Diversified U.S. conglomerate, Textron Inc. (TXT - Analyst Report) ended fiscal 2011 on a positive note on the back of strong performance at Bell, continued improvement at Cessna, complemented by good performance in the Industrial business. The Providence, Rhode Island based company’s fourth-quarter fiscal 2011 adjusted earnings per share of 49 cents outstripped the Zacks Consensus Estimate of 34 cents. Adjusted earnings jumped roughly 48.5% year over year.
Highlights from the Quarter
Textron clocked quarterly revenue of $3.3 billion clearing both the Zacks Consensus Estimate of $3.2 billion and year-ago quarterly revenue of $3.1 billion. The upsurge came mainly from manufacturing revenues, which were up 4.6% year over year.
The year-over-year quarterly spike in revenue is attributable to higher performance from all of its manufacturing business segments, barring Textron Systems. The performance of the Financial division was however lower than the year-ago quarter.
Cessna: The revenue from this division during the fourth quarter increased $51 million year over year to approximately $1.0 billion. Segment profit increased $37 million to $60 million, primarily due to favorable performance, higher non-jet volume and a beneficial mix of jets. Cessna order backlog at the end of the fourth quarter was $1.9 billion, down $275 million from the end of the third quarter 2011.
Bell:The revenue from this division during the fourth quarter increased $35 million to slightly more than $1.0 billion. Segment profit increased $29 million, reflecting improved performance. Bell order backlog at the end of the fourth quarter was $7.3 billion, up $981 million from the end of the third quarter 2011.
Textron Systems:The revenue from this division during the reported quarter decreased $14 million to $513 million. Segment loss was $8 million versus profit of $55 million a year ago. This was primarily due to intangible asset impairment and severance charges. Textron Systems’ backlog at the end of the fourth quarter was $1.3 billion, down $191 million from the end of the third quarter 2011.
Industrial: The revenue from this division increased $70 million during the quarter to $708 million from $638 million in the year-ago quarter. Revenue benefited from higher volumes. This resulted in segmental profit rising by $24 million to $49 million, reflecting improved performance and higher volume.
Finance:The revenue from this division decreased $15 million to $12 million. The decline in the revenue was primarily due to reduced earnings on lower finance receivables. Finance segment loss increased $175 million to $232 million, primarily the result of the Golf Mortgage portfolio mark-to-market adjustment.
We have discussed the quarterly results at length here: Textron Zooms Past Estimates
Agreement – Estimate Revisions
Estimates for Textronsaw no activity over the past week with no movement in either direction for both the first quarter and fiscal 2012. Over the past month, estimates have tilted towards the positive side with 7 (out of 10 analysts) having raised their forecasts for fiscal 2012 coupled with a lone downward revision.
Similarly, for the first quarter, estimates manifest a positive bias with 2 (out of 8 analysts) upward movements and no negative revision over the past month. The bullish sentiment is riding on the expectation of continued performance improvements at Bell and Cessna along with reduction of losses at Textron Financial.
Magnitude – Consensus Estimate Trend
Estimate for fiscal 2012 have witnessed a steep climb northward over the past month from $1.69 to $1.91. Also, given the upward pressure from the positive revisions, estimate for the first quarter has improved by 5 cents to 36 cents over the past month.
Since its last earnings release on January 25, 2012, Textron’s market price increased 6.5% to $26.36 as of February 7, 2012. During trading hours on February 7, the stock reached the day low of $25.78 and the day high of $26.50. The stock price is within the range of the 52-week low-high range of $14.66 attained on August 26, 2011 and $28.87 achieved on February 18, 2011.
Neutral on Textron
Based in Providence, Rhode Island, Textron Inc. is a global multi-industry company that manufactures aircraft, automotive engine components and industrial tools.
We believe Textron should do well in its commercial aerospace businesses with the gradual recovery in the economy. The improving fundamentals in the commercial aerospace industry should bode well for Textron’s Cessna jets and Bell Helicopter businesses going forward. Cessna’s fortunes will improve mainly through high demand for light cabin business jets. Also, in the near term, Bell’s growth will be guided by a judicious mix of military and commercial business from the V-22 Osprey and H-1 helicopters. Textron Systems will also see growth coming from government’s focus on UAVs (unmanned aerial vehicles) and ASVs (armored security vehicles).
Also, Textron’s geographically diverse network of aircraft, defense & intelligence, industrial and finance businesses negates any specific business risk. The company is known around the world for its most recognizable and valuable brand names, such as Bell Helicopter, Cessna Aircraft Company, Jacobsen, Kautex, Lycoming, E-Z-GO and Greenlee. The company has a strong presence in diverse areas of business jets and other general aviation aircraft, helicopter, aircraft engines, golf carts, turf maintenance equipment, electronic test equipment and blow-molded fuel tanks.
Textron bullish on its top-line growth prospects across all of its manufacturing segments is forecasting fiscal 2012 revenues of approximately $12.5 billion.
Textron’s balance sheet remains stable with a long-term debt-to-capitalization of 58.5% at the end of fiscal 2011 versus Zacks Industry Average of 68.0%. The company also ended fiscal 2011 with cash holdings of $871 million, which, along with its receivables liquidation expected to come through, would be enough to keep the liquidity profile of the company in good shape. Textron’s balance sheet remains flat at $2.3 billion of total debt at the end of fiscal 2011 versus the end of fiscal 2010.
Our Neutral recommendation on the stock is supported by a short-term Zacks #3 Rank (Hold). This is in sync with its diversified conglomerate peers like Honeywell International Inc. (HON - Analyst Report) and Carlisle Companies Incorporated (CSL - Snapshot Report)).
About Earnings Estimate Scorecard
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