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Will Weak Bell Unit Sales Hit Textron's (TXT) Q2 Earnings?

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

Expected sales decline in the Industrial and Bell segments will hurt revenues in the quarter to be reported. This, in turn, might prove detrimental to Textron’s quarterly earnings.

Let’s discuss these factors in detail.

The Industrial Segment: Prospects Gloomy

Dearth of innovations in the second quarter is likely to negatively impact the performance of Textron’s Industrial segment. Moreover, divestiture of the segment’s tools and test product line is expected to limit the company’s revenues as it has done over the past couple of quarters.

In line with this, the Zacks Consensus Estimate for the Industrial segment’s second-quarter sales is pegged at $949 million, indicating a 22.3% decline from the prior-year quarter’s $1,222 million.

A Disappointment in Store for the Bell Segment

The Bell segment, during the first quarter, witnessed lower revenues on account of reduced commercial delivery volumes. Although the company expects to ramp up deliveries in the upcoming quarters, lack of notable defense contracts during the second quarter for the Bell segment makes us skeptical about its top-line growth.

Thus, the Zacks Consensus Estimate for the segment’s second-quarter sales stands at $791 million, implying a 4.8% decline from the prior-year quarter’s $831 million.

Other Factors Under Consideration

The company’s Textron Systems business segment witnessed soft sales in the last few quarters, led by low Tactical Armored Patrol Vehicle (TAPV) deliveries. Of late, the segment has been witnessing lower revenues from fuel systems and functional components, specialized vehicles, and other tools and test equipment. With these trends expected to continue, a rebound in the near-term sales for this unit is unlikely.

Interestingly, most of Textron’s business segments are projected to reflect a decline in sales. Notably, the Zacks Consensus Estimate for the company’s second-quarter sales stands at $3.36 billion, suggesting a decline of 9.8% from the figure reported in the prior-year quarter. Such projections are expected to hurt Textron’s bottom line year over year. The Zacks Consensus Estimate for second-quarter earnings is pinned at 85 cents, calling for a 2.3% decline from the year-ago quarter’s reported figure.

What Does the Zacks Model Predict?

Our proven model shows that Textron is not likely to beat on earnings in the second 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 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company 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.

Textron Inc. Price and EPS Surprise

Stocks to Consider

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

The Boeing Company (BA - Free Report) is scheduled to report second-quarter 2019 results on Jul 24. The company has an Earnings ESP of +2.58% and a Zacks Rank #3.

Lockheed Martin Corp. (LMT - Free Report) is set to report second-quarter 2019 results on Jul 23. The company has an Earnings ESP of +0.14% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

A Recent Defense Release

AAR Corp. (AIR - Free Report) reported fourth-quarter fiscal 2019 adjusted earnings of 64 cents per share, which surpassed the Zacks Consensus Estimate of 62 cents by 3.2%. The figure reflected a year-over-year improvement of 33.3% from 48 cents reported in the year-ago quarter.

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Textron Inc. (TXT) - free report >>