Textron Beats Earnings, Down Y/Y

Zacks

Diversified U.S. conglomerate Textron Inc. (TXT) reported second quarter 2013 earnings from continuing operation of 40 cents per share, beating the Zacks Consensus Estimate of 38 cents per share. However, the quarterly figure came below the year-ago level by 31%. The year-over-year decline reflects lower business jet deliveries.

Revenue

Total revenue in the quarter was $2,839.0 million, lower than the Zacks Consensus Estimate of $3,000.0 million and the year-ago figure of $3,019.0 million.

Manufacturing revenues were down 6% year over year to $2,839.0 million, while revenue from the Finance division declined 43.6% during the quarter.

Segment Performance

Cessna: The revenue from this division during the second quarter decreased 26.6% year over year to approximately $560 million. The significant decline reflects delivery of only 20 new Citation jets, compared with 49 in prior-year period.

The segment registered a loss of $50 million versus a profit of $35 million in the second quarter of 2012. Cessna’s order backlog at the end of the second quarter was $1.01 billion, down sequentially by $23 million.

Bell: The revenue from this division decreased 2.9% to $1,025 million from the year-earlier level of $1,056.0 million. The decline reflects delivery of 44 commercial helicopters compared with 47 units in the prior-year period. Bell delivered 9 V-22’s and 6 H-1’s, flat year over year.

Segment profit declined 11.2% to $135 million in the quarter from $152 million reported in the same period last year. Bell’s order backlog at the end of the quarter was $6.95 billion, down $137 million sequentially.

Textron Systems: The revenue from this division during the reported quarter was $422.0 million, representing a year-over-year increase of 8.5%. The results were driven by higher volumes in the Unmanned Aircraft Systems and Weapons and Sensors product lines. These were, however, partially offset by lower deliveries at Marine & Land and Mission Support.

Segment profit was $34 million, down 15% year over year due to a higher mix of lower-margin service contracts. Textron Systems’ backlog at the end of the second quarter was $2.62 billion, which was down $165 million quarter over quarter.

Industrial: The revenue from this division increased 6% year over year to $801.0 million driven by higher volumes. Segment profit increased 29.5% year over year to $79 million driven by improved performance and higher volume.

Finance: The revenue from this division decreased 43.6% year over year to $31 million. However, the segment registered a profit of $15 million, which represents a year-over-year improvement of 31.8%.

Financial Condition

Textron ended the second quarter 2013 with cash and cash equivalents of approximately $459 million, compared with $898 million at the second quarter 2012 end. The company’s cash used in operating activities was ($274) million compared to cash generated from operating activities of $258 million in the year-ago quarter.

Capital expenditure during the quarter was $113 million versus $85 million in the year-ago quarter. Long-term debt was $1,904 million at the end of the second quarter 2013 versus $1,809.0 million at the end of the prior-year period.

Guidance

Textron expects earnings per share from continuing operations in the band of $1.90–$2.10. Cash flow from continuing operations before pension contributions is estimated to be $400 million. The company anticipates planned pension contributions of about $200 million.

Our Take

Textron succeeded in beating the Zacks Consensus Estimate on the back of strong performance at Textron Systems and Industrial businesses. However, the year-over-year decline reflects a weak business jet market. Going forward, the company’s strong presence in diverse areas of general aviation aircraft, helicopter, aircraft engines, golf carts, turf maintenance equipment, electronic test equipment and blow-molded fuel tanks would fetch lucrative returns for the company.
 
Zacks Rank

Based in Providence, the Rhode Island, Textron Inc. is a global multi-industry company that manufactures aircraft, automotive engine components, and industrial tools. The stock currently carries a Zacks Rank #3 (Hold). Stocks to look out for in the space are Macquarie Infrastructure Company LLC (MIC), HEICO Corp. (HEI) and Exelis, Inc. (XLS). While Macquarie Infrastructure carries a Zacks Rank #2 (Buy), HEICO Corp. and Exelis, Inc. carry a Zacks Rank #1 (Strong Buy).

 

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