA program, but one where, again I think our team has made the right investments. We've got the right people that have developed our product. I think is going to be a home run. As you know, we're - we're all kind of waiting on the engine side to have that thing fly but the Army activity continues in risk reduction and further affinities in that program. So clearly I think that's a great opportunity. I think we have a great solution. There are activities which again are publicly out there in terms of the future systems at the Navy and Marine Corps looking app which I think a lot of our technology, particularly in the Tiltrotor space will potentially be a great solution and can leverage off a lot of the investments that we've already made on the 280 programs those are likely to be adaptations. But again, from a technological standpoint I think we're in a really good place for some of those future opportunities high speed [Indecipherable] a little bit further off, but that's another step I think that leverages our fundamental core capabilities to go even higher speed, higher-performing, longer range assets. So I think Bell, in my view, Ron, I guess I would say I think we have a phenomenal franchise around Tiltrotor and I think we have a lot of opportunities to continue to grow that franchise on a number of different adaptations of that technology into the future. On the system side, okay, that's - there's a lot of programs in there. I think we've the win on the Sentinel program with Northrop is a driver of growth for us going forward as that moves ultimately from EMD and its production phases here in the future, we have some great new wins on ammunition side with XM204s and XM250s, got a great franchise for us for a long-time, which is really growing I mentioned our down-select on a [Indecipherable]. Shadow continues to be a good program for us. But you know future Tactical UAS with the Army is certainly a big opportunity, there's a couple of big van vehicle programs, as you know ARV on the [Indecipherable] Army side, so I mean I don't want to wrap up stuff, but there's lots of opportunities out there for which we've either one or we've been down selected or I think we're up certainly a viable competitor. You're not going to win all these things, but there's enough opportunity and I think we're going to a place that we can see a lot of organic growth being driven out of that business as well.

[Ron Epstein, Analyst at Bank of America]

Got it and then maybe one follow-on, if I can. Maybe in the shorter-term, are you seeing much demand being driven from the war in the Ukraine. Are you seeing orders for stuff that maybe 18 months ago you wouldn't have expected that comes.

[Scott C. Donnelly, Chairman and CEO at Textron]

Now, we're really not wrong, we're not in that sort of munitions space I mean there has been some dialog around some land vehicles, but they're largely EDA, things that are in surplus in the Army that were coming out be refurbished and - and put over there, there some talk of different UAS system. So there is some - there are we've had nothing so far and there's probably some relatively speaking smaller opportunities going forward, but it's not going to be a material impact to us.

[Ron Epstein, Analyst at Bank of America]

Got it, got it. Thank you.

[Operator]

And with that ladies and gentlemen today's conference will be available for replay after 10 AM Eastern today. [Operator Closing Remarks].

Participants

Corporate Executives

• Eric Salander, Vice President, Investor Relations
• Scott C. Donnelly, Chairman and CEO
• Frank Connor, Chief Financial Officer

Analysts

• Sheila Kahyaoglu, Jefferies Financial Group Inc.
• Doug Harned, Sanford C. Bernstein
• Seth Seifman, JP Morgan Cazenove
• Cai von Rumohr, Cowen Inc
• Robert Stallard, Vertical Research
• David Strauss, Barclays PLC
• Myles Walton, Wolfe Research
• George Shapiro, Shapiro Research
• Peter Arment, Robert W. Baird
• Pete Skibitski, Alembic Global Advisors
• Kristine Liwag, Morgan Stanley
• Ron Epstein, Bank of America Co.