Textron Meets Q4 Earnings, Gives View

Zacks

Diversified U.S. conglomerate Textron Inc. (TXT) reported fourth quarter 2013 earnings from continuing operation of 60 cents per share, in line with the Zacks Consensus Estimate. The quarterly figure surged 20% from the year-ago level of 50 cents. The impressive performance reflects higher contribution from Cessna, Bell and Industrial divisions.

However, full-year 2013 earnings from continuing operations came in at $1.75 per share, down 11.2% year over year.

 Revenue

Total revenue in the quarter was $3,506.0 million, beating the Zacks Consensus Estimate of $3,438.0 million and the year-ago figure of $3,362.0 million.

Manufacturing revenues climbed 4.6% year over year to $3,480.0 million, while revenue from the Finance division declined 25.7% during the quarter.

Total revenue in 2013 slipped 1.1% year over year to $12,104.0 million.

Segment Performance

Cessna: The revenue from this division during the fourth quarter increased 2.4% year over year to approximately $923.0 million. The improvement reflects delivery of 65 new Citation jets, compared with 53 in the prior-year period.

The segment registered a profit of $33 million versus $23 million in the fourth quarter of 2012. Cessna’s order backlog at the end of the fourth quarter was $1.0 billion, down sequentially by $54.0 million.

Bell: Segment revenue jumped 19.7% to $1,375.0 million from the year-earlier level of $1,149.0 million. The growth reflects delivery of 75 commercial helicopters compared with 65 units in the prior-year period. Bell also delivered 13 V-22’s and 6 H-1’s compared with 9 and 6 deliveries, respectively, a year ago.

However, segment profit increased marginally to $178.0 million in the quarter from $177.0 million reported in the same period last year. Higher volumes were partly tempered by manufacturing inefficiencies associated with labor disruptions and lower military margins. Bell’s order backlog at the end of the quarter was $6.5 billion, up $47.0 million sequentially.

Textron Systems: The revenue from this division during the reported quarter was $409.0 million, representing a year-over-year decrease of 28.4%. Revenues were hurt by lower volumes.

Segment profit was $40.0 million, up from $36.0 million in the year-ago quarter, reflecting impressive performances across most product lines. Textron Systems’ backlog at the end of the fourth quarter was $2.8 billion, down $83.0 million sequentially.

Industrial: The revenue from this division increased 9.5% year over year to $773.0 million driven by higher volumes. Segment profit increased 25.6% year over year to $54.0 million driven by improved performance and higher volume.

Finance: The revenue from this division decreased 25.7% year over year to $26.0 million. Its segment profit was at par with the year-ago level of $2 million.

Financial Condition

Textron ended 2013 with cash and cash equivalents of $1,163.0 million, compared with $1,378.0 million at the end of 2012. The company’s cash from operating activities was $1,039.0 million in the quarter compared with $561.0 million in the year-ago quarter.

Capital expenditure during the quarter was $144.0 million versus $166.0 million in the year-ago quarter. Long-term debt was $1,931.0 million (including the current portion) at the end of 2013 versus $2,301 million at the end of 2012.

Guidance

Textron expects earnings per share from continuing operations in the band of $2.00–$2.20 for 2014. Total revenue is expected to be around $13.2 billion, up 9% from 2013. Cash flow from continuing operations before pension contributions is estimated in the band of $600–$700 million. The company anticipates planned pension contributions of about $80 million.

The guidance does not include the impact of the proposed acquisition of Beechcraft. The transaction is slated to close during the first half of 2014.

Our Take

Textron is a global multi-industry company that manufactures aircraft, automotive engine components, and industrial tools. The company’s geographically-diverse network of aircraft, defense & intelligence, industrial and finance businesses negates any specific business risk.

Textron is known to acquire assets having the same line of business, which are immediately accretive. Acquisitions in the past have helped the company to expand its core offerings.

We expect the current acquisition of Beech Holdings, LLC to be immediately accretive, given Beech Holdings’ wide array of product offerings. Textron can match its Caravan and Citation jet line-up with Beech Holdings’ King Air product line.

The acquisition will also enable the company to experience operational synergy in terms of improving research and development expertise and enhancing the service network. We note that this is the third acquisition deal signed by Textron in the final quarter of 2013.

2013 as a whole was a year of important new product introductions and investments in future growth for Textron. Investor focus in 2014 would be on the potential synergies from these investments.

However, Textron not unlike its peers has to ward off defense budget cuts and political uncertainty.
 
Zacks Rank

The stock currently carries a Zacks Rank #3 (Hold). Stocks to look out for in this space is The Boeing Co. (BA), Embraer SA (ERJ) and Engility Holdings, Inc. (EGL), each with a Zacks Rank #2 (Buy).

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