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What's in Store for Textron (TXT) This Earnings Season?

Textron Inc.TXT is scheduled to report third-quarter 2015 results before the opening bell on Oct 27. In the last quarter, the company had posted a positive earnings surprise of 1.69%. Also, it beat the Zacks Consensus Estimate in three out of the past four trailing quarters with an average beat of 3.89%.

Let's see how things are shaping up for this announcement.

Factors at Play

Textron's Bell Helicopters witnessed a number of favorable foreign military developments recently.

The company expects its cost saving initiatives to help offset the impact of lower production and deliveries. These initiatives should enable the company to maintain its margin guidance of 11% to 12% for the year. The positive margin effect is likely to show up in the third quarter.

Having said that, Textron is expected to witness muted growth at Bell Helicopter. Soft V-22 Osprey shipments and weakness in the global commercial helicopter market are expected to affect segment revenues and dampen the top line in 2015. Textron had earlier witnessed higher V-22 shipments to the U.S. government, which boosted Bell's revenues. However, revenues at Bell are expected to suffer as these shipments slow down in 2015.

Bell revenues were down 24% year over year in the second quarter due to lower commercial, V-22, and H-1 deliveries. Although the company still expects commercial deliveries to be up modestly in 2015 with a heavily weighted fourth quarter, the commercial helicopter market remains challenged, especially in the medium segment. The third quarter is therefore likely to remain under pressure.

The company expects capital investments in research and development, and expansion of product capabilities through acquisitions to fuel bottom-line growth for the year. As a result, it has maintained its 2015 earnings guidance in the band of $2.30-$2.50 per share and cash flow guidance in the range of $550-$650 million for the year.

The company expects revenues to grow in the second half of 2015.

Earnings Whispers?

Our proven model does not conclusively show that Textron is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Textron has an ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 60 cents.

Zacks Rank: Textron's Zacks Rank #3, when combined with a 0.00% ESP, makes a surprise prediction uncertain this season.

We note that Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Northrop Grumman Corp. NOC with an Earnings ESP of +4.07% and a Zacks Rank #2.

General Dynamics Corp. GD with an Earnings ESP of +4.76% and a Zacks Rank #3.

Embraer S.A. ERJ with an Earnings ESP of +2.70% and a Zacks Rank #3.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

TEXTRON INC (TXT): Free Stock Analysis Report

NORTHROP GRUMMN (NOC): Free Stock Analysis Report

EMBRAER AIR-ADR (ERJ): Free Stock Analysis Report

GENL DYNAMICS (GD): Free Stock Analysis Report

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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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