Diversified U.S. conglomerate,
Textron Inc.
(
TXT
) recently delivered third-quarter 2012 earnings. The Wall Street
analysts had more than a week to ponder over the earnings results
and eventually made their estimates revision. In subsequent
paragraphs, we will cover the results of the recent earnings
announcement, estimate revisions by analysts as well as the Zacks
Rank and long-term recommendation on the stock.
Highlights from the Quarter
Textron's third-quarter 2012 earnings per share of 48 cents were
up 6.7% from 45 cents per share in the year-ago quarter. The
quarterly result however came below the Zacks Consensus Estimate
of 52 cents. Higher numbers year over year for the company were
due to strong performance at Bell, continued improvement at
Cessna, complemented by good performance in the Industrial
business and favorable liquidation activity in the finance
portfolio. Including discontinued operations, earnings came in at
51 cents compared with 47 cents a share earned in the year-ago
quarter.
Textron clocked quarterly revenue of $3.0 billion, up 6.6% from
$2.8 billion in the year-ago period. However this came below the
Zacks Consensus Estimate of $3.05 billion. The year-over-year
spike in revenue is attributable to higher performance from all
of its manufacturing business segments, barring Textron Systems.
The performance of the Finance division was also better than the
year-ago quarter.
Textron raised its 2012 earnings per share from continuing
operations guidance to a band of $1.95 to $2.05 per share versus
an earlier band of $1.80 to $2.00 per share. The company however
reaffirmed its manufacturing free cash flow before pension
contribution forecast for 2012 in the range of $700 million to
$750 million. The company anticipates planned pension
contributions of about $200 million.
We have discussed the quarterly results at length here:
Textron Misses, Ups View
Agreement - Estimate Revisions
Estimates for Textron saw heavy movement over both sides for the
fourth quarter. Over the past month, out of 12 available
estimates, 5 estimates were revised downward while 4 moved north.
However, over the past week, no estimates were revised.
For full-year 2012, estimates manifest a clear negative bias with
7 (out of 13) downward movements versus 2 positive revisions over
the past month. The negative sentiment is owing to the skeptism
about the intermediate prospects of Textron's commercial
aerospace businesses. The economic downturn, along with reduced
access to the credit markets, has led to lower spending by
commercial air carriers. A prolonged period of weakness in the
business jet market could lead to cancellations/deferrals of
orders in its backlog. Also, in the near term, the focus on used
jets rather than new ones have taken a toll on Cessna's order
backlog, which fell to $1.3 billion at the end of the first nine
months of 2012, down $196 million from the end of the second
quarter of 2012.
Magnitude - Consensus Estimate Trend
Estimate for full year 2012 have witnessed a fall over the past
month from $2.09 to $2.06. However, given the balanced revisions,
estimate for the fourth quarter has remained flat at 59 cents
over the past month.
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's balance sheet remains stable with a long-term
debt-to-capitalization of 55.9% at the end of the first nine
months of 2012 versus the Zacks Industry Average of 65.7%. The
company also ended the first nine months of 2012 with cash
holdings of $1.2 billion, 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 also improved, shedding $496 million of long-term debt in
the first nine months, leaving approximately $1.8 billion of
long-term debt.
Textron currently retains a Zacks #3 Rank, which translates into
a short-term Hold rating. 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
).
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks 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/
TEXTRON INC (TXT): Free Stock Analysis Report
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