Textron (TXT) Q1 FY26 earnings call: guidance and Q&A

Textron announced its intent to separate its Industrial segment from its Aerospace & Defense (A&D) businesses within 12 to 18 months. This move aims to establish 'New Textron' as a pure-play A&D company, aligning with core franchises like Textron Aviation, Bell, and Textron Systems. The company is exploring multiple paths for separation, including a sale or a tax-free spin-off, with all options on the table, including selling the Industrial businesses together or separately. This decision is driven by the belief that both segments are now well-positioned for independent success, with their respective end markets in stronger places.

The proposed 'New Textron' would have approximately $12 billion in revenue and $1.2 billion in segment profit, with a strong backlog of $19.2 billion entirely related to A&D. This pure-play entity is expected to have 150 basis points higher top-line growth and 120 basis points higher segment profit margin. Key growth drivers include the MV-75 Cheyenne program ramp-up, advanced materials for hypersonic applications, shipbuilding, and manned/unmanned air, land, and sea vehicles. The company also highlights its large installed base (25,000 Textron Aviation aircraft, 13,000 Bell aircraft) supporting a robust aftermarket business, representing over 30% of New Textron's revenue.

The Industrial segment, comprising Kautex and Textron Specialized Vehicles, is a $3+ billion business with strong operations and established brands. Kautex, a Tier 1 auto supplier, is growing its hybrid fuel tank offerings and has secured its largest award to date in this area. Its Pentatonic battery and closure business supports EV and hybrid platforms, and Allegro cleaning systems target autonomous vehicle sensors. Textron Specialized Vehicles, anchored by the EZGO golf car business, is expected to benefit from a lease renewal cycle and market recovery, operating from a stronger footing post-Powersports divestiture.

Textron Aviation had a strong start to the year with 37 jet deliveries and 35 commercial turboprop deliveries, both up from a year ago, contributing to 22% revenue growth. Aftermarket revenue grew 10%. Order activity remains healthy, with Q1 bookings being the best in four years, leading to an $8 billion backlog. The company continues to lead in business jet, turbine aircraft, and turboprop deliveries. Management aims to improve operational efficiency by reallocating R&D investment into supply chains and factories, with an implied target of around 200 total deliveries annually.

Bell's military revenues grew 25%, driven by the MV-75 Cheyenne program, which was officially named 'Cheyenne' by the Army. The program is advancing, with subsystem critical design reviews completed and prototype deliveries expected soon. The Future Years Defense Program (FYDP) outlines significant funding and procurement quantities for MV-75 through FY31. Bell also completed the critical design review for the DARPA X-76 program and is a finalist in the Flight School Next competition. Commercial revenues were down due to lower volume and mix, but are expected to normalize^📎 throughout the year.

Textron Systems achieved double-digit growth in the quarter, with revenues up 13% to $338 million, primarily driven by higher volume on the Ship to Shore program and ATAC military training programs. The segment secured a $450 million preproduction development award from the U.S. Marine Corps for its Advanced Reconnaissance Vehicle (ARV) program and a prototype agreement for the Low Altitude Stocking and Strike Ordinance (Lasso) program. Long-term growth is anchored by the Sentinel program and potential wins in ARV and XM30, leveraging its expertise in unmanned systems and complex integrations.

Post-separation, Textron intends to lean into and grow its A&D portfolio, leveraging engineering capabilities across Bell, Aviation, and Systems, with a particular focus on expanding Systems' offerings. The company plans to reallocate a portion of its R&D investment towards supply chain and factory improvements to enhance operational efficiency and production output, rather than increasing overall investment levels. Supply chain issues, particularly with engines, are showing signs of improvement, though challenges remain.