Textron Misses, Ups View
Diversified U.S. conglomerate, Textron Inc. (TXT) announced third quarter 2012 earnings of 48 cents per share, up 6.7% from 45 cents per share in the year-ago quarter. The quarterly result however came below the Zacks Consensus Estimate of 52 cents. Higher numbers year over year for the company were due to strong performance at Bell, continued improvement at Cessna, complemented by good performance in the Industrial business and favorable liquidation activity in the finance portfolio. Including discontinued operations, earnings came in at 51 cents compared with 47 cents a share earned in the year-ago quarter.
Operating Statistics
In the reported quarter, Textron clocked quarterly revenue of $3.00 billion, up 6.6% from $2.81 billion in the year-ago period. However this came below the Zacks Consensus Estimate of $3.05 billion. The year-over-year quarterly upward spike in revenue is attributable to higher performance from all of its manufacturing business segments, barring Textron Systems. The performance of the Finance division was also better than the year-ago quarter.
Segmental Revenue
Cessna: The revenue from this division during the reported quarter increased $7 million year over year to approximately $778 million. In the reported quarter the company delivered 41 new Citation jets, compared with 47 in the year-ago quarter. Revenues increased as higher used aircraft sales more than offset a decline in new Citation jet deliveries. Segment profit decreased $3 million to $30 million, primarily due to lower new jet volume. Cessna backlog at the end of the third quarter was $1.3 billion, down $196 million from the second quarter of 2012.
Bell: The revenue from this division during the reported quarter increased $181 million to $1.08 billion. The upside came primarily from the delivery of 46 commercial helicopters compared with 26 units in last year’s third quarter. Bell also delivered 11 V-22 and 5 H-1 aircrafts in the quarter compared with 9 V-22’s and 7 H-1’s in last year’s third quarter. Segment profit increased $22 million to $165 million, primarily reflecting higher volume. Bell backlog at the end of the third quarter was $6.3 billion, down $434 million from the second quarter of 2012.
Textron Systems: The revenue from this division during the reported quarter decreased $62 million to $400 million. Segment profit decreased $26 million to $21 million, reflecting charges associated with unmanned aerial system contracts and lower volumes. Textron Systems’ backlog at the end of the third quarter was $2.9 billion, up $263 million from the second quarter of 2012.
Industrial: The revenue from this division increased $28 million during the quarter to $683 million from $655 million in the year-ago quarter. Revenue benefited from higher volumes in golf, turf and automotive businesses. This was partially offset by unfavorable foreign exchange. This resulted in segmental profit rising by $1 million to $38 million, primarily due to higher volume.
Finance: The revenue from this division increased $32 million to $64 million. The segment reported a profit of $28 million compared to a $24 million loss in last year’s third quarter.
Financial Condition
Cash and cash equivalents of the company, as of September 29, 2012, were $1.23 billion versus $871 million as of December 31, 2011. Capital expenditure during the quarter was $156 million versus $102 million in the year-ago quarter. Long-term debts of the company as of September 29, 2012 were $1.82 billion, reflecting a decline of $496 million from the year-end 2011 level.
Guidance
Textron raised its 2012 earnings per share from continuing operations guidance to a band of $1.95 to $2.05 versus an earlier band of $1.80 to $2.00 per share. The company however reaffirmed its manufacturing free cash flow before pension contribution forecast for 2012 in the range of $700 million to $750 million. The company anticipates planned pension contributions of about $200 million.
Our Take
Based in Providence, the Rhode Island, Textron Inc. is a global multi-industry company that manufactures aircraft, automotive engine components, and industrial tools. The company continues to enjoy a strong backlog at its business divisions. Textron was also able to secure a few important contracts during the quarter.
Textron currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock. This is in line with its peers like Tyco International Ltd. (TYC) and United Technologies Corporation (UTX).
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