TEXTRON INC Q1 FY2026 earnings call

Announcement of Planned Industrial Segment Separation

• Textron announced its intent to separate its industrial segment from its aerospace and defense (A&D) businesses to form New Textron, a pure-play A&D company focused on Textron Aviation, Bell, and Textron Systems.
• Management is exploring multiple separation paths, including a sale of industrial businesses or a tax-free spinoff into an independent public company, targeting completion within 12 to 18 months. Business will continue to operate as normal in the interim.
• Post-separation, New Textron will have ~$12 billion in annual revenue and ~$1.2 billion in segment profit, with projected 150 basis points higher top-line growth and 120 basis points higher segment profit margin than the current combined company, and a $19.2 billion A&D-only backlog.

A&D Business Operational Highlights

• Textron Aviation delivered 37 jets (+6 YoY) and 35 commercial turboprops (+5 YoY) in Q1, with 10% aftermarket revenue growth. The business holds industry-leading positions in total business jet, turbine aircraft, and turboprop deliveries, and its backlog has grown to four times pre-COVID levels ($8 billion). Notable Q1 wins include a fleet order from European operator Luminaire and a first military order for five SkyCouriers from Belgium's Special Operations Forces.
• Bell completed all subsystem critical design reviews (CDRs) for the Army's MV-75 Cheyenne program, with the full weapon system CDR scheduled for summer 2026. The proposed FY2027 US defense budget allocates $2.3 billion for the program, scaling to $3.8 billion by FY31, with procurement starting at 8 units in FY28 and scaling to 27 units by FY31. Bell also completed CDR for the DARPA X-76 X-Plane and was downselected to the final phase of the Army's Flight School Next competition.
• Textron Systems received a $450 million pre-production development award for the US Marine Corps' Advanced Reconnaissance Vehicle (ARV) program and a prototype agreement for the Army's Low Altitude Stalking and Strike Ordnance (LASSO) program. Key growth drivers include the Ship to Shore connector, ATAC, and the Sentinel program.
• Large installed bases across Textron Aviation and Bell support a robust aftermarket business that makes up over 30% of New Textron's revenue.

Industrial Segment Operational Highlights

• The industrial segment is a $3+ billion business composed of Caltech (a Tier 1 automotive supplier) and Textron Specialized Vehicles. Caltech secured its largest ever award for hybrid plastic fuel tanks in Q1, and has growing positions in EV/hyvin components (Pentatonic battery enclosures) and autonomous vehicle sensor cleaning systems (Allegro). Textron Specialized Vehicles is anchored by the leading EasyGo golf car brand, and is positioned to benefit from an ongoing lease renewal cycle and market recovery post-Power Sports divestiture.

1. Textron Aviation: Revenue of $1.5 billion, up 22% year-over-year, accounting for ~40.5% of total Q1 2026 revenue. Aircraft revenue was $954 million (+30% YoY) driven by higher delivery volumes; aftermarket revenue was $531 million (+10% YoY). Segment profit was $154 million, up $32 million YoY, with a 10.4% profit margin. Ending backlog reached $8 billion.
2. Bell: Revenue of $1.1 billion, up 9% YoY, accounting for ~29.7% of total Q1 2026 revenue. Military revenue was $795 million (+25% YoY) driven by MB-75 Cheyenne program growth, partially offset by lower B-22 production and sustainment revenue; commercial revenue was $275 million (-$74 million YoY) due to lower volume. Segment profit was $72 million, down $18 million YoY from unfavorable program mix and lower commercial volume. Ending backlog reached $7.6 billion.
3. Textron Systems: Revenue of $338 million, up 13% YoY, accounting for ~9.1% of total Q1 2026 revenue. Growth was driven by higher volume on the Ship to Shore and ATAC programs. Segment profit was $42 million, with a 12.4% profit margin. Ending backlog reached $3.6 billion, an increase of $255 million in the quarter.
4. Industrial: Revenue of $786 million, down $6 million YoY, accounting for ~21.2% of total Q1 2026 revenue. Textron Specialized Vehicles revenue was $300 million (-$42 million YoY) primarily due to the 2025 Power Sports divestiture; Caltech revenue was $486 million (+8% YoY) from forex gains and higher volume. Organic revenue growth was 4% YoY. Segment profit was $40 million, up $10 million YoY from manufacturing efficiencies.
5. Finance: Revenue of $16 million, segment profit of $12 million, up $2 million YoY.

• Management reaffirms that deliveries for Textron Aviation will increase sequentially each quarter in 2026, with margin improvements through the year and a margin peak in Q4. Supply chain performance is expected to continue improving sequentially after broad improvements in Q1 2026.
• Bell's full-year 2026 margin guidance is maintained at 8% to 9%, with margin improvement expected over the remaining three quarters of 2026 as commercial delivery volumes normalize.
• MV-75 Cheyenne full-year 2026 revenue is expected to be flat year-over-year. The expected 60 to $110 million charge related to low-rate initial production remains on track, with timing dependent on government contract exercise (expected H2 2026 to H1 2027, no changes to size or timing expectations).
• Management stated it is too early to update full-year 2026 consolidated guidance after a strong Q1 start, and will evaluate guidance as the year progresses.
• Textron Aviation medium-term production equilibrium is expected to land around 200 total deliveries per year, with focused factory and supply chain investments targeting lead time reduction to ~18 months for high-demand platforms.

• Additional FY2026 funding for the accelerated MV-75 Cheyenne program is still being secured by the US Army, after the acceleration was approved following the original FY26 budget request. While management remains confident in the Army's commitment, revenue upside from the acceleration depends on successful approval of this additional funding.
• While overall supply chain performance has improved from previous years, engine supply constraints remain an ongoing challenge, and occasional unexpected disruptions still occur.
• Separation of the industrial segment carries minimal stranded costs and manageable tax impacts across potential transaction structures, but transaction costs and tax leakage remain uncertainties dependent on the final separation structure chosen.

Q: What prompted the decision to separate the industrial segment now, after considering the move for years? / A: Management says the timing is right because both the A&D and industrial businesses are now strong enough to stand alone. After a decade of investment, the A&D portfolio is well-positioned as a cohesive pure play: Textron Aviation has a full upgraded product line, the MV-75 Cheyenne program is scaling, and Textron Systems has a strong growing pipeline of key programs. For industrial, Caltech has gained meaningful customer traction for its new EV-focused growth platforms, and Textron Specialized Vehicles is on stronger footing after the 2025 Power Sports divestiture. The separation also aligns each business with its natural shareholder base and clarifies capital allocation strategy for both.

Q: What separation structure do you currently favor, and will Caltech and Textron Specialized Vehicles be separated or sold together? / A: Management says no final decision has been made, and all options are on the table including spinning the whole industrial segment off, selling it as a single unit, or selling the two businesses separately. The company is already preparing for a spin as the baseline path, which has the longest lead time, while evaluating all other alternatives. Management will pursue the option that delivers maximum value to Textron shareholders, and will provide updates as the process progresses.

Q: What is the expected cadence of Textron Aviation deliveries and margins in 2026, and did supply chain improve in Q1? / A: Q1 2026 results were ~100 basis points below the midpoint of guidance as prior year inefficiencies rolled through the income statement. Deliveries and margins are expected to improve sequentially each quarter for the rest of 2026, with the highest margin in Q4. On supply chain, systemic issues are less severe than in past years, and on-time delivery and quality from suppliers has improved broadly, though engine supply constraints remain an ongoing daily focus and occasional disruptions still occur.

Q: Post-separation, how will you allocate capital to the core A&D business, and how will Textron Systems compete in the fast-growing unmanned aircraft space against lower-cost new entrants? / A: Management plans to lean in and grow the core A&D business rather than scale back any existing franchises, with a focus on expanding Textron Systems by leveraging cross-business engineering synergies across Textron Aviation, Bell, and Systems. Textron Systems' strength is in durable, complex unmanned platforms that meet DoD requirements for repeated use, rather than low-cost disposable systems. The business also holds a strong position as a systems integrator for complex capabilities, and is open to partnering with new market entrants.

Q: What is the current outlook for the impact of the Middle East conflict on Textron's end markets? / A: To date, the conflict has not had a material impact on Textron's operations. Higher fuel prices have both positive and negative correlations across Textron's business, with positive correlations for business jet and commercial helicopter demand that align with historical trends, but the situation remains early and management will continue monitoring it. For defense, the proposed increase in the Trump administration's FY2027 defense budget signals broader support for defense programs that align with heightened global preparedness, which benefits Textron's defense portfolio.