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Factors Likely to Decide Textron's (TXT) Fate in Q1 Earnings

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Textron Inc. (TXT - Free Report) is scheduled to report first-quarter 2019 results on Apr 17, before market open.

Possible sales decline at the Industrial and Systems segments is expected to hurt revenues in the quarter to be reported. This, in turn, might prove detrimental to quarterly earnings.

Let’s discuss these factors in detail.

The Industrial Segment: A Growth Inhibitor

Textron’s Industrial segment designs and manufactures automotive engine components, specialized vehicles as well as varied industry-related tools and equipment. Notably, the introduction of specialized vehicles has been historically a key growth driver for this segment. However, dearth of such innovations in the first quarter is likely to hurt its results. Moreover, divestiture of the segment’s tools and test product line is expected to once again drag down its first-quarter revenues as it has done over the past couple of quarters.

In line with this, the Zacks Consensus Estimate for the Industrial segment’s first-quarter sales is pegged at $909 million, reflecting a 19.6% decline from the prior-year quarter’s $1,131 million.

Textron Inc. Price and EPS Surprise

Textron Inc. Price and EPS Surprise | Textron Inc. Quote

The Bell Segment: Another Disappointment

Higher commercial volumes are expected to boost the Bell segment’s top line in the soon-to-be-reported quarter. However, dearth of notable defense contracts during the first quarter has made us skeptic about this segment’s top-line growth.

The Zacks Consensus Estimate for the segment’s first-quarter sales stands at $746 million, mirroring a 0.8% slip from the prior-year quarter’s $752 million.

Other Factors at Play

The company’s Textron Systems business segment is witnessing soft sales for the past few quarters due to lower Tactical Armoured Patrol Vehicle (TAPV) deliveries. Expecting these trends to continue, any near-term sales rebound for this unit remains unlikely. So, most of Textron’s segments are projected to reflect sales decline, indicating at a weak total sales performance.

For Textron’s first-quarter total sales, the Zacks Consensus Estimate is pegged at $3.22 billion, mirroring a year-over-year decline of 2.4%.

Such projections of revenue decline are expected to hurt Textron’s bottom line year over year. The Zacks Consensus Estimate for first-quarter earnings is pinned at 70 cents, reflecting a 2.8% decline year over year.

What Does the Zacks Model Predict?

Our proven model shows that Textron is not likely to beat earnings in the first quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. This is not the case here as you will see below.

Earnings ESP: Textron has an Earnings ESP of -0.86%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Textron currently carries a Zacks Rank #3.

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some other defense companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

General Dynamics Corp. (GD - Free Report) is scheduled to report first-quarter 2019 results on Apr 24. The company has an Earnings ESP of +1.35% and a Zacks Rank #3.

Lockheed Martin Corp. (LMT - Free Report) is expected to report first-quarter 2019 results on Apr 23. The company has an Earnings ESP of +4.16% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Ingalls Industries, Inc. (HII - Free Report) is expected to report first-quarter 2019 results on May 2. The company has an Earnings ESP of +4.63% and a Zacks Rank #3.

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