TXT - NYSE

Hello, everyone, and welcome to the Textron Second Quarter 2025 Earnings Call. My name is Emily, and I'll be moderating your call today. [Operator Instructions] I will now hand over to Scott Hegstrom, Vice President of Investor Relations and Treasurer, to begin. Please go ahead.

Thanks, Emily, and good morning, everyone. Before we begin, I'd 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 release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO; and David Rosenberg, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.7 billion, up 5.4% or $189 million from last year's second quarter. Segment profit in the quarter was $346 million, up $3 million from the second quarter of 2024. Adjusted income from continuing operations was $1.55 per share compared to $1.54 per share in last year's second quarter. Manufacturing cash flow before pension contributions totaled $336 million in the quarter compared to $320 million in last year's second quarter. With that, I'll turn the call over to Scott.

Thanks, Scott, and good morning, everyone. Second quarter was a good quarter for Textron with revenue growth in both our commercial aircraft and helicopter businesses as well as in Bell's FLRAA program, which is now known as the MV-75. Aviation had segment revenues of $1.5 billion, up 2.8% from the second quarter of 2024, reflecting higher sales for both aircraft and aftermarket. And the factory operations continue to improve as we ramp production. We delivered 49 jets and 34 commercial turboprops compared to 42 jets and 44 commercial turboprops in last year's second quarter. Aviation continued to see solid demand across all products with backlog ending the quarter at $7.85 billion. In the quarter, Aviation announced a purchase agreement with the customer in Mexico for 4 Citation jets and an option for 8 additional jets with deliveries expected to begin in 2026. Also during the quarter, the SkyCourier hit a number of important milestones, including the first delivery in South America, the first aero-medical order, which is also our first order in Africa and as we marked our fifth anniversary of the first flight. On the new product front, we continue to make progress on certification for the M2 Gen2, CJ3 Gen 2 and the Ascend with deliveries of these aircraft expected to begin in the second half of this year. Bell revenues were up $222 million or 28% compared to last year's second quarter, driven by growth in both the MV-75 program and our commercial helicopter business. On the military side, the U.S. Army announced its intention to accelerate the MV-75 program and also announced that the 101st Airborne will be the first division to operate the MV-75. In the quarter, Bell delivered 2 MV-75 virtual prototypes to the Army which are advanced simulators based on a digital twin of the MV-75. These simulators will be used to support training and development of tactics, techniques and procedures, leveraging the tiltrotor significant performance benefits in advance of fielding aircraft. We continue to have ongoing dialogue with the Army on specifics related to the acceleration of the MV-75 program. This includes acceleration of the development program, pull forward of initial low rate production and rapid fielding of units to the warfighter. That was recently down selected as the sole company for the next phase of DARPA's Speed and Runway Independent Technologies X- Plane program. During this next phase, Bell will design, construct and perform ground testing of an X-Plane demonstrator. On the commercial side of the business, revenues increased $73 million, primarily due to the mix of aircraft sold at Bell, as Bell delivered 32 helicopters in both the second quarter of '25 and '24. During the quarter, Bell received an order for 12 Bell 412EPX's from the Tunisian Air Force with deliveries expected to begin in early 2027. In June, Bell signed a 5-year contract with United Auto Workers for its operations in Fort Worth, Texas. Moving to systems. Revenues in the quarter were slightly lower as compared to last year, while segment profit margin was 12.5%, up 170 basis points. Earlier this month, systems received a $354 million contract modification from the U.S. Navy to add 3 Ship-to-Shore Connector craft. In addition, the Ship-to-Shore Connector program received $300 million through the recently enacted reconciliation bill. During the quarter, the U.S. Army announced approval of Milestone B for the XM30 program and transition the program to the engineering and manufacturing development phase. Also in the second quarter, Systems sold the first TSUNAMI craft to the U.S. Navy. TSUNAMI is an attributable rapidly deployable autonomous unmanned surface vehicle. Moving to Industrial. We saw lower revenues in the quarter compared to last year's second quarter, reflecting the impact of the disposition of Textron Specialized Vehicles power sports business and lower volume. At Kautex, we recently received a Pentatonic award from a leading European automotive OEM for a battery electric vehicle composite lower battery housing unit. This marks the second OEM platform for Pentatonic, and this win secures a major foothold on what is anticipated to become one of the leading global BEV platforms. Segment profit margin was 6.4%, up 180 basis points. Aviation, the Nuuva V300, a long-range large-capacity hybrid- electric VTOL unmanned aircraft continued its flight test program and made its debut at the Paris Air Show in June. With that, I'll turn the call over to David.

Thank you, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.5 billion were up $42 million from the second quarter of 2024, reflecting higher aircraft revenues of $35 million and higher aftermarket parts and service revenues of $7 million. Segment profit was $180 million in the second quarter, down $15 million from a year ago, primarily due to the mix of aircraft sold and higher warranty costs, partially offset by the favorable impact of manufacturing efficiencies and higher pricing net of inflation. Backlog in the segment ended the quarter at $7.85 billion. Moving to Bell, revenues were $1 billion, up $222 million from the second quarter of 2024. The revenue increase in the quarter was driven by higher military revenues of $149 million, primarily due to higher volume from MV-75 and higher commercial revenues of $73 million, primarily due to the mix of aircraft sold. Segment profit of $80 million was down $2 million from last year's second quarter primarily reflecting higher research and development costs, partially offset by higher volume and mix. Backlog in the segment ended the quarter at $6.9 billion. At Textron Systems, revenues were $321 million, down $2 million from last year's second quarter. Segment profit of $40 million was up $5 million compared with the second quarter of 2024, primarily due to lower selling and administrative expense. Backlog in the segment ended the quarter at $2.2 billion. Industrial revenues were $839 million, down $75 million from last year's second quarter. Largely at Textron Specialized Vehicles, where revenues decreased $66 million reflecting the impact from the disposition of the Powersports business and lower volume primarily in Golf products. Segment profit of $54 million was up $12 million from the second quarter of 2024, primarily reflecting the impact from the disposition of the Powersports business and the benefit of cost reductions from restructuring activities, partially offset by lower volume and mix. Textron eAviation segment revenues were $8 million in the second quarter of 2025 as compared to $9 million in last year's second quarter and segment loss was $16 million as compared with a segment loss of $18 million in the second quarter of 2024. Finance segment revenues were $15 million, and profit was $8 million in the second quarter of 2025 as compared to segment revenues of $12 million and profit of $7 million in the second quarter of 2024. Moving below segment profit. Corporate expenses were $36 million. Net interest expense for the manufacturing group was $26 million. LIFO inventory provision was $38 million and intangible asset amortization was $8 billion. Net special charges were $4 million and the nonservice component of pension and postretirement income were $67 million. Our adjusted effective tax rate for the second quarter of 2025 was 20%. During the quarter, we repurchased approximately 2.9 million shares, returning $214 million in cash to shareholders. Year-to-date, we have repurchased approximately 5.8 million shares, returning $429 million to shareholders. To wrap up with guidance, we are reiterating our expected full year adjusted earnings per share to be in the range of $6 to $6.20. We are increasing our expected full year manufacturing cash flow before pension contributions to be in the range of $900 million to $1 billion, up from our previous range of $800 million to $900 million. This reiterated adjusted EPS outlook and increased cash outlook incorporates the estimated impact associated with recently enacted tax legislation. The One Big Beautiful Bill Act that was signed into law includes several provisions that benefit cash flow and has some elements that impact our adjusted effective tax rate for the year. As a result, we now expect an adjusted effective tax rate in the range of 20% to 21% for the year. Our adjusted EPS outlook of $6 to $6.20 incorporates a higher adjusted effective tax rate. That concludes our prepared remarks. So operator, we can open the line for questions.

[Operator Instructions] Our first question today comes from David Strauss With Barclays. Please go ahead.

Scott, I wanted to ask you about the potential acceleration on MV-75. What that could look like, what that could mean for your numbers? And if you could remind us of the contract structure as you move into LRIP.

Sure. So David, I mean, this is very much a work in process. I would say on the development side, we already have very good visibility around that, I suppose, in agreement with the Army on how to proceed on accelerating EMD. That's partly why you're seeing the increased EMD revenue here in 2025. And certainly, we will see an acceleration of that in 2026 as we try to get that first aircraft completed and turned over and ready for tests. So I think on the EMD front, it's pretty clear. We know what we've got to go do. And both we and the Army are working to execute against that. In terms of the production acceleration, the -- you may recall the LRIP, which was 8 aircraft, which was bid in the initial contract production of that wouldn't have started until really triggering all milestones C. So that was going to reflect probably about an 18 month or so gap between the last of the EMD delivered aircraft and LRIP. We're now pulling that forward. And the intent is to basically be able to smoothly transition from that last EMD aircraft into the first of the LRIP. So that will probably pull in something on the order of 18 months and then we're also working on talking about what does the ramp look like. So it's not just going to be those 8, but what do you think about in terms of the next lot right behind that. And so those discussions are still ongoing with the Army. I think what you're seeing primarily in the FY '26 budget ask is the increased dollars to support that acceleration of EMD, and you would expect to see increase in additional production dollars in the FY '27 budget ask to support what I just talked about an acceleration of that first lot but also lining up the second and the third lots of production.

And Dave, could you touch on maybe what some of the offsets were to the higher tax rate to hold the guidance? It seems like Bell is maybe coming in better than you expected?

So as we sit right now, the biggest offset is the timing of our share repurchase this year has been a little ahead of what we originally planned. So from an average share count perspective, we should be better than what we -- where we started the year at. So that, in essence, gave us the ability to hold the guide with the while at the same time taking this 200 to 300 basis point increase in the effective tax rate.

Our next question comes from Peter Arment with Baird.

Scott and Dave, nice results. Scott, could you maybe give us a little -- your thoughts around just kind of the margins at Aviation. I know that you had kind of talked to us about some of the pricing that was going to be lingering from last year flowing through. How do we think about that as we move forward in the second half?

Sure. Look, I think we're right on track with where we expected to be on Aviation as we guided at the beginning of the year with the recovery kind of coming off of the strike and some of those issues, as you mentioned, pricing of aircraft that moved into this year, we knew we would be a little more margin challenged in the first half than the second half. So I think we're right on track with that. I think the production ramp is going well. King Airs is probably the only one where we've been a little behind. That's a tougher line to get going and picking back up. The good news is I think that's now running well. So we're certainly in line with what we expected, we'll see good jet deliveries in the back half of the year, but also much stronger turboprop deliveries in the back half of the year. So in all those dynamics that we were kind of factoring into our plan are playing out exactly as we expected. So we certainly expect to see nice volume increases here through Q3 and Q4 with that margin step-ups that will put us right on our target for the full year.

I appreciate that color, Scott. And just maybe just as a follow-up and staying within Aviation. Just talk about, I guess, the demand environment continue to have very good bookings and just what you're seeing in terms of customer interest in the new models.

Yes. The demand has been strong. So we're seeing good order flow. I think customers are very excited about the Gen2s of both the M2 and the CJ3 coming out. Ascend also getting close to certification here, and we have a good backlog on that as well. So I think the aircraft portfolio is doing really well in the market.

Our next question comes from Sheila Kahyaoglu with Jefferies.

Maybe let's stick to Aviation, Scott, on that last point. Are you seeing any changes given the tariffs on competitors and yourselves, how are you thinking about tariffs? And what were the higher warranty costs you mentioned for the Aviation margins?

So we haven't really seen an impact yet on the tariff front. I would say that there are certainly some customers in, let's say, particularly in some Latin American countries that are concerned, but we'll see how that plays out. I guess our view of these things at the moment is to sort of not panic and give a little time to let things settle out. So we'll continue to kind of watch it and see. But we haven't certainly have not yet seen any kind of dramatic impact. And as you know, Sheila, the bulk of our deliveries are U.S., the bulk of our manufacturing is U.S. So I think in the grand scheme of things, while the tariff stuff can create some concerns and some noise, I think we're actually pretty well positioned with our large North American manufacturing base and our largely North American-based delivery. So I think in that respect, we're in pretty good shape. But on the warranty, there's always a few things moving around in there. We have had an issue that we've been dealing with probably for a couple of years that we feel like some of the work we're doing in the shops is coming in a little higher than what we originally expected, and we felt it was appropriate at this point just to sort of true up the reserves on that to make sure we can cover the balance of work that needs to be done there.

Got it. And maybe if I could ask one on Bell margins. They fell below 8% in the quarter. You called out R&D cost. How should we expect that to progress through the remainder of the year?

Well, look, I mean I do think we saw the -- as we talked about much higher revenue than we originally had in there on the EMD side of FLRAA, which is obviously a fantastic program for us, but a little more margin challenged. So I think we'll see the balance of the year up a little bit from where we are certainly this quarter. To be honest, given the fact that we're going to have probably higher than our revenue guide, largely driven by the EMV piece of FLRAA. We'll have higher revenues, but we'll probably be towards the lower end of the Bell range driven by that.

Our next question comes from Seth Seifman with JPMorgan.

Wanted to ask about Systems. And I think 2 of the competitions that you've been looking at for decisions this year programs either canceled or under review, but there's maybe some other opportunities emerging that you talked about. So how are you thinking about the systems outlook and the opportunities for growth there?

Yes, Seth, look, I think the -- obviously, we were surprised by the situation on RCV and FTUAS to see those programs be terminated in both those cases, I don't think it's the end. I mean certainly, the Army is going to continue to invest in robotics, and we will look for ways to participate in those future activities. The same is true on FTUAS, while the program, the FTUAS's itself program was terminated, the Army again, is putting more money into tactical UAS system. So it's going to be acquired in a different way, different competition. And clearly, we will compete for our -- with our products in those opportunities. So it certainly impacted us in terms of what we would have expected timing of those programs, which we kind of had in the win column, but there's other opportunities that we'll pursue in both those spaces. What is happening in the year is that we're seeing nice growth and a number of big wins in other portions of the Systems portfolio that I think will effectively offset the terminations this year of RCV and FTUAS. So there's been a number of things, competitions that are already awarded. Obviously, the Ship-to-Shore Connector program continues to grow. The Sentinel program continues to grow and I think we'll see some nice wins in other pieces of the portfolio as well as we go through the balance of the year.

And then this was the -- I think this was probably the highest earnings quarter for industrial in a little while. Is there -- do you feel like there's potentially some upside there versus the initial outlook?

Well, look, it's -- we're probably not revising our guides at the time. But I think the industrial business, as you know, we've done a fair bit on post Powersports, taking cost out of the business and restructuring. This is a year where you have the cyclical low on the Golf side. That's a very -- that's actually a very predictable cycle and totally consistent with our plan. But I think the team is executing well here post Powersports and we're certainly feeling good about being in the range, despite taking the revenue loss on the disposition of the business.

Our next question comes from Robert Stallard with Vertical Research.

Scott, first of all, on FLRAA, which I should call MV-75. With the acceleration plan, would this require Textron to put in more capital to enable this 18-month acceleration?

Yes, Robert, I would say sure. I mean we've always had a capital plan that ties in with the production program and ramping that. So certainly, in terms of how we were thinking about the long term, this would accelerate those plans, let's say, on the order of around 18 months. So we've always anticipated that this was coming, but it's a manageable number, and it's something that we factor into our long-range plan. And that's -- that would be a fantastic outcome if we have to spend more capital sooner to ramp this program.

And secondly, on Aviation, you've seen some of your peers signing up to new big fleet purchases. Is this something you'd be interested in doing more of going forward?

Look, I think we're only interested in fleet business if it's good business. I mean, our demand continues to be strong. Our retail demand is strong. So we're always happy to look at fleet deals. As you know, we do some fleet deals, but it needs to make economic sense for us to participate in those. In the meantime, we're very happy with our retail business. The demand is there. The backlog is there. So we always look at every opportunity, whether it's a one-off aircraft or a fleet.

Our next question comes from Myles Walton with Wolfe Research.

Scott, I was wondering, given your experience in the Group 3 UAS market, is there any interest given the attention of the administration and the [ Sec Def ] on the smaller drone market for higher levels of investment at Textron more broadly?

Well, the Group 3 has obviously been our strong suit. So there are opportunities. There's R&D work going on, looking at some of the smaller classes or frankly, places where we might participate in some of these programs, but nothing that we would announce or specifically comment on at this time, I guess.

Good enough. And then I guess from a perspective of the 525. Is there any update you can offer on that certification? It does seem like the FAA maybe is moving along with things and maybe there's more adjudication that's being done.

Well, look, I mean, it's hard for us to comment. I mean, obviously, that's very much an FAA process at this stage of the game. I'd like to think we're in kind of the last stages here and obviously, a lot of documentation going back and forth and trying to get through final test criteria, and we're just going to continue to work that with the FAA.

Our next question comes from Ronald Epstein with Bank of America.

This is Samantha Stiroh on for Ron today. I just wanted to ask about capital deployment. You did about $200 million of share repurchases in the quarter. How are you thinking about that going forward and then M&A opportunities?

Sure. Look, as we've said, I think our primary focus on capital deployment is opportunistic share buyback. Obviously, that's certainly what we did in the first half of the year, and I would expect we will continue that through the second half of the year. From an acquisition standpoint, if something made sense, I think we have plenty of capacity to be able to do something like that. So in the meantime, the most logical thing for us to do, and I think the best return for our shareholders in terms of where we are is to continue to focus capital in redeployment via share buyback.

Our next question comes from Doug Harned with Bernstein.

Going back to demand, you've talked about it, it looks strong. We've heard some of that from others. But when you consider your -- how -- could you describe your discussions with corporate customers? Because on one hand, they've got uncertainty in this environment, this tariff environment on when to make capital investments. On the other hand, you've got bonus depreciation. How do you see these different factors playing into those decisions at your corporate customers?

I think net of everything is positive. I think the corporate world is healthy right now. Sure, everybody -- obviously depending on companies have a lot of different exposures or not relative to the tariff situation, but the demand, the dialogues are good. flying is very strong, right, which helps to drive our aftermarket. So it's sure appears to us that the corporate world is flying and buying, and managing their fleets as you expect and pretty good times.

And then separately at Bell, you had higher R&D in the quarter. Where are you directing that? Is that connected at all to MV25? Or is that on the commercial side? What are you looking at in terms of investment there?

So MV25 is primarily contracted now, right? So that's all under the EMD phase. The R&D spending, obviously, it looked lighter, I mean, in the quarter. A year ago, that was largely because of the termination of the FLRAA program and sort of the close out of that contract and whatnot. But when you look at and think about the balance of our year, we will have higher R&D spending and the R&D spending on the commercial side is largely focused around the 525 and completing that program. On the military side, it's really focused around the R&D programs that we need to execute to support the development of the high- speed VTOL program. So especially now with having been selected for the DARPA's SPRINT program. So that's sort of -- I would expect R&D to be fairly flat on a quarter-to-quarter, certainly up over last year, again, largely because of the increased spend on R&D associated with the high-speed VTOL program.

Our next question comes from Noah Poponak from Goldman Sachs.

On MV-75 when you put the pieces together of movement in timing of EMD and LRIP, does total program revenue grow each of the next few years or does it decline at any point in the window as you're shifting from development to LRIP in before you make it to full- rate production?

Well, we don't know the exact answer to that yet, Noah. I think we have to continue to work on what the production acceleration looks like. EMD clearly is up here in the next couple of years, the pull forward of the LRIP volumes would obviously add to that. So I mean, I guess, I feel fairly confident saying it's going to continue to grow over the next couple of years, but we've got to get that. I mean from an Army budgeting standpoint, this is very much a work in process, right, as they look at their '27, '28 and on program budget. Certainly, what the Secretary and the chief would like to go do when they talk about the volumes and getting things delivered out to the 101st would drive incremental volume here for the next several years.

And Scott, the industry has had these other examples of programs that fixed the LRIP pricing at the time of the bid where by the time you get to LRIP, there's been cost creep, so your LRIPs are breakeven or loss making. Can you talk about where you see price cost right now on the LRIPs compared to when you bid?

Well, I'm not sure we go into that level of detail, no. I mean we expect -- and like you know, the 8 LRIP aircraft were bid at a fixed price as part of the original contract. And so you wouldn't expect margins to be very good there. I think part of what you see in our margin rates is pretty conservative assumptions on our part o have the appropriate amount of MR to support those programs. But those haven't been definitized yet. Supplier pricing has been locked in. So I don't have specific numbers for you, but we would expect those and always have expected those to be pretty challenging for those first 8 aircraft.

And then just last one, I was hoping to ask you about Scott, just how you're thinking about setting supply and deliveries at Cessna for the rest of this year and into next year, just we've had this window with the strike and supply chain. It's a little tricky to sort of have a sense for where you think supply should be, I guess, on a run rate basis from here?

Yes. Well, look, I mean, obviously, as we got all the way back to the beginning of the year, we certainly have a production plan that has a ramp going through the course of the year. That's been well communicated to all of our suppliers, obviously. And as you know, we're probably -- a lot of our stuff is in that 2-year for some of that long cycle material. So certainly, those suppliers are understanding with where we are on the ramp this year and even out through 2026 as well. So I think supplier communication and recognition of what that supply chain ramp needs to look like is pretty well understood. Not everybody is totally there, obviously, in the supply chain, I would say, is in much better condition than it was going back a couple of years ago, but you still have issues that pop up. And as we always say, it's good not to have too many supplier problems, but every supplier part is an important part, right? So it's I think it's not because of a lack of understanding of what the ramp needs to be. It's execution. And obviously, we work through that every day.

Should we still be thinking about the 2019, just over 200 units being recovered in the medium term?

I'm not sure we're prepared to give guidance for 2026 just yet.

Our next question comes from Gautam Khanna with TD Cowen.

I was wondering if you could elaborate a little bit on commercial helicopter demand, how that's trending?

I'd say it's strong, actually across all the models, everything from 412s all the way down to the 505s. I think the commercial helicopter business is in good shape. We had strong delivery on a year-over-year basis here in Q1, Q2. Q3, Q4 was much stronger last year. So I think we'll have more comparable comps on a year-over-year basis. But certainly, for the total year, helicopter deliveries are looking good and order activity is very good. So I think that business is in good shape.

And just stepping back broadly, would you say that you haven't really seen much demand erosion due to tariffs and all the trade policy uncertainty across the portfolio? Or have you seen...

Not at this point. No, we have not seen evidence of that yet. I'm not saying it can't happen, but I think most customers are sort of -- taking sort of a wait and see with some of these things or just assuming that things are going to get resolved. And again, if you look at a lot of our stuff, particularly the fixed-wing world and business jets, we are largely North American. Anyway, a lot of our international helicopter things end up being either FMS or some foreign military and I think that, that activity, that order rate seems to be continuing despite a lot of the tariff dialogue.

Our next question comes from Kristine Liwag with Morgan Stanley.

Scott, maybe on tariffs and aviation. I mean tariffs are increasing the cost for your European and Brazilian competitors. As these things shake out and some of the tariffs stick, ultimately, they'll probably see an incremental higher cost for U.S. customers. So when we think about this shaking out in the next few years, do you see this as an opportunity to gain market share? Or is this an opportunity to get more price and also get more margin?

Well, look, Kristine, I think, again, I think we got to need to give this time and see where all the tariff dialogues settle out. So I'm a little reluctant to think about a year, 2 years, 3 years down the road on these things. But I mean, there are certainly cases where we have foreign competition that just has a lower cost basis and tends to be more aggressive on price. And we kind of hold the line in there and they've tried to be focused on making sure we're running a profitable business and the business can afford to keep reinvesting in product lines, and we'll continue to do that. Does that do long-term tariffs start to play a little more of a normalizing in terms of some of the cost and pricing that we see? And that could be, but it's -- I'd say it's too early in the process to really know the answer to that question.

So maybe switching gears to eAviation. Earlier this year, you had the Nuuva V300 get its first flight. How has been the customer reception of this aircraft? And are you expecting this to enter into service this year? And should it enter into service this year, what kind of customer milestones or production rate are you thinking about for an aircraft like this?

So the flight test program continues. So there's a lot of work going on as we continue to fly regularly. It's obviously, we've done a fair bit of hover flying. We do need to go into conversion mode. And look, I think, Kristine, in terms of terms of certifications of aircraft of this class, that's just something I don't see in the near term. I do think we see some interest on some military applications. I mean, given the range and the payload capability of this craft compared to others. I think we could have a real advantage there. And so -- but we're in early dialogues with those prospective customers as they start to see what this aircraft can really do from a performance standpoint. But I mean, right now, on a commercial basis, I see no pathway to how you certify these kinds of aircraft. So I certainly wouldn't expect something that could happen anywhere near this year or next year.

Our next question comes from Gavin Parsons with UBS.

I guess it's been kind of 4 quarters now that Aviation margins have been pretty disrupted. Is the second half of this year pretty normal? So as we think about going beyond '25, is that a good baseline?

Well, as I said, I think our progression of margin through the course of the year is playing out as we expected. And so I think the issues that we had around the impacts of the strike and what that meant to our shift in our production to the right and a lot of disruption and things of that nature are fairly well behind us. And so I think we're very much on plan to hit the guide numbers that we gave you guys. And so certainly, with those disruptions behind us, you would expect to see good margins for the business as we go on into 2026. So we're not going to guide yet. But obviously, you guys will definitely see the kind of margins that we expected for the full year to come in well within that range that we guided. So -- and look, I think considering all the disruptions and challenges from the strike and the holdover and ongoing supply chain issues to be posting about 12% margins. I think the business is doing pretty well. But certainly, we expect that margin rate to expand over the course of the year.

And then once you get through Denali, any categories where you see the opportunity for new aircraft in aviation?

Not that we are prepared to announce at this time.

Our next question comes from David Strauss with Barclays.

Scott, what's the outlook for King Air? I mean the volumes have come down a fair amount there. Where could that settle out for the year?

Sure, David. Look, I think the King Airline, as I commented earlier, is one of the more challenging lines. I mean it's just an older product line in terms of tooling and documentation. I mean, it's always been a great product, but it probably was impacted more than anything else in terms of just the challenges are going through the strike and all the COVID turnovers and all that kind of stuff. I think that line has stabilized and is running much better than it was. And so look, I think we'll have strong deliveries in Q3 and Q4 on the King Airline. So as I said, it's probably the last line to recover from a lot of the disruptions. It is now flowing well. And like I say, I think it supports considerably higher deliveries in Q3 and Q4.

And Kautex, was that flat or maybe just down a little bit in the quarter?

It was down a little bit in the quarter, which, again, is what we expected. I think the global automotive markets are more or less behaving as had been inspected. And that team continues to do a nice job in terms of managing cost and capital deployment and all that kind of stuff. So I'd say on the positive side there, we've been investing, as you guys know, for a number of years around Pentatonic to make sure that we have a good play in the pure battery electric vehicle market. We do continue to see nice momentum shift in hybrid, which is an important piece of the tank business for us and not just the tank piece but also the opportunity to participate in the battery portion of a hybrid vehicle and the win this past quarter with a major OEM on their EV platforms, I think, is encouraging for the future of that business.

And then last one, Dave, on the tax rate step up, is that -- is that fairly ratable Q3, Q4? Or is there a big catch-up in Q3?

You're right, David. It's going to be a big catch-up in Q3, reflecting the cumulative impact to date for the year. So the -- it will be Q3 skewed.

So I think on the tax thing, guys, everybody -- I mean, I know there's a dialogue with a lot of companies, right? The tax bill is a very good thing, right? I mean, it's going to give us a significant impact on cash for the next several years. The bonus depreciation is clearly positive for our customers who buy our large capital assets. It's also good for us because we do deploy capital. So I think there's -- this is mostly good. We are going to take this near-term perturbation of a tax rate increase, which, as David said, is probably 200, 300 basis points that it is where it is. But I think net of everything, the tax bill is a good thing for our company.

Sorry, on the back of that, I got to ask one more. So on Section 174, I thought the benefit might be larger than the $100 million that you took cash flow up by. Is there any offset to that running through the numbers?

That's the way we see it right now. It's a relatively complicated bill. So we're continuing to evaluate it, and we'll continue to try to drive additional opportunity, but that's how we see the impact at least for this year at this point. But as Scott mentioned, overall, it's a significant positive on cash flow as we go forward.

Our next question comes from Pete Skibitski with Alembic Global.

Scott, just one quick one for me. In the second quarter, one of your engine suppliers, Williams International announced a pretty sizable, I think they're calling a $1 billion expansion into Florida and some of their other facilities as well. And obviously, they have other customers, but I was wondering if you could give us any color at all in terms of what that might mean for Citation and just the visibility to continue to grow maybe beyond the near term?

Well, I mean obviously, I won't comment on their particular expansion works. But look, Williams is a very important supplier to us. They've been a very good supplier to us. We deliver a great product. It has a history of delivering great performance. And it's a good relationship and one that I expect to see to continue to grow into the future. Williams does a great job of supporting our new product programs and expect they'll continue so in the future as well.