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Textron in Canadian Army Contract

Zacks Equity Research

Textron Systems Canada Inc., a unit of Textron Inc. (TXT), has received a C$603.4 million contract for 500 patrol vehicles from the Canadian government under the Canadian Forces Tactical Armoured Patrol Vehicle (“TAPV”) program. The contract value excludes government sales tax (“GST”) and harmonized sales tax (“HST”).

Per the TAPV contract, 100 more vehicles can be manufactured by the Textron TAPV Team that is led by Textron Systems Canada in collaboration with Textron Marine & Land Systems and Rheinmetall Canada. Excluding GST and HST, the contract also has an additional five-year, in-service support contract worth C$105.4 million.

The company will be responsible for providing configuration management, manage the in-service support contract and will act as design authority for change management. Moreover, it will coordinate vehicle integration activities by Canadian subcontractors, and will be responsible for implementation of the Industrial and Regional Benefits program.

The company plans to make its first vehicle delivery to the Canadian Army in July 2014 and the concluding delivery in March 2016.

Textron Inc. is a global multi-industry company that manufactures aircraft, automotive engine components and industrial tools. It is also a provider of solutions and services for aircraft, fastening systems and industrial products and components.

The company has been meeting and also exceeding Canada’s requirements with its most reliable and technologically advanced vehicle. Moreover, the company is ready to produce modern and upgradable 4 by 4 armored vehicles for the Canadian Army.

Going forward, the company’s diversified presence across commercial, manufacturing and industrial products, as well as financing operations, insulates it from specific business risk. It is also increasingly focused on its core manufacturing business and is gradually exiting from its commercial finance business.

However, we are concerned about the lower backlog at Cessna, the rate of recovery of the business jet market, and defense spending cutbacks.  The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock. Some of its main competitors are General Electric Company (GE) and United Technologies Corp. (UTX).

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