Textron Misses Earnings on Low Jet Biz

Zacks

Diversified U.S. conglomerate Textron Inc. (TXT) reported first quarter 2013 earnings from continuing operation of 40 cents per share, missing the Zacks Consensus Estimate of 47 cents by 14.9%. The quarterly figure also came below the year-ago level by a penny. Weak demand in the business jet market was mainly responsible for the lower numbers.

Revenue

Total revenue in the quarter was $2,855.0 million, below the Zacks Consensus Estimate of $2,911.0 million. However, the reported number came almost at par with the year-ago quarterly revenue of $2,856.0 million.

Manufacturing revenues were up 0.6% year over year to $2,813.0 million, while revenue from the Finance division plummeted 31.1% during the quarter.

Segment Performance

Cessna: The revenue from this division during the first quarter increased 5.8% year over year to approximately $708 million. The upsurge was mainly attributable to higher used aircraft sales. In the reported quarter the company delivered 32 new jets, compared with 38 in last year’s first quarter.

The segment registered a loss of $8 million versus a loss of $6 million in the first quarter of 2012. Cessna’s order backlog at the end of the first quarter was $1.03 billion, down $28 million from the end of 2012.

Bell: The revenue from this division decreased 4.5% to $949.0 million from the year-earlier level of $994.0 million. The decrease was primarily due to lower military unit deliveries and lower commercial aftermarket sales.

Bell delivered 9 V-22’s, 6 H-1’s and 40 commercial aircrafts in the reported quarter compared with 10 V-22’s, 7 H-1’s and 30 commercial units in the first quarter 2012.

Segment profit declined 11% to $129.0 million in the quarter from $145.0 million reported in the same period last year. Bell’s order backlog at the end of the quarter was $7.08 billion, which represents a decrease of $386 million from the end of 2012.

Textron Systems: The revenue from this division during the reported quarter was $429.0 million, representing a year-over-year increase of 13.8%. The upside came from higher deliveries in Unmanned Aircraft Systems and Weapons and Sensors.

Segment profit was $38 million versus $35 million a year ago. Textron Systems’ backlog at the end of the first quarter was $2.79 billion, which was down $134 million from the end of 2012.

Industrial: The revenue from this division decreased almost 4% year over year to $727.0 million. The segment mainly suffered from lower automotive demand in Europe and Asia. Segment profit also decreased $16 million to $57 million, reflecting lower volume and an unfavorable mix.

Finance: The revenue from this division decreased $19 million to $42 million. However, the segment registered a profit of $19 million, which represents a year-over-year improvement of more than 58%.

Financial Condition

Textron ended the first quarter 2013 with cash and cash equivalents of approximately $701 million, compared with $1,378 million at the end of 2012. The company generated $468 million of cash from operations in the reported quarter, compared with $177 million generated in the year-ago quarter.

Capital expenditure during the quarter was $77 million versus $73 million in the year-ago quarter. Long-term debt fell to $1,749 million at the end of the first quarter 2013 from $1,766 million at the end of 2012. The debt-to-capitalization ratio stood at 35.7% in the reported quarter.

Company Outlook

Textron anticipates 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.

Even though there is a possibility of improvement in the jet markets in the long run, we feel the current reduced access to the credit markets has led to lower spending by commercial air carriers further accentuating the prolonged weakness in the commercial jet market. Also, in the near term, the imbroglio over The Boeing Company’s (BA) 787 Dreamliner has affected the jet market.

The company has also reduced its 2013 business jet delivery outlook, which will likely be down from the 2012 level. This will reflect in lower deliveries in the light category, partially offset by growth in the midsize category.

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). Other stocks in the diversified operations category worth mentioning are Honeywell International Inc. (HON) and Macquarie Infrastructure Company LLC (MIC), both with a Zacks Rank #2 (Buy).
 

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