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Poor Deliveries to Hurt Textron (TXT) This Earnings Season

Zacks Equity Research
·4 mins read

Textron Inc. TXT is scheduled to report second-quarter 2020 results on Jul 30, before market open.

The company’s earnings surpassed the Zacks Consensus Estimate in three out of the trailing four quarters and missed in one, with the average surprise being 0.01%.

Poor deliveries and dismal segmental performance are expected to have hurt Textrons Q2 results.

Let’s see how things have shaped up prior to this announcement.

Dismal Segmental Performance

The Bell unit witnessed reduced deliveries in the first quarter, resulting from customers' inability to accept aircraft due to COVID-19-related travel restrictions. We expect a similar trend to have prevailed in the second quarter, which in turn must have hampered this segment’s year-over-year top line performance.

Textron Inc. Price and EPS Surprise

Textron Inc. Price and EPS Surprise
Textron Inc. Price and EPS Surprise

Textron Inc. price-eps-surprise | Textron Inc. Quote

Notably, the Zacks Consensus Estimate for the segment’s second-quarter revenues stands at $703 million, implying 8.8% decline from the prior-year quarter’s $771 million.

In Textron Aviation, lower demand for new aircraft and related service activities in the wake of the coronavirus pandemic is expected to have resulted in dismal segment performance. Moreover customers’ inability to accept new aircraft in Wichita, on account of the COVID-19 related restrictions, hurt deliveries of this unit. Also, change in the mix of aircraft sold and limited availability of completed aircraft, with the company working on recovering its composite manufacturing operations following the accident at its Wichita Plant 3 facility in December 2019, may have hampered deliveries.

No doubt these factors must have weighed on Textron Aviation unit’s second-quarter performance. Notably, the Zacks Consensus Estimate for the segment’s second-quarter revenues stands at $750 million, implying a 33.2% decline from the prior-year quarter’s $1,123 million.

Other Factors to Note

With rising air travel restrictions, Textron’s aftermarket service revenues have been witnessing a drop. Moreover, given government travel restrictions and other social distancing guidelines, sales were paused as face-to-face meetings and demonstration flights became increasingly difficult to conduct. These actions led to the decline of retail order activity in the first quarter.

With the effects of the coronavirus compounding in the second quarter, similar trends are expected to have persisted.

The Zacks Consensus Estimate for second-quarter sales stands at $2.35 billion, suggesting a decline of 27.2% from the figure reported in the prior-year quarter.

The company is expected to have incurred idle facility costs due to temporary manufacturing facility closures and employee furloughs, resulting from the COVID-19 pandemic. This along with poor top line expectations makes us skeptical about Textron’s second-quarter earnings projection.

The Zacks Consensus Estimate for second-quarter earnings, pegged at 15 cents per share, suggests 116.1% decline from the year-ago quarter’s reported figure.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Textron this earningsseason. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Textron has an Earnings ESP of -13.33% and a Zacks Rank #3.

Stocks to Consider

Here are some defense companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Curtiss-Wright Corp. CW has an Earnings ESP of +13.62% and a Zacks Rank #3.

Leidos Holdings, Inc. LDOS has an Earnings ESP of +0.11% and a Zacks Rank #3.

A Recent Defense Release

Lockheed Martin LMT reported second-quarter 2020 adjusted earnings of $6.13 per share, which surpassed the Zacks Consensus Estimate of $5.71 by 7.4%.. You can see the complete list of today’s Zacks #1 Rank stocks here.

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Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
 
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