Textron Surpasses Estimates - Analyst Blog

Diversified U.S. conglomerate,Textron Inc. (TXT) announced strong fourth quarter 2010 operating earnings of 33 cents per share versus 15 cents in the year-ago quarter, reflecting a growth of 120%. The fourth quarter results surpassed the Zacks Consensus Estimate of 25 cents by 8 cents.

Strong numbers for the company were due to increased demand in its industrial business and strong performance at Bell. The quarter witnessed a pick-up in business jet and commercial helicopter demand, reflecting relative stability in global economies and improving general business confidence.

On a reported basis, Textron reported quarterly earnings of 19 cents per share, versus a loss of 23 cents recorded in the year-ago quarter. The 14 cent difference between reported and operating earnings, during the fourth quarter, was owing to a special charge related to internal restructuring of 13 cents and 1 cent related to income from discontinued operations.

Fiscal 2010 operating earnings came in at 81 cents per share, way above  the Zacks Consensus Estimate of 41 cents and year-ago earnings of 59 cents.

Operating Statistics

Textron clocked quarterly revenue of $3.1 billion beating both the Zacks Consensus Estimate of $2.9 billion and year-ago quarterly revenue of $2.8 billion. Fiscal 2010 revenue remained at the same level of $10.5 billion with fiscal 2009. However numbers were above the Zacks Consensus Estimate of $10.3 billion.

The year-over-year quarterly upward spike in revenue is attributable to higher performance from all of its manufacturing business segments. The performance of the Financial division was however lower than the year-ago quarter.

Performance in the reported quarter was affected by restructuring costs of $54 million.

Overall in the reported quarter, the company registered operating income of $63 million versus an operating loss of $60 million in the year-ago quarter.

Segmental Revenue

Cessna: The revenue from this division during the fourth quarter increased $105 million year-over-year to $960 million. The rise was due to higher volume sales. In the reported quarter the company delivered 79 business jets versus 68 in the year-ago period. Segmental profit however decreased $5 million to $23 million. This was due to the impact of manufacturing inefficiencies related to low production levels, lower deposit forfeiture income, and higher used aircraft write-downs.

Bell: The revenue from this division during the fourth quarter increased $173 million to $975 million. The year-over-year growth was due to higher revenues generated through deliveries of V-22 and H-1 deliveries to the government. The revenue was also boosted by higher commercial revenues due to higher aircraft deliveries and improved pricing. Segmental profit increased $54 million to $138 million, primarily due to improved performance and pricing in excess of inflation.

Textron Systems: The revenue from this division during the reported quarter increased $25 million to $527 million. The upside in revenue was mainly due to higher volumes of unmanned aircraft systems and unattended ground systems. Segmental profit decreased $10 million to $55 million primarily due to lower armored security vehicle pricing, unmanned aircraft systems mix and inflation.

Industrial: The revenue from this division increased $66 million during the quarter to $638 million from $572 million in the year-ago quarter. The result benefited from higher volumes at Kautex, Greenlee and Jacobsen. This resulted in segmental profit rising by $7 million to $25 million.

Finance: The revenue from this division decreased $55 million to $27 million. The decline in the revenue was primarily due to reduced earnings on lower finance receivables. However the company was able to reduce segmental losses by $8 million and digested a quarterly loss of $57 million.

Financial Condition

Textron ended fiscal 2010 with cash and cash equivalents of approximately $898 million, compared to $1.7 billion at the end of fiscal 2009. The company generated $299 million of cash from operations in the reported quarter, compared to $421 million generated in the year-ago quarter. Capital expenditure during the quarter was $136 million versus $73 million in the year ago quarter. Long term debt decreased to $2.3 billion at the end of fiscal 2010 from $3.5 billion at the end of fiscal 2009.

Guidance

Textron bullish on top line growth prospects across all of its manufacturing segments is forecasting fiscal 2011 revenues of approximately $11.7 billion. The company anticipates planned pension contributions of about $250 million in fiscal 2011. Cash flow from operations is expected to be in the range $800 million – $850 million. Textron expects its fiscal 2011 EPS from continuing operations in the range of $1.00 – $1.15.

Our Take       

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. Our cautious approach comes from mixed fortunes of the players in the aerospace industry. Last week the avionics and military equipment market, Rockwell Collins Inc. (COL) reported strong numbers. However the market optimism was badly hit with the big daddy, The Boeing Company's (BA) results falling behind market optimism.

Based in Providence, the Rhode Island, Textron Inc. is a global multi-industry company that manufactures aircraft, automotive engine components and industrial tools.

 
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