Diversified U.S. conglomerate, Textron Inc.
(TXT) 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.
Price Stats
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) and Carlisle Companies Incorporated
(CSL).
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years
ago that earnings estimate revisions are the most powerful force
impacting stock prices. He turned this ground breaking discovery
into two of the most celebrating stock rating systems in use today.
The Zacks Rank for stock trading in a 1 to 3 month time horizon and
the Zacks Recommendation for long-term investing (6+ months). These
“Earnings Estimate Scorecard” articles help analyze the important
aspects of estimate revisions for each stock after their quarterly
earnings announcements. Learn more about earnings estimates and our
proven stock ratings at http://www.zacks.com/education/.
CARLISLE COS IN (CSL): Free Stock Analysis Report
HONEYWELL INTL (HON): Free Stock Analysis Report
TEXTRON INC (TXT): Free Stock Analysis Report
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