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Textron (TXT) Misses on Q4 Earnings, To Acquire Arctic Cat

Diversified U.S. conglomerate Textron Inc.TXT reported fourth-quarter 2016 adjusted earnings from continuing operations of 80 cents per share, missing the Zacks Consensus Estimate of 87 cents by 8%.

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Excluding one-time items, the company reported earnings of 78 cents, which were down 3.7% from 81 cents in the year-ago quarter.

For full-year 2016, the company reported adjusted earnings of $2.62 per share, which lagged the Zacks Consensus Estimate of $2.69 by 2.6%.

Revenues

Total revenue in the quarter was $3.83 billion, missing the Zacks Consensus Estimate of $3.90 billion by 1.8%. Reported revenues, also, decreased 2.5% from the year-ago figure of $3.92 billion, primarily on account of lower contribution from the Textron Aviation and Bell segments.

Manufacturing revenues were down 2.5% to $3.81 billion while revenues at the Finance division dropped 10% to $18 million during the quarter.

For full-year 2016, the company generated revenues of $13.79 billion, which missed the Zacks Consensus Estimate of $13.90 billion by 0.8%.

Segment Performance

Textron Aviation: Revenues during the fourth quarter fell 3.5% to $1,436 million from $1,488 million in the year-ago quarter owing to lower defense and turboprop volumes, partially offset by higher pre-owned volumes.

The company delivered 58 new Citation jets and 28 King Air turboprops, compared with 60 jets and 33 King Airs in the prior-year quarter.

The segment registered profits of $135 million, compared with $138 million in the year-ago quarter. Order backlog at the end of the fourth quarter was $1 billion, down sequentially.

Bell: Segment revenues were $887 million, down from the year-ago level of $1,035 million.

The segment delivered 35 commercial helicopters, compared with 56 units in the prior-year period. Bell also delivered 4 V-22s (down from 8 in fourth-quarter 2015) and 8 H-1s (down from 9 in fourth-quarter 2015).

Segmental profits improved 1.6% to $126 million on favorable performance. Bell's order backlog at the end of the quarter was $5.4 billion, up by $416 million from the prior-year quarter.

Textron Systems: Revenues during the reported quarter came in at $532 million, up 14.9% year over year. The improvement was mainly driven by higher volume at Marine and Land Systems.

Segmental profits rose from $41 million to $53 million.

Textron Systems' backlog at the end of the fourth quarter was $1.8 billion, down by $367 million from the end of the fourth quarter of 2015.

Industrial: Segmental revenues grew 3.8% to $952 million driven by higher volumes at Kautex and Specialized Vehicles. Segmental profits remained flat at $73 million.

Textron Inc. Price, Consensus and EPS Surprise

Textron Inc. Price, Consensus and EPS Surprise | Textron Inc. Quote

Financials

As of Dec 31, 2016, cash and cash equivalents were $1.13 billion, compared with $0.95 billion as of Jan 2, 2016.

Capital expenditure during the quarter was $140 million, compared with $134 million in the year-ago quarter. Capital expenditure during 2016 was $446 million, compared with $420 million in the year-ago quarter.

Long-term debt was $2,414 million, as of Dec 31, 2016, down from $2,435 million as of Jan 2, 2016.

On Jan 24, 2017, Textron's management approved a new authorization for the repurchase of up to 25 million shares, under which the company intends to purchase shares to offset the impact of dilution from stock-based compensation and benefit plans and for the sake of opportunistic capital management purposes.

Acquisition Update

Along with its fourth-quarter earnings release, Textron announced that it has agreed to acquire Arctic Cat Inc. ACAT in a cash transaction valued at approximately $247 million, plus the assumption of existing debt. Notably, Arctic Cat is a leader in the recreational vehicle industry.

This will allow Textron to introduce its product in the outdoor recreational vehicle market. Textron has agreed to make a cash tender offer for all outstanding shares of Arctic Cat common stock at a price of $18.50 per share. The tender offer is expected to commence no later than Feb 7, 2017.

Guidance

Textron provided its 2017 guidance. The company expects adjusted earnings per share in the range of $2.50 to $2.70. On the top-line front, the company expects to generate revenues of $14.3 billion, reflecting a year-over-year improvement of 4%.

The company also expects cash flow from continuing operations (of the manufacturing group) before pension contributions in the $650-$750 million band for 2017.

Price Movement

Textron gained about 23.9% in the last three months, outperforming the Zacks categorized Aerospace-Defense industry's gain of 8.7%. This is probably due to the company's systematic inorganic growth strategy along with its focus on strengthening international presence.

Upcoming Peer Releases

General Dynamics Corp. GD has an Earnings ESP of +1.18% and a Zacks Rank #3 (Hold). The company is scheduled to report quarterly results on Jan 27.

Huntington Ingalls Industries, Inc. HII , slated to report on Feb 16, has an Earnings ESP of +2.82% and a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here .

Northrop Grumman Corp NOC has an Earnings ESP of +0.80% and a Zacks Rank #2. The company is expected to release results on Jan 26.

Zacks Rank

Textron currently carries a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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