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Why Is Textron (TXT) Down 12.9% Since Last Earnings Report?

Zacks Equity Research
·5 mins read

It has been about a month since the last earnings report for Textron (TXT). Shares have lost about 12.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Textron due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Textron's Q4 Earnings Top Estimates, Revenues Rise Y/Y

Textron Inc. reported fourth-quarter 2019 adjusted earnings of $1.11 per share, which surpassed the Zacks Consensus Estimate of $1.08 by 2.8%. The bottom line however declined 3.5% from $1.15 in the year-ago quarter.

Including a one-time special charge, the company posted GAAP earnings of 87 cents per share compared with $1.02 generated in the year-ago-quarter.

This year-over-year decline can be attributed to lower segment profit recorded by the company in the quarter under review.

For 2019, Textron generated adjusted earnings of $3.50 per share, which missed the Zacks Consensus Estimate of $3.71 by 5.7%. The bottom line also declined 27.5% from $4.83 last year.

Revenues

Total revenues came in at $4,035 million, which surpassed the Zacks Consensus Estimate of $3,856 million by 4.6%. Moreover, the reported figure increased 7.6% from the year-ago quarter’s $3,750 million on higher contributions from the company’s segments, except Industrial segments.

Manufacturing revenues increased 7.6% to $4,016 million, while revenues at the Finance division grew 5.6% to $19 million.

Segmental Performance

Textron Aviation: In the quarter under review, revenues at this segment rose 11.4% to $1,729 million from $1,552 million in the year-ago quarter. The growth can be attributed to higher volume and mix.

The company delivered 71 jets, up from 63 in the year-ago quarter. It also delivered 59 commercial turboprops, down from 67 in fourth-quarter 2018.

The segment registered profits of $134 million in the quarter, up from $170 million in the year-ago quarter, owing to the mix of products sold and an unfavorable impact from inflation, net of pricing. The order backlog at the end of the quarter was $1.7 billion.

Bell: Revenues from this segment were $961 million, up 16.2% from the year-ago quarter’s $827 million, primarily due to higher commercial volume.

The segment delivered 76 commercial helicopters in the quarter, up from 46 last year.

Segment profits were up 9.3% to $118 million on account of higher commercial volume. Bell’s order backlog at the end of the quarter was $6.9 billion, up $1.3 billion sequentially.

Textron Systems: Revenues at this segment came in at $399 million, up from $345 million a year ago. The downside can be primarily attributed to higher volume.

Segmental profits decreased 10.8% year over year to $33 million in the fourth quarter.

Textron Systems’ backlog at the end of the fourth quarter was $1.2 billion, lower than $1.4 billion at the end of the previous quarter.

Industrial: Revenues at this segment declined 8% to $927 million, primarily due to lower volume and mix, primarily at Textron Specialized Vehicles.

Moreover, segmental profits declined from $73 million in the fourth quarter of 2018 to $44 million on account of lower volume at Textron Specialized Vehicles.

Finance: Revenues at this segment increased to $19 million from $18 million in the year-ago quarter. Segmental profits increased by $2 million from fourth-quarter 2018.

Financials

As of Jan 4, 2020, cash and cash equivalents totaled $1,181 million compared with $987 million as of Dec 29, 2018.

Cash inflow from operating activities amounted to $960 million at the end of 2019 compared with cash inflow of $1,127 million at the end of the prior-year period.

Capital expenditures were $339 million in 2019 compared with $369 million in 2018.

Long-term debt was $2,563 million as of Jan 4, 2020, compared with $2,808 million as of Dec 29, 2018.

Guidance

Textron issued its guidance for 2020. The company currently expects full-year earnings from continuing operations in the range of $3.5-$3.7 per share.

The Zacks Consensus Estimate for current-year earnings is $3.61, which lies just above the midpoint of the guided range.

Textron also gave its expectation for manufacturing cash flow before pension contributions in the range of $700-$800 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -28.52% due to these changes.

VGM Scores

At this time, Textron has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Textron has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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