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Diversified U.S. conglomerate Textron Inc. (TXT - Analyst Report) announced fourth quarter 2012 adjusted earnings of 56 cents per share versus 49 cents in the year-ago quarter. The fourth quarterly result however came below the Zacks Consensus Estimate of 57 cents. Lower numbers for the company were due to weakness in the automotive and business jet markets.

Even though there is a possibility of improvement in the jet markets in the long run, we feel the current reduced access to the credit markets has led to lower spending by commercial air carriers further accentuating the prolonged weakness in the commercial jet market. Also, in the near term, the imbroglio over The Boeing Company’s (BA - Analyst Report) 787 Dreamliner has affected the jet markets.

On a reported basis, Textron clocked earnings of 51 cents per share versus loss of 7 cents recorded in the year-ago quarter. The 5 cent difference between reported and operating earnings, during the reported quarter, was due to 6 cents in charges at Cessna related to an unfavorable business arbitration award offset by 1 cent related to discontinued operations.


Textron clocked quarterly revenue of $3.4 billion, in line with the Zacks Consensus Estimate and ahead of the year-ago quarterly revenue of $3.3 billion. The upsurge came mainly from manufacturing revenues, which were up 2.6% year over year.

The year-over-year upward spike in revenue is attributable to higher performance from Bell and Textron Systems. The performance of the Financial division was also higher than the year-ago quarter.

Segment Performance

Cessna: The revenue from this division during the fourth quarter decreased $110 million year over year to approximately $901 million. In the reported quarter the company delivered 53 new Citation jets, compared with 67 in last year’s fourth quarter.

Segment profit decreased $37 million to $23 million, primarily due to a $27.4 million arbitration settlement charge and lower jet volumes. Cessna order backlog at the end of the fourth quarter was $1.1 billion, down $267 million from the end of the third quarter 2012.

Bell: The revenue from this division during the fourth quarter increased $139 million to slightly more than $1.1 billion. Bell delivered 9 V-22’s, 6 H-1’s and 65 commercial aircrafts in the reported quarter compared to 7 V-22’s, 6 H-1’s and 62 commercial units in last year’s fourth quarter.

Segment profit increased $10 million, reflecting improved performance. Bell’s order backlog at the end of the fourth quarter was $7.5 billion, up $1.2 billion from the end of the third quarter 2012.

Textron Systems: The revenue from this division during the reported quarter increased $58 million to $571 million. The upside came from higher deliveries in Unmanned Aerial Systems and Weapons and Sensors.

Segment profit was $36 million versus loss of $8 million a year ago. This was primarily due to higher volumes, partially offset by a $19 million charge associated with the company’s fee-for-service unmanned aerial systems contracts. Textron Systems’ backlog at the end of the fourth quarter was $2.9 billion, relatively flat with the end of third quarter 2012.

Industrial: The revenue from this division decreased $2 million during the quarter to $706 million from $708 million in the year-ago quarter. Segment profit decreased $6 million to $43 million, reflecting cost inflation in excess of related price increases.

Finance: The revenue from this division decreased $23 million to $35 million. The segment reported a profit of $2 million compared to last year’s $232 million fourth quarterly loss, which reflected a mark-to-market charge.

Since the end of the third quarter 2012, nonaccrual finance receivables decreased from $145 million to $143 million and sixty-day plus delinquencies decreased from $114 million to $90 million. Finance receivables at the end of the quarter were $2.1 billion, reflecting liquidations of $65 million during the quarter.

Financial Condition

Textron ended fiscal 2012 with cash and cash equivalents of approximately $1.4 billion, compared with $871 million at the end of fiscal 2011. The company generated $561 million of cash from operations in the reported quarter, compared with $242 million generated in the year-ago quarter.

Capital expenditure during the quarter was $166 million versus $152 million in the year-ago quarter. Long-term debt fell to $1.8 billion at the end of fiscal 2012 from $2.3 billion at the end of fiscal 2011.

Fiscal 2013 Guidance

Textron bullish on its top-line growth prospects across all of its manufacturing segments is forecasting fiscal 2013 revenues of approximately $12.9 billion, up about 6% from 2012. The company anticipates earnings per share from continuing operations in the range of $2.10–$2.30.

Cash flow from continuing operations before pension contributions is estimated to be between $500 million and $550 million. The company anticipates planned pension contributions of about $200 million.

Our Take    

Based in Providence, the Rhode Island, Textron Inc. is a global multi-industry company that manufactures aircraft, automotive engine components, and industrial tools. The stock currently carries a Zacks Rank #3 (Hold). Other stocks in the diversified operations category worth mentioning are Federal Signal Corp. (FSS - Snapshot Report) and Jardine Strategic Holdings Ltd. . These stocks carry a Zacks Rank #1 (Strong Buy).

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