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Textron (NYSE:TXT)
Q1 2018 Earnings Conference Call
April 18, 2018 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Textron First-Quarter 2018 Earnings Conference Call. [Operator instructions] As a reminder, today's conference is being recorded, and I would now like to turn the conference over to our host, Eric Salander, vice president of investor relations. Please go ahead.

Eric Salander -- Vice President, Investor Relations

Thanks, Brad, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risks factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's chairman and CEO, and Frank Connor, our chief financial officer.

Our earnings call presentation can be found in the Investor Relations section of our website. Textron's s revenues in the quarter were $3.3 billion, up $203 million from last year's first quarter. Income from continuing operations was $0.72 per share, up from $0.37 per share, or $0.46 on an adjusted basis in last year's first quarter. Manufacturing cash flow before pension contributions reflected a use of cash of $158 million, compared to a use of cash of $227 million in last year's first quarter.

We also announced that we have reached a definitive agreement to sell our Tools & Test business to Emerson for approximately $810 million in cash. With that, I'll turn the call over to Scott.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Thanks, Eric, and good morning, everybody. Segment revenue was up in the quarter in industrial, Bell, and Aviation, partly offset by lower revenue in Systems, consistent with our expectations. The Bell revenues were up on higher military volumes in the quarter. On the commercial side, we delivered 46 helicopters, up from 27 in last year's first quarter.

We continue to see positive customer reaction to the 505 as we ramp production and deliveries, with the first units delivered to European customers in the quarter. We also continued to see international demand for the 412, closing two multi-aircraft orders. At Heli-Expo in February, we showcased our innovation leadership in the commercial helicopter market with the unveiling of the 407GXI, featuring a new Garmin avionic system and an upgraded FADEC-controlled Rolls-Royce engine. We also announced Air Methods Corporation as the launch customer with an order for six of these new aircraft.

On the new product front, following the first flight of the V-280 Valor in December, the aircraft continues to demonstrate its agility and maneuverability, hitting new milestones in the early stages of a flight-test program as it moves toward operation and full airplane mode. Each milestone represents another step forward in creating the next generation of tiltrotor aircraft. The aircraft was flown by a U.S. Army experimental test pilot, representing a great opportunity to put the aircraft in the hands of our military customer.

Moving to Systems. Revenues were down on lower volumes, primarily at weapons and sensors related to the discontinuance of the SFW production line. During the quarter, unmanned systems received two task orders for the Aerosonde with a combined value of $97 million from NAVAIR in addition to a $28 million logistics support contract for the U.S. Army.

At marine and land systems, we remain in good progress on the Ship to Shore program as the first craft began on-water testing over this month and will proceed to build those trials next with deliveries scheduled for the summer. At TRU Simulation + Training, we signed a purchase agreement for an A350 full-flight sim with Airbus. And we're also chosen to provide the first-ever full-flight simulators for HR 600 aircraft models for Japan Air Commuter and Ansett Aviation Training of Australia. At industrial, we saw 14% increase in revenues, with growth in each of our businesses.

Overall margin was down, reflecting the additional Arctic Cat operations in the quarter as compared to the prior year due to the March 2017 timing of the acquisition and the first-quarter seasonality of the outdoor power sports business. We saw higher volumes in our growing GSE product line and also received the first order for the innovative new TUG Alpha 4 aircraft pushback, working five units for delivery to UPS later this year. Within our Textron off-road product line, we unveiled the new Wildcat XX side by side designed with an off-road racing-inspired suspension system, delivering best-in-class performance. At Arctic Cat, we introduced our new Mountain snowmobiles with our groundbreaking Alpha One single-beam rear-suspension system, further demonstrating our industry-leading product innovation.

Moving to Textron Aviation. Revenues were up 4% in the quarter. We delivered 36 jets, up from 35 last year, and 29 commercial turboprops, up from 20 last year. These deliveries reflect an improved mix of models across our jet and commercial turboprop product lines.

We saw continued order strength in the quarter with a number of multi-aircraft orders, including five Caravans for service into Papua New Guinea and two special mission King Airs configured for an air ambulance fleet in Australia. In February, we attended the Singapore Airshow where we announced Latitude has been granted certifications in China and Australia, demonstrating our commitment to the Asia Pacific region. We also had our first two Latitude deliveries into China in the quarter. For the second consecutive year, the Latitude earned the title as for the most delivered business jet in the midsize category.

On the new-product front, we continued to work toward certification of the Longitude, which we expect later in the second quarter. Our Longitude made its APAC debut at the Singapore Airshow, successfully circumnavigating the globe and demonstrating its commanding performance and reliability to customers along the way. We also made progress in the Sky Courier, successfully completing wind-tunnel testing as we look to develop this aircraft on an accelerated time line. The Denali is tracking its development schedule and continues to generate a significant amount of customer interest.

Our AT-6 Wolverine aircraft was chosen by the U.S. Air Force to participate in the second phase of the light attack experiment program, which begins in the second quarter. Lastly, we have agreed to sell our Tools & Test business to Emerson. While Tools & Test has been an important part of our Industrial portfolio for many years, this transaction represents a good return for our shareholders and positions the business for future success as part of Emerson.

With that, I'll turn the call over to Frank.

Frank T. Connor -- Executive Vice President and Chief Financial Officer

Thank you, Scott, and good morning, everyone. Segment profit in the quarter was $279 million, up $60 million from the first quarter of 2017 on a $203 million increase in revenues. Let's review how each of the segments contributed, starting with Textron Aviation. At Textron Aviation, revenues were up $40 million from this period last year, primarily due to higher price and volume.

Segment profit was $72 million, up from $36 million a year ago due to favorable volume and mix, performance, and price. Backlog in the segment ended the quarter at $1.6 billion. Moving to Bell. Revenues were up $55 million, primarily due to higher military volume, partially offset by lower commercial revenues due to the mix of aircraft sold.

Segment profit increased $4 million from the first quarter in 2017, primarily reflecting the higher volume. Backlog in the segment was $3.6 billion at the end of the quarter. At Textron Systems, revenues were down $29 million, primarily due to lower volume at weapons and sensors related to the discontinuance of SFW production in 2017. Segment profit was up $30 million, primarily reflecting improved performance at marine and land.

Backlog in the segment was $1.4 billion. Industrial revenues increased $139 million, largely related to favorable foreign exchange, the Arctic Cat acquisition, and higher volumes. Segment profit was down $12 million despite the increase in revenues from the first quarter of 2017 due to the timing of the Arctic Cat acquisition in the prior year. Finance segment revenues decreased $2 million and segment profit increased $2 million compared to last year's first quarter.

Moving below segment profit. Corporate expenses were $27 million and interest expense was $34 million, both flat with last year. We also repurchased 5.9 million shares, returning $344 million in cash to shareholders. To wrap up with guidance.

We are reiterating our expected full-year EPS from continuing operations of $2.95 to $3.15 per share. We also continue to expect cash flow from continuing operations of the manufacturing group before pension contributions of $700 million to $800 million. This guidance includes the expected impact of the Tools & Test divestiture on earnings per share and cash flow from continuing operations. That concludes our prepared remarks, so Brad, we can open the line for questions.

Questions and Answers:

Operator

Of course. [Operator instructions] We do have a question from the line of Carter Copeland with Melius Research. Please go ahead

Carter Copeland -- Melius Research -- President

Good morning, gentlemen.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Good morning.

Carter Copeland -- Melius Research -- President

Scott, just on Aviation, I was was wondering about that the margin performance their. Ex of the fall off in Scorpion R&D, you still had a pretty good year-over-year improvement there. I wondered if you might give us some color on how much that profit improvement was mix related versus overall price, and maybe how are after-market sales in the quarter. Any color you can give us there will be helpful.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, it's kind of all of the above, Carter, and I think our volume obviously was up a little bit, but the mix was favorable there. Teams continue to do a good job on the performance side in terms of cost and therefore delivering better margin on some of the models. And as we've been talking about, we continue to push for incremental gains on the price side and we saw that as well. It certainly helped to have some more turboprop.

As you know, a year ago the turboprop was particularly light and so we were pleased to see some volume coming back in both the King Air and Caravan lines as well.

Carter Copeland -- Melius Research -- President

And on the after-market?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

So after-market was good performance. You'll see in the numbers just from a percent standpoint, not as large increases we've been seeing and that's largely because we've had a small change driven by some of 606 in terms of how we treat some engine programs. So the top line will look sort of low-single digit versus the reality of -- without actually counting -- kind of high-single digit and good performance there as well.

Carter Copeland -- Melius Research -- President

OK. And then one last one and I'll give -- the order momentum through the quarter, I mean, I know January is always a light month and February can be as well. Just in terms of the conversations with customers and what the sales team is seeing, how is that evolving over the course of the last three months and even what you're seeing real time?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, we think it remains pretty strong. And you're right, usually the first quarter, January, February pretty quiet. We continue to see relatively strong order bookings in that. So it's driven positive book-to-bill in -- across both jet and turboprop lines, which is good.

Carter Copeland -- Melius Research -- President

OK. Thanks, gentlemen.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Sure.

Operator

And we do have a question from the line of Sam Pearlstein with Wells Fargo. Please go ahead.

Sam Pearlstein -- Wells Fargo Securities -- Analyst

Goodmorning.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Good morning, Sam.

Sam Pearlstein -- Wells Fargo Securities -- Analyst

Scott, you've talked a lot, I guess, over the years about just driving earnings growth and seemed reluctant, it seems, to divest some of the lower-return businesses because of earnings dilution. And I guess, just based on the early reaction, certainly stockholders seem to like this, but -- given the buyback activity. But does this influence your views in terms of thinking about the mix of businesses, the portfolio, whether it makes sense to get out of certain lower-return businesses?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, I'm not sure -- I wouldn't categorize the Tools & Test business as a low-return business. I think that our stated position with respect to any disposition is that we're going to run these businesses to the best of our ability and make the right investments in them, and we certainly have done that in the Tools & Test segment, both organically as well as acquisition and with the intent to make it a great business. On the other hand, if somebody comes along and says, "Look, we value that business and think it's a better fit in our portfolio," and put something on the table that we think is good for our shareholders as well as something obviously they think is good for their shareholders, then we're open to entertaining a transaction, and that's exactly what happened here. Tools & Test is a good business.

I think it's well-positioned in the marketplace. It's performed well for us. But I think when you look at the, Emerson and who serves much larger footprint obviously into that kind of consumer base and channel, they feel that it's -- would be a better part of their business. And so I think that allowed a transaction to happen that is good for Textron and Textron shareholder and in all likelihood a very good thing for Emerson and Emerson shareholders as well.

Sam Pearlstein -- Wells Fargo Securities -- Analyst

OK. And I think when you started the year, you usually put a placeholder in for making acquisitions yourself and that if you don't find any, we see a step-up in the buyback. So if I just think about the first quarter's buyback plus this, can you comment at all about the acquisition pipeline or what you're seeing as it would seem like you probably aren't seeing a lot that's going to come to fruition?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, Sam, we always keep an eye out for transactions. I mean, I don't think there's any particularly large thing out there that I see on the horizon. There's always a number of things that we're looking at that are logical bolt-ons to the businesses that we have today. But in general, though, Sam, I would say, I think that given our balance sheet position, we are very comfortable to proceed with the level of buyback activity that we've talked about.

Obviously, that will step up in terms of the use of the cash from the disposition. If something comes along that makes sense for us, I think we have plenty of room to be able to manage that on our balance sheet through debt financing and stuff like that. So I think we're very comfortable with the level of buyback that we have in our plan regardless of whether M&A opportunities pop up or not.

Sam Pearlstein -- Wells Fargo Securities -- Analyst

OK. Thank you.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Sure.

Operator

And we do have a question from the line of Sheila Kahyaoglu with Jefferies.

Sheila Kahyaoglu -- Jefferies & Company -- Senior Vice President

Maybe if you could further elaborate on the Aviation backlog, sort of what drove the strength there. It was up $400 million on a sequential basis. Was that mostly Longitude jumping in? And then if you could just comment on the certification and is it expected later in Q2 and delivery starting in Q3?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

So as you know, we don't do a model-by-model backlog. I would say if you look at the Textron Aviation backlog, Sheila, there was some increase on the defense side, really largely driven by 606. There were some service contracts that were longer term, which are now all booked in there. But we had strong book-to-bill on the jet product line as a whole and we had a strong book-to-bill on the turboprop line as a whole.

So it was really, I would say, pretty strong bookings across all segments of the business. In terms of Longitude, we do expect it to certify here in the quarter. We're kind of in last flights. There were a couple of delays that we would like not to have had, but it's nothing serious, everything is fine.

Well, we just had some test flights to accomplish and some last builds, so everything is going well and we would expect that will happen here pretty soon. Whether we get one into the second quarter or the first sales happen in the third quarter is still sort of TBD. I mean, the nature of this aircraft, obviously, is it does have a little more customization on the interiors than a lot of other aircraft, so it really will just depend on what timeline we get the final of a -- if we're done and whether we can turn that around in time to get it in Q2, or certainly with worst case, fall into Q3.

Sheila Kahyaoglu -- Jefferies & Company -- Senior Vice President

Got it. And then just one on your military portfolio. Maybe if you could comment on my favorite two programs, the Scorpion and Future Vertical Lift, sort of what the timelines and hurdles look like for those two?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, on the Scorpion, we're continuing some international customer activity, we just had a customer in a couple of weeks ago, so those dialogues continue. On Future Vertical Lift, we continue a lot of dialogue, obviously, with the Army and the Marine Corps. We've had the Army now flying the aircraft. They're certainly very bought into this program and a very active partner in its development.

We're working, really, at this stage of the game on envelope expansion, which is going very nicely, so the team are doing a great job on that, and the Army's following it very carefully. Now, how this all works out through their budget cycles and, still remains to be determined. I think obviously our view is that we could deliver aircraft and a lot of capability at a much faster rate than what's currently budgeted into the Army budget and just sort of the general thinking in terms of how long it takes to develop a new aircraft like this and, but we're just going to continue to do our thing and demonstrate the maturity and capability of the aircraft and go from there.

Sheila Kahyaoglu -- Jefferies & Company -- Senior Vice President

Sounds good. Thank you.

Operator

And we do have a question from the line of Peter Arment with Baird. Please go ahead.

Peter J. Arment -- Robert W. Baird & Company -- Analyst

Good morning, Scott and Frank.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Good morning.

Peter J. Arment -- Robert W. Baird & Company -- Analyst

On Textron Systems, really nice margin performance there. How should we think about that? I mean, you mentioned land and marine is improving, but it seemed pretty significantly well above our expectations. Are you -- is this kind of outlook sustainable? Or how should we think about the overall performance there?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, I don't think this margin rate is sustainable through the course of the year. I think it will revert, and we feel pretty good about our guidance in terms of what we gave you guys. So we'll see some lower margin rates as we move on through the course of the year. But on the other hand, I think the team is performing well.

TAPV, we've talked about a lot over the years and we're just sort of working our way through those last deliveries. The program is executing as we expected. On Ship to Shore, the team is doing well. I mean, obviously, we're in integration test, which is always a challenging time, but the team is making great progress.

As I said, we actually have had the aircraft on the water. So it's operating and is going to enter into builder's trials here pretty soon. And of course, the good news is on the appropriations, authorized -- or appropriate levels of the craft are in great shape and we're working with our customer right now on that production proposal and we would expect that we would have something signed later this year and be able to start to see production moving. We already have some long-lead material and advanced activity going on to make sure that there's no line break as part of this process.

And I say we have worked well with the customer to make sure that's the case, but we're working through the details now on the first production contract.

Peter J. Arment -- Robert W. Baird & Company -- Analyst

That's helpful, and just a quick follow-up. On Bell, the deliveries were up really nicely year over year -- 505, 407 continue to be strong. What are you seeing in that particular end market that's really driving this?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, I mean, we've really seen strength around the world, particularly the light ends, the 505, as you see, well, that's really just been us having to ramp production and meet the demand for that product, which has been very strong. So we're obviously very pleased to see the production rates coming up and the number of units delivered going up. 407 continues to be strong. I think the GXI also was well-received and we have strong demand in there as well.

412s and 429s, as you know, particularly 412s, tend to be more back-end-loaded just in terms of deliveries and I think that's certainly what we expect we'll see over the course of the year.

Peter J. Arment -- Robert W. Baird & Company -- Analyst

Thanks, Scott.

Operator

And we do have a question from the line of Noah Poponak with Goldman Sachs. Please go ahead.

Noah Poponak -- Goldman Sachs -- Analyst

Hey, good morning, everyone.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Good morning, Noah.

Noah Poponak -- Goldman Sachs -- Analyst

Scott, just going back to the notable change in the Aviation backlog, and I recognize you don't want to get too granular there and I understand and respect that, but I think a lot of your stakeholders are sort of watching closely to see what's happening in the legacy business jet market. So I wondered, just given the many moving pieces that can happen there with Longitude and Latitude and the defense side, if this time around you'd be willing to quantify what the book-to-bill was in the pure in-production Cessna jet market?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, look, Noah, we're certainly not going to go into any more granular breakdown in the backlog, but I'd say that we're -- we had a strong book-to-bill in Citation jets, including all of our legacy models as well, as well as in the turboprop side, which is inclusive of both the King Air and the Caravan. So I think market demand continues to be strong and we see that reflected in our book-to-bill and backlog.

Noah Poponak -- Goldman Sachs -- Analyst

So is it safe to assume the in-production jet bookings compared to revenue was in the zone of what the total segment was?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Yes.

Noah Poponak -- Goldman Sachs -- Analyst

Got it. And then on the pricing discussion there, can you help us out with sort of order of magnitude there? I mean, what kind of pricing increases are you seeing at this point? And I guess, how much has price come up off the trough at this point? And where I'm going is sort of if backlog starts to build, it'll be interesting to see how you decide to -- you get asked the question if you'll raise production, but it seems like you would maybe actually just potentially let price keep going for some period of time, given the success you're having there and what that does to earnings in the segment before you raise production.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

I think that's true, Noah. Look, we have been saying that we will trade price for volume. I think these aircraft, I mean, I can't tell you we're going back to trough, I guess. I mean, we look at the data on more of a year-over-year or incremental subsequent-quarter basis, which is how we measure our sales teams obviously.

So as we look at the price targets and the performance of that, we are putting that higher on the list than just driving volume in this aircraft. And we are getting price increases, we continue to get price increases, but they're still at price levels that we're not very happy about. I mean, look, we, as a team, did a great job in the quarter. I think we're continuing to execute well on a lot of fronts.

But the amount of capital, the amount of investments that you make in this business warrants getting a better return and we need to see better pricing in the end market. And so that's the trade we're making. We are walking, we have been walking away from deals that are at price levels that are just not acceptable to business.

Noah Poponak -- Goldman Sachs -- Analyst

Got it, really helpful. Just one other quick one. The Bell -- if I take the Bell commercial and military units and price on the OE side plus the comment that total commercial revenue was down, which kind of tells me roughly where commercial after-market was, it seems like military after-market was up like 75% or something like that. Is that accurate? And if so, what's going on there?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

No. I mean, I can't follow exactly your math, but the military after-market was up, but it was certainly not up anywhere near the percent you're talking. I think there's probably a little bit of an artifact. Again, I hate getting into the 606 stuff, OK, but there is some benefit just from a quarter when you look at year over year in terms of the way the 606 stuff is done, particularly the military side of Bell, because it's impacted by this.

That -- again, over the course of the year, it's not going to make a whole heck of a lot of difference, but the way it falls out in the year, there's a little bit stronger revenue on the military side here in Q1 than you'll see through the balance of year because it's a little flatter given the way the accounting is done under 606 as opposed to the delivery that we've historically had.

Noah Poponak -- Goldman Sachs -- Analyst

Got it. OK. Thanks so much.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Sure.

Operator

And we do have a question from the line of Robert Stallard with Vertical Research. Please go ahead.

Robert Stallard -- Vertical Research -- Partner

Thanks so much, good morning.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Good morning.

Robert Stallard -- Vertical Research -- Partner

I think I'll follow up on Noah's question on the pricing environment in business jets, whether you're seeing your competitors holding to similar levels of price discipline and whether your overall market share is relatively constant.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, look, I don't know that I could comment that there's anything dramatically different in terms of the behavior that we're seeing out there. I mean, it's a very competitive market obviously and that's the nature of the end market. So we're continuing to hold on, as I said, our price line because we need to get pricing up. Now, do we lose deals because of that? I mean, there's certainly or probably deals where we lose a deal because someone was willing to go to a lower price level.

But we're a pretty big part of the market and we need to hold the line and we'll deal with our pricing if -- you have to leave competitors to deal with their pricing.

Robert Stallard -- Vertical Research -- Partner

But in terms of market share, you're comfortable with where you stand at the moment relative to perhaps 12 months ago?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

No, I think so. I think If you look in the quarter, we're pleased with the demand and how we're doing in both the light and midsized aircraft, which is, I think, it's strong and I think that's because our products are well regarded, our service network is well regarded, I think we have a strong brand, and generally, our customer repurchase rates are very high. I think our team does a good job of managing the customers, so that it's a win for the company and it's good for them. So they're popular products.

Robert Stallard -- Vertical Research -- Partner

OK. And then a couple of quick questions for Frank on the disposal. Wondering if you could give us the post-tax cash proceeds that you expect. And also, what was your anticipation of the operating cash contribution from this business for the year?

Frank T. Connor -- Executive Vice President and Chief Financial Officer

Yes, after tax and everything, we'll net about $725 million from the disposition. And again, from a cash standpoint, there is some cash impact, but we'll absorb that within our guidance and the performance of the other businesses.

Robert Stallard -- Vertical Research -- Partner

OK. That's great. Thank you.

Operator

And we do have a question from the line of Seth Seifman with J.P.Morgan. Please go ahead.

Seth Seifman -- J.P.Morgan -- Vice President

Thanks very much and good morning.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Good morning.

Seth Seifman -- J.P.Morgan -- Vice President

Scott, I wonder if you could talk a little more about Future Vertical Lift, and from your point of view, how much it matters or if it matters, if the Army goes ahead first with a medium lift kind of aircraft or looks to do reconnaissance helicopter first under Future Vertical Lift?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, look, I think it does matter. The Army aviation folks are continuing to look at what their requirements are. Obviously, a couple -- or several years ago, we're at the tip of Kiowa Warrior, out of that and stated they were going to do that with unmanned aircraft and that's sort of the path they've been going down. Cap Set 3, which is really where the V-280 is aimed, we think, is an important part.

And certainly, when they talk about their need for assault and sort of long-range capability, we think that's where the V-280 really shines. So the Army aviation will obviously continue to do their work and decide how they want to handle different programs. I think, obviously, there's -- Army aviation has to fly a number of different missions and a number of different aircraft, so I think that view will obviously evolve over time as it always does and we'll continue to work with them and emphasize the capability of the V-280 and the role and the impact that we think it can have on Army aviation. If they elect to do something more in that sort of Cap Set 1 category, then we'll obviously be engaged and talk to them about how you solve that requirement.

Seth Seifman -- J.P.Morgan -- Vice President

OK. And do you see a time frame for when the Army might make that determination?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

No, I don't. You know, I think there's just a lot of work going on and it'll evolve over time, I'm sure.

Seth Seifman -- J.P.Morgan -- Vice President

Great. Thanks. Thanks very much.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Sure.

Operator

And we do have a question from the line of Peter Skibitski with Drexel Hamilton. Please go ahead.

Peter Skibitski -- Drexel Hamilton -- Analyst

Yeah. Nice quarter, guys.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Thanks.

Peter Skibitski -- Drexel Hamilton -- Analyst

Scott, not to belabor the Aviation backlog question, but the fact that's it's up so much sequentially at a time when tax reform is coming into play here, I'm wondering if -- would use the term kind of the dam bursting in terms of the return of bizjet demand or is that too strong language?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

I don't know, Peter. I probably wouldn't say dam bursting. I think the tax reform, obviously, is a part of it. I think, more importantly, business confidence is strong.

People are looking to invest. It's been frankly a long time. A lot of people out there who have aircraft that are certainly getting older, they are upgrading a lot more infrequently than they used to because we went through sort of those down years. But there's some natural demand in the market and that's, I think, driving positive backlog.

As I say, I don't know that the dam bursting. I mean, I'd like to say that, it's not crazy, but there's natural demand. I mean, people are out there and looking to upgrade aircraft and that's why we've seen, I think, a solid order for them.

Peter Skibitski -- Drexel Hamilton -- Analyst

Is the increase mainly domestic? Or are you seeing any kind of outsized impact from international demand?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, jet is still mostly domestic, although we're seeing some improvements in the international market as well on the jet side. When you look at turboprop, that's a more balanced demand in terms of international and domestic. I think, importantly, when you looked at the first couple of quarters last year, the international market was pretty quiet on the turboprop side and, obviously we've seen that come back more notably on turboprop, which is obviously very important for us because that does generate a lot of demand for both the King Air and the Caravan families.

Peter Skibitski -- Drexel Hamilton -- Analyst

OK. And then just last, I just want to ask on the 412s. I think I read that some activists, or whatever you want to call them, in Canada quashed the sale of -- pretty sizable sale of 412s to the Philippines. Is that sale completely dead, No.

1? And No. 2, it sounds like you closed two other 412 orders in the quarter, so is -- are we still pretty level -- pretty decent shape for the 412 over the next couple of years despite that one sale being sort of quashed, I guess, is the term?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Yes, I think so. Look, there's a lot of 412 activity going on. As we said, there were a couple organized 412 deals that closed in the quarter. And as you know, 412 has a lot of international demand.

So the foreign deals are always fluid right up until they close. So there's a lot of 412 activity and we feel pretty good about where that demand is. So it should -- I think, it'll play out well through the year. And again, on a delivery basis, it does tend to be more toward Q3, Q4.

Peter Skibitski -- Drexel Hamilton -- Analyst

Got it. Thanks, guys.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Sure.

Operator

And we do have a question from the line of David Strauss with Barclays. Please go ahead.

David Strauss -- Barclays -- Managing Director

Good morning, thanks. Wanted to ask about the backlog in Bell, down a fair amount. Was there any 606 stuff going on there?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, there were some 606 that went in there. But as you know, David, because of the military side of Bell, it tends to be very lumpy, right? I mean -- and I think what you'll see is that'll continue to go down sort of its normal cycle through the year. However, when we get to the point where we sign multiyear three, which the negotiation seemed to be going well, and I would expect that will close here in the not-too-distant future, when that happens, you'll see, because of 606, not just a 1-year backlog as we used to do, but all five years will go into backlog. So you'll see a dramatic increase and then that will bleed down over the course of five years.

So it's -- the issue around 606, particularly when something where you've got a lot of military and multiyear-types deals like we would do on the V-22, you're going to see some real peaks and valleys around that.

David Strauss -- Barclays -- Managing Director

Right, right. OK. And then wanted to follow up on working capital in Q1 and then the cash flow forecast. So it looks like working capital was a pretty significant drag, but inventory was actually down, it looks like, year over year.

Receivables were down year over year. So just what's going on there? And then your cash flow from ops forecast, it looks like, not by a lot, but actually went up just a little bit. Does that already include stripping Greenlee out? And if so, what's going on there? Thanks.

Frank T. Connor -- Executive Vice President and Chief Financial Officer

Yes, I mean, again there's just some geography changes, again as a result of 606 that gets -- makes the translation from year-end to quarter-end difficult. Working capital was, I think, we did a nice job on working capital in the first quarter. It's always seasonal. We did see a little bit of inventory build, but it was better than last year.

Some things, because of 606, shift out of inventory and into other current assets. Because they're contract assets now, you see a little bit of that happening on the accounts receivable side as well. But overall, a good quarter from a cash-flow standpoint, again relative to where we typically are in the first quarter. For kind of full year, as we said, we kind of -- there will be some operating cash flow impact associated with the divestiture of Tools & Test, but we will absorb that within the forecast and kind of make up for that with better cash performance in other areas.

David Strauss -- Barclays -- Managing Director

OK. And then, Frank, any change in the tax rate expectation for the quarter? It was pretty low in Q1.

Frank T. Connor -- Executive Vice President and Chief Financial Officer

Yes. No, we had some discrete items in Q1, but kind of the rate that we had indicated for the full year is still the right guidance to think about.

David Strauss -- Barclays -- Managing Director

All right. Thanks, guys.

Operator

And we do have a question from the line of Cai Von Rumohr with Cowen & Company. Please go ahead.

Cai Von Rumohr -- Cowen & Company -- Managing Director

Thank you very much. In the 10-K and 10-Q, you said that price was a $20 million year over year plus at Aviation in the third and fourth quarter. What will that number look like in the first quarter?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Cai, it sounds like you're having some office renovation work done. Can you repeat that?

Cai Von Rumohr -- Cowen & Company -- Managing Director

Yes, the price was a $20 million-plus for Aviation in the third and fourth quarter. What was it in the first quarter?

Frank T. Connor -- Executive Vice President and Chief Financial Officer

So you know, price, net of inflation in the first quarter will be about $9 million.

Cai Von Rumohr -- Cowen & Company -- Managing Director

OK. And was there any impact -- it looks like your book-to-bill at Aviation was 1.4. You mentioned 606. If we'd use 606, would that change the backlog at year-end, so that isn't really a 1.4 book-to-bill? Or would it be a lower number?

Frank T. Connor -- Executive Vice President and Chief Financial Officer

No, I mean there was an impact, as Scott said, with 606 that brought some defense service business into backlog, so that's in it, but we still have kind of strong order activity and strong book-to-bill, as we said, in both jets and turboprop. I mean we're not going to get into the kind of specifics of each of those, but those types of numbers are directionally correct.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

As you know, Cai, we don't calculate or publish that number for each of these categories. But your numbers are about right.

Cai Von Rumohr -- Cowen & Company -- Managing Director

OK. And then at industrial, maybe update us in terms of clearing the channel overstock at Arctic Cat in terms of how the move to Augusta is going? And given that very low first quarter, are the full-year estimates still valid?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Yes, I think, Cai, the challenge we described in Q1 is, first of all, we had a couple of months of Arctic Cat where we didn't have that a year ago. And it's a difficult quarter. I mean, I think the whole industry in outdoor power equipment, when you look at this -- the difficulty is that January, February and the March time frame is you're done selling snow, but you haven't started selling dirt. So there tends to be a quarter where you have -- basically you have the cost to the business, but you don't have a lot of revenue within the business.

So I think that's just its natural cycle and it doesn't affect our perspective on and how we feel about the year. In terms of the inventory reduction, we're pleased with, if you look at both dirt and snow, inventory reductions that happened through the course of the year, which was a big focus of ours, yielded a lot of results. So there's pretty significant reductions in that aged inventory. So I think combined between that and the fact that we have a lot of new product that we think the dealers are pretty excited about.

And when you look across both the dirt and the snow product lines, you've got lower inventory of aged stuff and you've got a lot of exciting new stuff that would be on the floors, that the dealers are pretty excited about. So we feel pretty good about where we are for the year.

Cai Von Rumohr -- Cowen & Company -- Managing Director

Great. And the last one, could you quantify the EACs at Systems?

Frank T. Connor -- Executive Vice President and Chief Financial Officer

We had good performance, but we don't break out those by segment, Cai.

Cai Von Rumohr -- Cowen & Company -- Managing Director

OK. Thank you.

Operator

And we do have a question from the line of George Shapiro with Shapiro Research. Please go ahead.

George Shapiro -- Shapiro Research -- Chief Executive Officer

Good morning.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Good morning, George.

George Shapiro -- Shapiro Research -- Chief Executive Officer

Scott, if we took out the Scorpion R&D, which we know went to zero in the quarter, what -- how did the underlying R&D compare to last year's first quarter?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, I think, George, again, we don't do this by -- segment by segment, but the color that we provided and the way the quarter played out is that you'll have modestly lower R&D spending in the Aviation business and modestly higher spending at Bell. So you're right, Scorpion spending went down to virtually nil. But obviously, we're still continuing -- on Longitude, we're accelerating everything we can do around the Sky Courier and the Denali so that's all going well. Then obviously, on the Bell side, with the 525 back in full flight test operations and the work that we're doing on V-280, we'll see some increased spending there.

So the way the quarter played out is pretty consistent with what our expectations are in the guide that we gave you and I think that's how it will play out over the year.

George Shapiro -- Shapiro Research -- Chief Executive Officer

And the fact that the Longitude certification is getting delayed into the second quarter, that's not going to affect the R&D level in the second quarter?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

No, it won't affect the overall level. So it's -- we have a little more activity going on later into the year than we would have liked on the Longitude side of thing. But that's -- I mean, that's flight testing, and at this point, not a huge amount of spend. Most of the R&D spend now has moved into Denali and the Sky Courier programs.

George Shapiro -- Shapiro Research -- Chief Executive Officer

And if I try and take out the Scorpion R&D and look at an incremental margin year over year, to me it comes out more like around 40% because obviously getting helped by price and mix this quarter, that would be a lot above what you've been saying of more around 20%. But is that the kind of number we should see going forward?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

I think we've talked incrementals, George, more around that 20%, 25% range. I'm not going into the geography of how all that gets there, but that's sort of our expectation in terms of conversion net of all of our costs and pricing, inflation and all things together.

George Shapiro -- Shapiro Research -- Chief Executive Officer

And the last one, Scott. So how many quarters of book-to-bill running like this before you sit there and have the increase to production rate even though you've been saying you'll make the trade-off between price and production?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

George, we don't set a hard line on that. I mean, obviously, we were looking at each model all the time and looking at its individual backlog and its demand and how much activity is out there in the market. And as you know, we can flex a little bit here and there between different model types. So -- but we feel good about where the market is right now.

We try to take a fairly conservative view of this and make sure that we don't start to produce more than the market demand is. I would absolutely continue our focus around driving price, driving efficiency in our operations. But if we see that a model is reaching a demand level that we can go -- tweak out of a few aircraft and absolutely we'll do that. But only if we're seeing enough strong demand and pricing that it makes sense for us economically.

George Shapiro -- Shapiro Research -- Chief Executive Officer

I guess, I'd have one more. The first real margin is usually the lowest of the year. I mean, it doesn't look like it should be any different this year given that volumes are going to be higher in subsequent quarters?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

I think that's probably largely true, George.

George Shapiro -- Shapiro Research -- Chief Executive Officer

OK. Thanks, thanks very much.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Great.

Operator

And we do have a question from the line of Jon Raviv with Citi. Please go ahead.

Jon Raviv -- Citi -- Vice President

Hey, good morning, everyone. Maybe one last one, Aviation, just when you talk about pricing, I think one of the things that has held back pricing for you guys has been competing against used jets. So can you offer any color on how those conversations are going with our customers announcing more value in the new versus the used?

Well, I think there's no question that the dynamic of used as available for sale has a knock-on impact in on the whole industry, including new jet sales. I'd say the good news is, as we've seen now for some time, the number of used aircraft that are sort of current models, that are relatively young aircraft with relatively low hours continues to get smaller. So when you look at the activity in the used jet market, those aircraft tend to move pretty quickly. And there are certainly not the number of them out there that created some of the issues for us on new aircraft sales in the past.

So -- and the reality is there's not a whole lot of low-time, relatively new jets out there that are competing for someone who wants to have a new jet, who wants to have warranty, who wants to have a new aircraft to think about as a five- to seven-year asset. So I think we're certainly seeing less competition from the used side and I would expect that that will continue to be the case.

And how are you feeling about Longitude pricing going into -- entry into service? And then one more on new product side, the Hemisphere strategy at this point, any updates there?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, at Longitude, we're treating the same way that we are treating the rest of the aircraft. I mean, obviously, we needed to get through the certification here. There's an awful lot of activity on the aircraft, a lot of customers have been flying this thing. I think it's an impressive aircraft from a performance standpoint.

It's best-in-class. It's got a lot of features that are really impressing our customers. We needed to get certification done so that we can really start moving aircraft into the market. But again, we're trying to maintain the appropriate price integrity on that thing and make sure that we do it at a reasonable margin.

Obviously, this a significant investment bringing aircraft like that to market and we need to make sure we get a good return on it. In terms of Hemisphere, look, I think everybody knows there have been some issues around the engine that was slated for that aircraft. At this point, we basically have suspended the program and are waiting to see how the engine plays out. And then based on that, we'll make our decisions and move forward knowing what the performance of the engine is.

Jon Raviv -- Citi -- Vice President

And just last one. Just going into the year, we felt like 1Q is going to be a bit light due to some delivery timing. Any of those deliveries kind of moved around? Or is it still fair to assume that you should see incremental earnings improvement throughout the year off of this 1Q level?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, I think, Q1, again, we feel good about where Q1 was in terms of both deliveries and order activity. Q1 is usually the lightest quarter. And as I kind of said with George, I think it's fair to assume that we'll see incremental volume as we move through the course of the year.

Jon Raviv -- Citi -- Vice President

Thanks so much, Scott.

Operator

And we do have a question from the line of Drew Lipke with Stephens. Please go ahead.

Drew Lipke -- Stephens -- Analyst

Good morning.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Good morning.

Drew Lipke -- Stephens -- Analyst

Just circling back to an earlier question around Bell, understanding that military can kind of mask the backlog trends that we're seeing within commercial. Any color you can provide on just Bell commercial-order trends and backlog and what we're seeing there?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

I think our order trend and backlog build continues to be positive. Really through the last year and into this year, the commercial market activity has been strong.

Drew Lipke -- Stephens -- Analyst

OK. And then can you maybe just comment on, what are the benefits of having industrial all under one roof here? Maybe what are the synergies that industrial brings to you from an overall portfolio perspective? And can you maybe quantify the synergies for us?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

I don't -- I'm not really sure how I would answer the question. I mean, each of the businesses in industrial are pretty sizable business, they're pretty big players in their markets on their own right and that's how we manage them. And I think they're very competitive and very strong in their respective industries.

Drew Lipke -- Stephens -- Analyst

And then just last one on Systems. What sort of opportunities are you seeing in terms of your Unmanned portfolio with the administration's push for more international sales? I mean, is that -- what does that opportunity pipeline look like for you?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, I think there's always been a really significant international opportunity for unmanned systems, which, not just our business, but for all U.S. businesses that has been greatly impacted by our export policies. I think everybody will tell you that. And unfortunately, we see lots of opportunities that come and go every year, which are won by either European or other countries because of our export policy.

So certainly the language or the rhetoric that we're hearing would be positive to allow U.S. companies to compete in that space, but that remains to be seen. I mean the rhetoric sounds good, whether that actually turns into policy and execution that allows us to compete in those international markets is still to be determined. But it's been a huge hindrance to the business and I could say there's lots of business that's done by the Russians, by the Chinese, by the Israelis, by other European countries that we're effectively blocked from participating.

Drew Lipke -- Stephens -- Analyst

Thanks, nice quarter.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Thanks.

Operator

And we do have a question from the line of Ronald Epstein with Bank of America. Please go ahead.

Ronald Epstein -- Bank of America Merrill Lynch -- Analyst

Hey, good morning, guys.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Good morning, Ron.

Ronald Epstein -- Bank of America Merrill Lynch -- Analyst

Just a couple of quick things. On the turboprop demand, what's your sense on what's driving that? What's bringing that back? Because it sort of mysteriously disappeared, now it's come back. What happened?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

I don't know, Ron. Demand went down and then it came back. Look, I think international economies were obviously been struggling for a while and I think a lot of these aircraft go into border patrol and sort of medevac and a lot of sort of special applications and a lot of foreign economies, both government and the private sector, were in a pretty tough spot. The U.S.

dollar was extremely strong, which was a big problem. I mean, it wasn't a question of did they want the aircraft or not? It was when the dollar strengthened like that, it made that acquisition just a lot more expensive for them. So I think as we've seen some weakening of the dollar and some strengthening of those economies, the intersection of that has generated the capability. So it's not like we ever lost share or that we weren't able to win deals.

I mean, I think, our aircraft, both the King Air family and the Caravan family, are highly sought after. They're great aircraft. They meet that mission in both private and government sectors. It just it was tough economics for them.

And I think, again, weakening dollar and strengthening economies for them is allowing them to go back to purchasing.

Ronald Epstein -- Bank of America Merrill Lynch -- Analyst

Yes, that makes sense. Now I guess a follow-on, Sky Courier, I mean how's that program going? And you had a real nice launch customer. Have you seen kind of follow-on interest in the program since the launch?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, we've had a ton of inquiry, Ron. I think that the notion that you could do, I mean, for years, we sort of refer to it as a twin Caravan, right. I mean, that space the caravan fits today in that just a workhorse aircraft, we've -- as you know, those things are used for cargo, they're used for passengers all over the world. And the reputation the aircraft had, we've always had sort of this notion of should you do a bigger one, right? Can you do a twin version of that? It's always been sort of on the back burner or something we thought about.

And I think the opportunity when FedEx said, hey, look, we're serious about this. We really need to move into something that's a larger aircraft. It was a perfect opportunity and a perfect customer to work with to go define this thing. But clearly, once it was announced, we were getting calls all over from both people who are interested in that cargo version as well as a 19-seat pax version of it.

So I think it's going to be a home run. We've got a great launch customer obviously, and we expect we're going to have really strong demand beyond that.

Ronald Epstein -- Bank of America Merrill Lynch -- Analyst

And the development program's tracking where you expect it to be roughly now?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Yes, absolutely. Look, we've got through the wind tunnel work, so we're pretty happy with where the thing is. Remember, Ron, this is -- these are engines that exist. That's avionics that exists.

It's construction, mechanical, aerodynamic work that's right up our alley. And this is an aircraft we know how to go design it, we know how to go build it and we don't have to go invent something wildly new to do it. So the team knows speed to market here is important. And there's nothing really standing in our way from making this a huge success and doing it on a pretty aggressive timeline.

Ronald Epstein -- Bank of America Merrill Lynch -- Analyst

OK, great. Cool. Well, thanks so much.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Sure.

Operator

And we do have a question from the line of George Shapiro with Shapiro Research. Please go ahead.

George Shapiro -- Shapiro Research -- Chief Executive Officer

Yes, I was just wondering, in terms of the share buyback, are you going to do this evenly through the year? Are you going to try and do an accelerated buyback? Or could you just give some perspective on that?

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Well, our assumptions right now, George, is that we're just going to continue to do it through the course of the year.OK.

I mean, that doesn't preclude an ASR or something like that, but our plan is that we would probably just play it out over the course of the year.

George Shapiro -- Shapiro Research -- Chief Executive Officer

OK. Thanks.

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Sure.

Eric Salander -- Vice President, Investor Relations

OK, ladies and gentlemen. Thank you for joining us and that concludes our call for today.

Operator

[Operator signoff]

Duration: 54 minutes

Call Participants:

Eric Salander -- Vice President, Investor Relations

Scott C. Donnelly -- Chairman, President, and Chief Executive Officer

Frank T. Connor -- Executive Vice President and Chief Financial Officer

Carter Copeland -- Melius Research -- President

Sam Pearlstein -- Wells Fargo Securities -- Analyst

Sheila Kahyaoglu -- Jefferies & Company -- Senior Vice President

Peter J. Arment -- Robert W. Baird & Company -- Analyst

Noah Poponak -- Goldman Sachs -- Analyst

Robert Stallard -- Vertical Research -- Partner

Seth Seifman -- J.P.Morgan -- Vice President

Peter Skibitski -- Drexel Hamilton -- Analyst

David Strauss -- Barclays -- Managing Director

Cai Von Rumohr -- Cowen & Company -- Managing Director

George Shapiro -- Shapiro Research -- Chief Executive Officer

Jon Raviv -- Citi -- Vice President

Drew Lipke -- Stephens -- Analyst

Ronald Epstein -- Bank of America Merrill Lynch -- Analyst

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