Title

Presentation

Textron Inc. misses on earnings expectations. Reported EPS is $1.25 EPS, expectations were $1.3.

Operator: Thank you for standing by. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the Textron First Quarter 2026 Earnings Release. [Operator Instructions] I would now like to turn the conference over to Scott Hegstrom, VP of Investor Relations. You may begin.

Scott Hegstrom: Thanks, Joe, and good morning, everyone. Before we begin, I 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 releases. On the call today, we have Lisa Atherton, our Chief Executive Officer; and David Rosenberg, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. With that, I’ll turn the call over to Lisa.

Lisa Atherton: Thank you, Scott. Good morning, everyone, and thank you for joining us. Today is an incredibly exciting and important day for Textron. Our first quarter results highlight a very strong start to the year. We generated $3.7 billion in revenue, representing 12% growth for the quarter. We also grew segment profit in the quarter by 10% to $320 million. This reflects strong performance across each of our A&D businesses, including robust commercial order activity at both Aviation and Bell. We also generated $1.45 of adjusted EPS, up 13% from a year ago. Turning now to Slide 5. In addition to announcing our first quarter results today, we also announced our intent to separate our Industrial segment from our A&D businesses.

This is a consequential and exciting step in our evolution establishing new Textron as a pure-play A&D company aligned to its core franchises of Textron Aviation, Bell and Textron Systems. In terms of structure, we intend to explore multiple paths to affect this planned separation, including a sale of the industrial businesses or a tax-free spin-off into a stand-alone publicly traded company. We will work through alternatives on the approach over the coming quarters and are targeting a completion of the separation within 12 to 18 months. In the interim, we will continue to operate in the normal course of business. Turning to Slide 6. We believe these actions will drive long-term value for our shareholders. First and foremost, this establishes New Textron as a pure-play A&D company.

Each of our A&D franchises are aligned with highly attractive end markets with tremendous opportunities in front of them. For New Textron, this separation also enhances clarity around our capital allocation and investments as well as our strategic flexibility. The MV-75 Cheyenne program is a perfect example. We are pulling forward our investment as we support the [indiscernible] acceleration of the program, which is aligned with our long-term growth strategy. As for Industrial, these same principles apply. The business will benefit from a tailored capital allocation and new strategic flexibility. The investment in growth in opportunities such as Pentatonic, Allegro and PACE technologies are good examples of this. While we’ve considered variations of this in the past, now is the right time as both our A&D and industrial businesses are well positioned for the future.

In A&D, Textron Aviation is in a very strong position having increased its backlog by more than 4x since pre-COVID from $1.7 billion in 2019 to $8 billion at the end of this quarter. Bell is advancing rapidly on the MV-75 Cheyenne and will soon move into prototype deliveries and Textron Systems is also showing solid growth across programs of record such as Ship to Shore and at ATAC. In Industrial, Kautex continues to perform well and Textron Specialized Vehicles is operating from a stronger footing following last year’s powersports divestiture. So overall, Textron is well positioned to pursue the separation of our A&D and industrial businesses. Turning to Slide 7. New Textron would have approximately $12 billion in revenue and $1.2 billion in segment profit as a pure-play company.

Aviation is a leader in each of these segments and continues to see healthy demand and utilization across its portfolio. That is at the forefront of an outsized growth stage as the MV75-Cheyenne program ramps — the business is positioned to significantly increase its revenue as we move from development to production over the next few years and benefit from the Army’s planned production run of over 25 years. Systems has compelling growth drivers across several areas, including advanced materials for hypersonic applications, shipbuilding, manned and unmanned air, land and sea vehicles. The Trump administration’s recently proposed fiscal year 2027 budget that calls for $1.5 trillion in defense spending would be a strong tailwind for the industry, providing increased visibility and stability across our defense offerings.

Moving to Slide 8. The separation significantly improved the financial profile for Textron. New Textron would have top line growth, 150 basis points higher. Segment profit margin would be 120 basis points higher, and our strong backlog of $19.2 billion is 100% related to the A&D businesses. On Page 9, we see New Textron’s A&D franchises. Each of which excel at turning advanced aerospace and defense capabilities into practical advantages for our customers and their missions. Some of these key offerings include the Citation Latitude, the #1 best-selling midsized business jet, the recently certified Citation Ascend and the upcoming Beechcraft Denali. The Beechcraft King Air franchise is the best-selling Turboprop in history. The MV-75 Cheyenne flying twice as far and twice as fast is a fundamental step function for military aviation.

The Ship-to-Shore Connector, the ATAC programs of record and our unique advanced material capabilities, which were most recently seen in action with the Artemis mission around the moon are core to the Sentinel program. These all leverage our world-class engineering capabilities across design, test, certification and build with a long track record of innovation. Underlying these offerings, we have a large installed base, which supports a robust aftermarket business that has experienced steady growth over the last few years. Textron Aviation has built approximately 25,000 aircraft in its history and has the largest installed base in general aviation, nearly 4x the next largest. Bell has an installed base of approximately 13,000 commercial and military aircraft.

These significant installed bases drive an attractive aftermarket business that represents over 30% of New Textron revenue. We are very excited about how this positions New Textron to drive value going forward. On the military side, Textron sits where aerospace precision meets defense urgency, and this is exactly where our future is being built. As we continue to scale the MV-75 Cheyenne program and move toward production lots, we expect that the revenue and margin profile will follow. Beyond MV-75, we are well positioned on new opportunities that can leverage significant technology from the MV-75 like the U.S. Marine Corps Future Attack Strike program and DARPA’s 76 X claim. Flight School Next, a new program to train Army Aviators at Fort Rucker for which we are competing is also positioned as a potential growth opportunity for Bell leveraging our proven 505 helicopter.

Systems is anchored by strong programs of record with the growth drivers to include Ship to Shore, ATAC and Sentinel. In addition, the ARV preproduction contract advances a future growth opportunity for the business. The defense spending environment provides a very favorable backdrop for the longer term where our offerings are very well positioned. As this relates to the Textron Aviation and Bell commercial businesses, we are in a great place with the investments we have made over the last decade. Our product portfolio is second to none. Textron Aviation has a proven track record of clean sheet development programs like the Latitude, the Longitude, SkyCourier and soon to be the Denali. We have also been very successful at upgrades like the recent Gen 2s and Ascend as well as the upcoming Gen 3s for the light jets.

And at Bell, the 525 will be the first commercial fly-by-wire helicopter. Our sizable backlog illustrates the market demand for our products is significant and continuing to grow. Looking ahead, we are focused on increasing our operational efficiency and performance to drive growth and enhance profitability. We will do this by reallocating some of our R&D investment into our supply chains and factories. To be clear, there are no silver bullets there, but it is where we will be putting our focus. Turning now to Industrial on Slide 10. This is a $3-plus billion business with strong operations, well-established brands, leading market positions and real growth drivers. We believe it will thrive independent from New Textron. It is composed of Kautex and specialized vehicles.

Kautex is a Tier 1 auto supplier. Its primary product line is fuel systems for the automotive industry. Kautex has also built a meaningful position in hybrid fuel tanks which is a growing part of the industry. The Pentatonic battery and closure business supports EV and hybrid platforms, including the [ Rivian R1 ] and a major European OEM start of production plan for 2027. It’s Allegro cleaning systems is another growth platform focused on solutions to clean autonomous vehicle cameras and sensors. Specialized Vehicles is anchored by the EZGO golf car business. EZGO was one of the most recognizable brands in golf. Specialized vehicles also includes personal transportation vehicles, ransoms Jacobs and turf equipment, Cushman vehicles and tug ground support equipment.

This business stands to benefit from near-term growth driven by the lease renewal cycle and market recovery. Overall, our industrial businesses have well-established brands, product offerings and strong market positions. Before I turn it over to Dave to give you an update on our first quarter results, I’ll quickly highlight a few of our achievements in the quarter, starting with Aviation on Slide 12. We got off to a strong start to the year with 37 jet deliveries and 35 commercial turboprop deliveries. These are both up nicely from a year ago as we continue to drive throughput in our factories. We also saw strong aftermarket performance, which resulted in 10% growth in aftermarket revenues. In terms of market conditions, order activity continues to be healthy as we grew our backlog in the quarter while also delivering double-digit growth in jets and commercial turboprops.

Some notable wins for the team include Luminaire, a European jet operator placed a fleet order in the first quarter, which will bring its total to 9 latitudes, supporting its charter operations across Europe and an order from Belgium’s special operations forces for 5 SkyCouriers marking our first military order for the aircraft and highlighting the utility of the Sky Courier, not only in the commercial market, but also in defense and special missions applications. From an industry perspective, gammas recently released 2025 annual report underscores Textron Aviation’s leadership in general aviation as we once again topped the industry in total business jet deliveries, total turbine aircraft deliveries and total turboprop deliveries. Moving to Bell on Slide 13.

The Army has announced the name of the MB 75 aircraft as the Cheyenne. This underscores the continued commitment by the Army and marks a pivotal moment for the program. all subsystem critical design reviews, or CDRs, have been executed with the exception of completing the weapon system CDR later this summer. The Army is preparing the for Tilt rotor technology with support from the V-22, helping the Army’s 101st Airborne in training exercises to develop the tactics, techniques and procedures to take full advantage of the additional range and speed. Sales progress is supported by a series of investments Textron is making to support successful development and acceleration of production. As I mentioned earlier, the Trump administration’s 2027 budget calls for a significant increase in defense spending.

As this relates to the MV-75 Cheyenne, the Future Years Defense Program, or FYDP, calls for $2.3 billion of funding for 2027 scaling to $3.8 billion in FY ’31 across research, development, test and evaluation as well as procurement. The procurement budget also shows quantities of 8 units in FY ’28, scaling to 12 than 27 in FY ’31, consistent with the Secretary of the Army’s direction to accelerate the program. Regarding near-term funding for the MV-75 program, the Army has informed us that it is actively pursuing additional funding to support the acceleration profile for the remainder of the government fiscal year ’26. This funding aligns with the Army’s Directive last summer to accelerate the program, which occurred after their FY ’26 budget request was submitted.

We remain confident in the Army’s commitment to securing this funding as evidenced by the ongoing process and the strong funding request in the recently released fit-up. During the quarter, Bell completed the critical design review on the DARPA Xplan program, which is now called the X-76. Bell will now begin building a brand-new explant with first-of-its-kind stop fold technology. Bell was also recently down selected to the fourth and final phase of the Flight School next competition. As part of this phase, Bell conducted flight simulator and digital twin demonstrations at Redstone Arsenal. We expect the Army to select a winner for the competition later this summer. Turning to Slide 14. Systems also continues to grow its business. They generated double-digit growth in the quarter and continued to make progress on new pursuits.

Earlier this month, Textron Systems received a preproduction development award from the U.S. Marine Corps for its advanced reconnaissance vehicle, or ARV program. This $450 million award will include delivery of 16 vehicles, 3 systems integration labs and 4 blast holes. Textron Systems was also awarded a prototype agreement from the U.S. Army for the low altitude stocking and strike ordinance program, or Lasso. Under the prototype agreement, systems will deliver a loitering munition system and demonstrate it to the Army. As you can see on Slide 15, both Kautex and Textron Specialized Vehicles are executing very well and generating improving financial results. The segment had positive organic growth in the quarter, and Kautex secured its largest award to date for its hybrid plastic fuel tank offering.

Overall, we had a very strong start to the year, and I’ll now pass it over to Dave to provide some more details on the financials.

David Rosenberg: Thank you, Lisa, and good morning, everyone. Turning to Slide 18 of the earnings presentation. We had a strong start to the year with revenues in the quarter of $3.7 billion, up 12% or $389 million from last year’s first quarter. Segment profit in the quarter was also strong at $320 million, up 10% or $30 million from the first quarter of 2025. During this year’s first quarter, adjusted net income was $1.45 per share compared to $1.28 per share in last year’s first quarter. Manufacturing cash flow before pension contributions reflected a use of cash of $228 million, compared to a use of $158 million in last year’s first quarter. During the quarter, we repurchased approximately 1.8 million shares, returning $168 million in cash to shareholders.

Before we get into the segments, I’d like to remind you that we realigned the Textron Aviation segment business across Textron Aviation, Textron Systems and corporate at the beginning of this year, eliminating Textron Aviation as a separate reporting segment. The results here reflect that realignment for 2026 for the 2025 comparison period on a recast basis. Now let’s review how each of the segments contributed, starting with Textron Aviation. On Slide 19, revenues at Textron Aviation of $1.5 billion were up $269 million or 22% from the first quarter of 2025. Aircraft revenue in the quarter was $954 million, up $221 million or 30% from a year ago. This was driven by volume and mix as we increase Citation jet deliveries from 31 to 37 and commercial turboprop deliveries from 30 to 35.

Aftermarket revenue in the quarter was $531 million, up $48 million or 10% from a year ago. Segment profit was $154 million in the quarter, up $32 million compared with the first quarter of 2025. This represents a profit margin of 10.4%. We also continue to see solid order flow in customer demand across our product lines, ending the quarter with $8 billion of backlog, up $276 million from the end of 2025. Looking at Bell, revenues of $1.1 billion were up $87 million or 9% from the first quarter of 2025. Military revenues were $795 million, up $161 million or 25% driven by growth on the MV-75 Cheyenne program, partially offset by reduced revenue on V-22 production on our military sustainment programs. Commercial revenues were $275 million, down $74 million, reflecting lower volume and mix.

Segment profit of $72 million was down $18 million from a year ago, primarily reflecting an unfavorable impact from the mix of military programs and lower commercial volume and mix. Backlog in the segment ended the quarter at $7.6 billion. At Textron Systems, we had a good start to the year with revenues of $338 million, up $39 million or 13% from last year’s first quarter. Revenue growth was driven primarily by higher volume on the Ship to Shore program and military training programs provided by ATAC, partially offset by lower net volume on other programs. Backlog in the segment ended the quarter at $3.6 billion, an increase of $255 million in the quarter. Segment profit was $42 million in the first quarter, which generated strong segment profit margin of 12.4%.

Looking at Industrial revenues were $786 million, down $6 million from last year’s first quarter. Textron Specialized Vehicles revenue was $300 million, down $42 million, largely reflecting a $55 million impact from the divestiture of the powersports business in 2025. Kautex revenues were $486 million, up $36 million or 8% from a year ago, primarily due to a favorable impact of $20 million from foreign exchange rate fluctuations and higher volume and mix. On an organic basis, revenues in Industrial were up $29 million or 4% given the first quarter of last year still included the Powersports business. Segment profit of $40 million was up $10 million from the first quarter of 2025, largely due to manufacturing efficiencies. Finance segment revenues were $16 million and profit was $12 million in the first quarter of 2026, as compared to segment revenues of $16 million and profit of $10 million in the first quarter of 2025.

With that, I will turn it back to Lisa for closing remarks.

Lisa Atherton: Thanks, Dave. And as we wrap up, Slide 21 just highlights a few of the many attributes that make New Textron a compelling pure-play aerospace and defense business. We have the best-in-class brands and best-in-class products with leading segment positions. But I also want to highlight that we have the people in place to maximize our future with a deep bench of technical expertise and a track record of innovation and execution at scale. This concludes our prepared remarks, and we are happy to open the line now for questions.

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Operator: [Operator Instructions] Your first question comes from the line of Sheila Kahyaoglu of Jefferies.

Sheila Kahyaoglu: Can you maybe — the industrial separation has been a long time coming. Can you maybe provide a little bit more on what led to the decision? Why now? Was it just the growth in the MV-75 portfolio at the Cheyenne and how you see that if you could elaborate?

Lisa Atherton: Thanks, Sheila. Look, it’s just — it’s the right answer for both of our A&D and industrial businesses at this moment in time, and it provides clarity and simplification on our capital allocation and investments and frankly, it also just aligns them both with their respective natural shareholder bases. And we’re in a position, as you point out, like why now as compared to a few years ago, it’s a result of all the hard work and accomplishments that we’ve achieved over the last 10 years in order to position the various businesses to have the strength of their own — to stand on their own. And we’ve won, we’re scaling MV-75. As I mentioned, we’ve added to an upgraded the aviation portfolio. We’ve got all these clean sheet programs like the Latitude, Longitude, SkyCourier Denali upgrades on the Ascend, the Gen 2 with systems and their key programs of record now scaling and a good pipeline.

We just have the synergies and core context of all of those businesses to come together as a strong pure-play A&D. But what’s different is as now with Kautex and TSV, both are very well run and their end markets are in a stronger place and in good positions right now with the progress Kautex has made with offerings on Pentatonic and Allegro and how it is gaining customer traction and growth as well as TSV being anchored by 1 of the most recognizable brands in golf with EZGO and candidly, the divestiture of Powersports just puts them in a better operating position. So we just believe that now is the right time in order to make this move, and we’re excited to see what the future holds for us.

Operator: Your next question comes from the line of Myles Walton of Wolfe Research.

Myles Walton: On aviation, can you speak to the market environment for order activity and anything that’s changing given the ongoing Middle East conflicts. And then, Lisa, you mentioned repositioning some of your R&D funding into the supply chain. Could you just elaborate on what that means in the quantity?

Lisa Atherton: Sure. Look, so regarding order activity, we had a very strong quarter of order activity across both aviation and Bell. They had their best Q1 bookings in 4 years, frankly, since Q1 of 2022. So really strong orders for the folks out there. And aviation, I highlighted the Luminaire and Belgium special forces in the prepared remarks. But as we see that strong order flow and ending the quarter with our backlog of up $8 billion for aviation in particular, and we also have some pretty strong bookings that they’re working forward to in Q2. So Bell also is winning that new business in the commercial market. They had the quarter with purchase order of 7407 for the National Transmission Company of South Africa. We talk about in the defense side of the booking orders, and Bell was down-selected to the final phase of [ Flight School Next.

] As I mentioned, the preproduction contract for the AR and the Army’s prototype agreement for the last or the low altitude stocking and striking ordinance. So all of this kind of leads to that very strong order activity in that backlog of $19.2 million that we highlighted across the business. When you ask about the repositioning of some of the funding towards the supply chain and factories, look, that’s really the area that we need to focus across on our business. What we’re trying to signal here is we’re not looking to increase investment. We’re going to maintain the same levels of investment that we have across the business. But we’re probably going to take a portion of that, and I’m not going to kind of go into the details of what ratio that is, but take a portion of that and focusing on making our factories much more effective.

There’s a lot of tools and capabilities that are out there now that we need to enable our workforce to have a better, more streamlined factory flow. And so we’re going to — we’re looking at that as we go through this strategic review, and you’ll see us start investing in that. And hopefully, we’ll see the yield of that of better production output.

Operator: Your next question comes from the line of Robert Stallard of Vertical Research.

Robert Stallard: A couple of questions for you on Aviation. First of all, was wondering if you could give us an update on what you think the cadence of deliveries will be in this division through the year and whether you expect this aftermarket growth rate to be maintained? And then secondly, on the Aviation supply chain. Did you see any improvement in that in the first quarter?

Lisa Atherton: Dave, why don’t you take the first and I’ll hit the supply chain.

David Rosenberg: Robert, so as we look at Q1, this was expected that we’re about 100 basis points below the midpoint of the guide. Just kind of the key factor there is some of the inefficiencies from last year are rolling through the income statement in Q1, and that’s causing a little bit of headwinds. So as we kind of think about the cadence for the rest of the year, we would expect improvement sequentially each quarter with the margin peak being in Q4. You should expect deliveries to increase each quarter this year, and we’d also expect efficiencies to improve throughout the year, especially in the second half.

Lisa Atherton: So on your supply chain question there. I mean, look, we continue to work with our key suppliers. It’s mainly around engines, as we mentioned on the call last quarter that we continue to [indiscernible] I’ll say, fight through every day to get those in. But I will say we’re not seeing as many systemic supply chain issues as we have over the past several years. So we are seeing things start to improve. As we look at kind of what we call out the door statistics of some of our platforms, those are starting to improve. Things still get lumpy along the way. We still have things pop up. But I would say we’re starting to see a trend here of better performance at large. But it’s — there’s nothing easy. The teams are still fighting through the different little fires that pop up. But overall trends, we are starting to see improvement of on-time delivery from suppliers, and we’re starting to see folks performing at better, higher quality.

Operator: Your next question comes from the line of Peter Arment of Baird.

Peter Arment: Nice results. Lisa, maybe just quickly on [indiscernible] the year kind a low point, maybe just to give us a little — the puts and takes you’re thinking about for the year and just when you — given your annual guidance, just how we should be thinking about from here just given the volume that you’re seeing on the MV-75?

Lisa Atherton: Yes. And I appreciate that. I think there’s — it was a good strong start to the year. I think it’s a little early for us to start thinking about the guide. But if we continue to see strong performance, we’ll evaluate that as we go forward for the back half of the year. I think on MV-75, I don’t see us changing what we saw there was going to be flat kind of year-over-year of expected revenues. We do continue to see that acceleration pull from the Army, as we mentioned. And if they receive those additional funds, we’ll see that kind of flow into the business, but we need to see the Army get those additional funds as they go through their procedures and processes to get those dollars.

Operator: Your next question comes from the line of Seth Seifman of JPMorgan.

Unknown Analyst: This is Alex on for Seth. Maybe I want to ask follow-up on the industrial situation. As you guys are kind of evaluating your options here between either selling the business or spinning it off, curious if you guys have any initial thoughts on which option you think is more likely at this point? And then two, when we’re thinking about the 2 businesses here between Kautex and specialized vehicles, is the expectation that those would be spun off or sold together? Or could they be kind of broken up into separate pieces?

Lisa Atherton: I think, Alex. So look, I think you kind of outlined all the options that we’re looking at. And I don’t think we necessarily have a course of action just yet that we’re ready to declare. We are going to do the process and work to explore all of those alternatives. And I think that when we look at the spin, we just know that that’s the certainty. It will be the longest path. We’re going to do the work in order to prepare for that. But as we do that, we’re exploring all avenues that you kind of outlined, selling them together or selling them apart. Those options are all on the table. And as the process evolves and folks are interested, we’ll do what’s in the best interest of our shareholders. So yes, I think we’re — we’ve got an exciting future ahead of us, but we’ll keep you guys posted as we come along those decisions.

Operator: Your next question comes from the line of John Godyn of Citi.

John Godyn: Lisa, I just really wanted to think through the conflict in the Middle East and what that means for Textron, sort of to state the obvious. There’s a lot of activity there and fuel prices have doubled. So on the aviation side, it’s hard to believe that a doubling in fuel prices doesn’t impact things. On the other hand, some of us on the call are old enough to remember the boom years in bizjet in and ’06/’07, which were positively correlated to oil prices and all the economic implications of that? And then in your defense exposures, anything kind of pivoting on the back of what’s going on in the Middle East? Any imminent demand signals or anything like that, how the portfolio is expected to respond to that would be helpful.

Lisa Atherton: Yes, thanks. And I recall now I kind of missed that. Somebody asked a follow-on question on Iran. I didn’t get that earlier as well. So look, to date, we have not seen a material impact on the ongoing conflict. We monitor the impact of those higher oil prices. And as you point out, has both positives and negatives to our various end markets. So — and I think on the — as you correctly stated, on the aviation and helicopter side, in particular, that’s where we see some of that positive correlation. So we’re watching that very closely. I think it’s a little early days as folks use their capital there, but we will continue to monitor that and discuss that in future quarters. With respect to the defense side of the business, on all of our programs, I think you’re starting to see them continue to perform.

I think when we see this investment across all of the defense portfolio from the Trump administration’s most recent fit-up is a signal from them that they see an increased need and robusting, I’ll call it, the magazines or the various platforms in order to be prepared. And so I would say it’s a secondary correlation to it, but you’re starting to see support broadly across all the defense business. Programs, in particular, I wouldn’t necessarily go into any specific programs on that in that way.

Operator: Your next question comes from the line of Noah Poponak of Goldman Sachs.

Noah Poponak: Two questions. Lisa, on Aviation, your discussion around investing in supply chain and manufacturing improvements suggests a view that supply should be higher. Curious how you — when you look at the backlog and the coverage, how are you balancing you want to grow and you want to get customers’ jets, but you also want to protect the downside nodes of cyclicality. Just how are you thinking about where you want supply over the medium term? And then, Dave, just on the Bell margin, if you could give us a little more color on the year-over-year change and how it progresses to get to the guidance for the year?

Lisa Atherton: It’s a great question. And you’re exactly right. And when we look at the various type models, we want to make sure we don’t disrupt this very strong backlog that we have. And so there are certain type models that if we put a little more investment, we could reduce the amount of time it takes to build those aircraft. Some of those type models are sold out for years. If we were to bring them in to say like 18 months or so as a lead time, I think that much more aligns with customers’ expectations. And those are the areas in which we would do focused improvements on, in both the factories and the supply chain.

David Rosenberg: So Noah, I’ll take that question on Bell. So I mean, as a starting point, if we look at kind of Q1 of this year versus last year, we’re obviously down on the margin percent as well as in dollars. So kind of 2 factors there to think about. We were off on commercial helicopter deliveries. Some of that was just timing of deliveries and contract milestones. Some of that was just delays in finishing up the last couple of helicopters for the quarter. We would expect on the commercial side for that to normalize out throughout the year, not too dissimilar to patterns you’ve seen in the last couple of years with a peak in — We also had higher MV-75 revenue in the quarter, but the offset of that was some of our military legacy business was down.

So net-net, that does result in overall lower margins. So I think what you could expect to see from a cadence perspective as we go through the next 3 quarters, as you’d see overall improvement, particularly because you’ll have higher volume on the commercial side, getting us to where we’re currently at on the guide of between 8% and 9%.

Noah Poponak: Thanks. Lisa, I guess just getting some of the — getting — if I took the entire portfolio to 18 months, it would imply pretty nicely over 200 total deliveries. I guess maybe you’re saying it’s not everything should be at 18 months, but is it — do you think the equilibrium is 200 or 220, or hard to put a number to it?

Lisa Atherton: No, I think you’re hearing the right ballpark, right? I think the right number is right there around 200. I think that’s accurate.

Operator: Your next question comes from the line of David Strauss of Wells Fargo.

Unknown Analyst: This is Josh Corin on for David. I wanted to ask, I think you were planning on taking that charge on MV-75 later this year or early next as the program ramps. Is there any change to your expectation in the size or timing of the charge?

David Rosenberg: No change in our expectation on the size, which was the cum catch-up was $60 million to $110 million. As we said when we announced it previously, it all depends on the timing of when the LRIP [indiscernible] is exercised by the government, and there’s no change in our expectation right now that, that could be as early as the second half of this year or possibly could flow into the first half of next year and nothing’s changed from our perspective, right, as we sit today.

Operator: Your next question comes from the line of Gavin Parsons of UBS.

Gavin Parsons: Lisa, you mentioned Textron is considered strategic alternatives on industrial in the past. I guess what are the hurdles to getting this done? And is there a minimum return threshold you’re looking forward to ensure it’s not a dilutive transaction?

Lisa Atherton: Look, it’s a little early to comment specifically on the level of dilution. It’s going to depend on what that structure and value — whatever proceeds we would get on that. But look, in addition to the benefits of clarity and flexibility, we had just had different natural investor bases and different valuation frameworks inside those investor bases. And so we’re going to have to leave it to the market to assess that valuation, but I do think that New Textron has higher growth and stronger margin, which should support stronger valuation over time. And so I think on that side of it, it’s is going to prove out to be a very well-done alternative for us. So in terms of in the past, I think the ideas there were around where we were as far as strength of the end markets of the industrial business, it just wasn’t the right time.

And as we see the positive growth and the positive performance out of both Kautex and specialized vehicles now just makes the right time for us to do this.

Operator: Your next question comes from the line of Kristine Liwag of Morgan Stanley.

Kristine Liwag: Lisa, post the industrial spend, and you’ll have more time to allocate to the core aerospace defense. I was wondering, can you talk more about how you’re thinking about potential capital allocation within that core business? Are there platforms or capabilities you would — you plan to spend more time on focusing and are there areas you’re willing to lean in more versus potentially rationalize?

Lisa Atherton: Look, I think our intent here is to lean in more versus rationalize on the A&D space. And in fact, I think what we would look to do is as we have this pure-play combination and how they’re anchored across the commercial and military aircraft, leverage the engineering capabilities we have across the business. And then we will look to see where we could be additive to that portfolio, particularly probably in the areas around systems. And what it is that systems does how we could grow that area of our business much more strongly.

Kristine Liwag: Super helpful. And maybe a great follow-up on systems. I mean the U.S. accelerates towards drone dominance. We’re seeing a lot more nontraditional players lower-cost competitors in this unmanned space where you have a fairly robust offering within systems. Can you talk more about how you balance cost, speed, autonomy with the performance that the DoD wants today, and also what that competitive dynamic is like and where you think systems could leverage the strength in that industry?

Lisa Atherton: Yes. Thanks,. So I think when we look at what the strengths are across systems, not only is it decades and candidly, millions of hours of proven capabilities across the unmanned space across 3 domains. A lot of our offerings are, I will say, are more of the complicated and technical aspects of unmanned. Some of the lower entrants, I think, are much more attributable where what we have are capabilities that the services want to use over and over again. So it requires a more robustness in design and durability of the platform. So what you see in things like the Ripsaw platform that we are currently designing for the Marine Corps and what you see in our [ Arson ] 4.7 and 4.8 that provides a loitering ISR capability for many hours up to 13 hours.

So I think what we see there is still continued strong demand for those. But we’re also having growth opportunities in our unmanned surface vehicles, on the custody program and how they take their platform on the sea and put new capabilities, mine hunting capabilities into that platform system is providing the systems integration pieces that are much more complex than maybe what we see in some of other platforms. That said, we’re also very open to working with folks and being partners in various entrants with various entrants, and you’ll see systems do that over time.

Operator: Your next question comes from the line of Ron Epstein of Bank of America.

Ronald Epstein: Yes. Maybe 2 questions, just following up on some stuff that other folks asked. When you think about moving forward with an A&D focused business, how are you factoring AI and AI-driven autonomy into systems? And when I look at something like X-76, it seems like a platform that could generate a lot of interest. How are you thinking about that and the opportunity there? And one area where it does seem — I don’t want to say that tech underperformed, but maybe you could have done more, given all the technologies the company has is in specifically aerial unmanned systems, given the prowess you all have in electronic propulsion and everything you’ve done in Textron Aviation and all the stuff systems. So I don’t know, sort of a broad question, but…

Lisa Atherton: Yes. So I’ll try to tackle the second question upfront in the sense of what you’re talking about there is collaboration and synergies across the businesses. And what I would like to drive, it’s how we’re able to combine the engineering technology and talent that we have across systems, Aviation and Bell in order to come up with those ideas and platforms and breakthroughs, if you will, because we have that detail, as you mentioned. On the X-76, whether or not they would actually use AI autonomy in terms of the brain of the platform itself. Right now, the proving out of the X-76 is a stop bold technology itself. — and it will be an unmanned platform. And so I think as that program evolves, you’ll see a lot of the expertise that we have on the — or the with the [ MOSA ] architecture will probably naturally follow it into the X 76.

So there was just a lot of capability across Textron that I think we can now really come together in this pure-play A&D space. And I plan to continue to drive that. I mean we’ve done it in the past. We’ve got examples of where we have helped each other between the various businesses. but really driving towards an A&D strategy amongst ourselves that think would generate what you’re alluding to.

Ronald Epstein: And then, I mean, culturally, how do you achieve this, right, because you have no organization, I guess, in some parts that’s used to being more independent. I mean you’re going to have a core A&D engineering group that will serve the whole company. I mean, I don’t know if you’re there yet, but how do you think about shifting a culture to support it? I mean, just to be blunt, if you can’t tell, I think this is a great idea. But in terms of executing it, how do you get the culture to buy into it?

Lisa Atherton: Yes. I mean, as you know, culture takes a minute to evolve, but we are certainly on that journey. And part of my expectations is how we will continue to collaborate with each other. I mean things as simple as sharing each other strategic business reviews with each other. And so we’re just driving various different opportunities for the businesses to be exposed to what the other business is doing as a way for them to say, “Hey, that’s a great idea. I’ve got somebody over in this area that can help with that. ” So I hope that you will see that continue to evolve over time, and I’m optimistic that the team is very excited about doing it.

Ronald Epstein: Yes. And then maybe just one quick financial detail. the industrial business over the years, we heard that there’d be too much tax leakage to spin it or do whatever — how should we think about that the tax impact?

David Rosenberg: I mean, you obviously have the different [indiscernible] to tax impact. So you have the potential repatriation of cash, which would be we are thought about in terms of what the transaction expenses would be and then the tax leakage on the transaction itself. Both of those, we believe, would be manageable in whatever structure we end up doing. And as we mentioned in our release, we believe in a spin scenario, it would be done on a tax-free basis.

Operator: Your next question comes from the line of Doug Harned of Bernstein.

Douglas Harned: In Systems, I find this to be the most difficult business to really kind of look forward long term. AAC the Ship-to-Shore Connector, this has been going well. But if we think on more of a 5-year view, what do you see as the underlying differentiated capabilities there and the types of programs that you see you’re best positioned for as you look longer term?

Lisa Atherton: Yes. So I would say there’s — to stand out for me. First, being the Sentinel program as that A&D program continues to mature into a production program and as we are a key Tier 1 supplier to Northrop Grumman on that program, we will follow where that sentinel program continues to grow. So I think that’s a key aspect of the systems portfolio. And then additionally, on the ground side of the business, the armored reconnaissance vehicle as well as the XM30, which we haven’t mentioned so far in this call, Textron Systems is competing in both of those and those will both be decided in the coming 2 to 3 years. And I believe that you will see us have a position on 1 or both of those programs. So I think those underpin the go-forward on the systems performance.

Douglas Harned: And then if you do the same — sort of the same thing at Bell, when you look beyond MV-75, you mentioned the FSN program. Is — can you give us a sense at all of kind of the timing and scale of potential new opportunities over the next few years and beyond what you’re doing on MV75.

Lisa Atherton: Yes. So timing and scale. So the Flight School Next program will be decided by the end of next quarter. So we will know how that’s going to impact the future of Bell’s prospects here within the next 90 days or so. So there’s — when we see what that comes out, and I don’t want to go into numbers right now because we are in, I’ll say, active negotiations there of Phase but it is a strong opportunity for Bell for the next, candidly, 25 years for Flight School Next. When you look at what the Marine Corps is doing with their H1 program, and frankly, I mean, we focused on MV-75 and X76, but there’s still a lot of work going on, on the H1 and the V-22 platforms and the sustainment of those platforms for the coming decades.

So there’s a lot of work going on both in the nacelle improvement program for the V-22 as well as the structural improvement in electrical power upgrade program for the H1. So they have upside on both of those programs. That’s just on the defense side. On the commercial side is the 525 platform, reaches its certification and moves into the commercial backlog, we’ll start to see strong growth on that towards the back end of this decade, beginning of next.

Operator: And your last question comes from the line of Gautam Khanna of TD Cowen.

Gautam Khanna: Yes. Congratulations on the announcement. Wanted to ask if there are any dissynergies that you can point to? I know you talked a little bit about tax, but any sense of dis-synergies early on from the separation?

David Rosenberg: So we’ve obviously, as part of this process, analyze all those, there’d be a minimal level of stranded cost that we can — we do strongly believe we can manage through. But otherwise, there is nothing of a significant nature from a dis-synergy perspective, but the stranded costs are very minimal.

Gautam Khanna: And Lisa to Kristine’s earlier question, I just wanted to understand better. Is that — do you think this is kind of the end of the portfolio review? Or what will be part of the AMD franchise is that you’re looking to maybe scale back as part of this process?

Lisa Atherton: Yes. So again, great question. And I would say I’m looking to lean in and grow versus scaling back.

Operator: With no further questions, that concludes our Q&A session, and this also concludes today’s conference call. You may now disconnect.

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