Mixed Results from Textron - Analyst Blog

Textron Inc. (TXT) announced third quarter 2010 operating earnings of 13 cents per share versus 12 cents in the year-ago quarter, reflecting growth of 8.4%. The third quarter results easily surpassed the Zacks Consensus Estimate of 8 cents. 

Textron reported a GAAP loss for the third quarter of 2010 of 17 cents per share, versus an operating income of 2 cents in the year-ago quarter. The difference between GAAP and operating earnings, during the third quarter, was owing to a 30-cent per share charge recorded during the quarter, which included a 25-cent non-cash charge associated with Textron Financial's asset liquidation in Canada and 5 cents toward charges related to restructuring activities across Textron.

Total Revenue

Textron's total operating revenues for third quarter 2010 were $2.47 billion versus $2.54 billion reported in the year-ago quarter, reflecting a decrease of 2.7%. The actual results of the company were lower than the Zacks Consensus Estimate of $2.63 billion.

The year-over-year decline in total revenues was attributable to lower performance from its manufacturing division Cessna and Textron Systems. The performance of the Financial division was lower than the year-ago quarter. The other two manufacturing divisions of the company Bell and Industrial performed better than the year-ago quarter.

Segmental Revenue

Cessna: Revenues from this division during the third quarter 2010 decreased to $535 million from $825 million in the year ago quarter. The year-over-year decline of $290 million was due to lower sales of aircraft compared to the previous year.

Textron Systems: Revenues from this division during the third quarter 2010 were $460 million versus $502 million in the year-ago quarter. The decline in revenues was mainly due to lower volumes.

Bell: Revenues from this division during the third quarter 2010 were $825 million versus $628 million in the year ago quarter, which reflected an increase of $197 million. The year-over-year growth was due to higher revenues generated from deliveries of V-22 and H-1 to the government. Revenues were also boosted by higher commercial revenues due to higher service and support, improved pricing and favorable mix.

Industrial: Revenues from this division increased $77 million during the quarter to $600 million from $523 million in the year-ago quarter. The result benefited from higher volumes and was partially offset by an unfavorable foreign exchange impact.

Finance: Revenues from this division were $59 million versus $71 million in the year-ago quarter. The decline in revenues was due to the impact of lower average finance receivables, lower accretion from previous mark-to-market adjustments, and the non-recurrence of last year's gains on debt extinguishment.

Financial Condition

The cash and cash equivalents of the company as of October 2, 2010 were $802 million versus $2,037 million as of October 3, 2009.

Capital expenditure during the quarter was $51 million versus $52 million in the year-ago quarter. Total capital expenditure of the company for 2010 is expected to be $290 million.

During the third quarter manufacturing free cash flows were $157 million versus $327 million in the year-ago quarter. Textron expects manufacturing free cash flows for 2010 to be $400 million.

Guidance

Textron expects its non-GAAP earnings to be in the range of 70 cents to 75 cents per share in 2010, while GAAP earnings for 2010 are expected in the range of 30 cents to 35 cents per share in 2010. GAAP earnings include a special charge of 40 cents.

The company expects finance receivables liquidation for 2010 to be about $2.4 billion.

Our Take

Textron currently retains a Zacks #4 Rank (short-term Sell rating). We retain a long-term Neutral rating on the stock due to order deferrals at Cessna and a constrained valuation due to the aftershock of the recession.

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

 
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