Diversified U.S. conglomerate, Textron Inc. (TXT) announced strong fourth quarter 2011 adjusted earnings of 49 cents per share versus 33 cents in the year-ago quarter. The fourth quarterly result comfortably surpassed the Zacks Consensus Estimate of 34 cents. Higher numbers for the company were due to strong performance at Bell, continued improvement at Cessna, complemented by good performance in the Industrial business.
On a reported basis, Textron incurred a quarterly loss of 7 cents per share versus earnings of 19 cents recorded in the year-ago quarter. The 56 cents difference between reported and operating earnings, during the fourth quarter, was owing to 55 cents in charges and 1 cent related to discontinued operations.
During the reported quarter the company digested a 41 cent charge due to mark-to-market adjustment, 14 cents loss associated with convertible note repurchases, and 13 cents for intangible asset impairment and severance costs. These were partially offset by a 13 cent gain related to the payment of a note receivable from the 2008 sale of the company’s Fluid & Power business.
Revenue
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 upward 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.
Segment Performance
Cessna: The revenue from this division during the fourth quarter increased $51 million year over year to approximately $1.0 billion. In the reported quarter the company delivered 67 new Citation jets, compared with 79 in last year’s fourth quarter. However, the lower delivery was more than offset by higher volumes of used jets, single engine aircraft and Caravans. 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. Bell delivered 7 V-22’s, 6 H-1’s and 62 commercial aircrafts in the reported quarter compared with 7 V-22’s, 7 H-1’s and 71 commercial units in last year’s fourth quarter. 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.
Financial Condition
Textron ended fiscal 2011 with cash and cash equivalents of approximately $871 million, compared with $898 million at the end of fiscal 2010. The company generated $242 million of cash from operations in the reported quarter, compared with $299 million generated in the year-ago quarter. Capital expenditure during the quarter was $152 million versus $136 million in the year-ago quarter. Long-term debt remained flat at $2.3 billion at the end of fiscal 2011 versus the end of fiscal 2010.
Fiscal 2012 Guidance
Textron bullish on its top-line growth prospects across all of its manufacturing segments is forecasting fiscal 2012 revenues of approximately $12.5 billion. The company anticipates earnings per share from continuing operations in the range of $1.80–$2.00. Cash flow from continuing operations before pension contributions is estimated to be between $700 million and $750 million. The company anticipates planned pension contributions of about $200 million.
Our Take
Textron currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. Our bullishness is fueled by the company’s expected double-digit growth at both Cessna and Bell in 2012. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock. This is in line with its peers like Tyco International Ltd. (TYC) and United Technologies Corporation (UTX).
Based in Providence, the Rhode Island, Textron Inc. is a global multi-industry company that manufactures aircraft, automotive engine components, and industrial tools.
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