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Will Product Innovations Fuel Textron's (TXT) Q2 Earnings?

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Textron Inc.TXT , known for brands like Bell Helicopter and Cessna Aircraft, is scheduled to report second-quarter 2018 results, before the market opens on Jul 18.

Sales growth at the Industrial and the Textron Aviation segments, which together account for more than 50% of Textron's top line, is expected to drive second-quarter revenues. However, the recent rebound observed in the Bell segment's revenues may not continue in the to-be-reported quarter.

Let's discuss these factors in detail.

The Industrial Segment - A Key Catalyst

Textron's Industrial segment designs and manufactures automotive engine components, specialized vehicles as well as varied industry-related tools and equipment. Within this segment, innovation of specialized vehicles, particularly following the integration of the Arctic Cat, is expected to boost the segment's performance. In line with this, Textron introduced new models of its E-Z-GO Express personal transport vehicles, new line of Cushman Shuttle personnel carriers as well as the pure-utility Textron Off Road Prowler Pro vehicle in the second quarter.

Moreover, higher volumes for its growing GSE product line have been driving sales at this unit and are expected to do the same in second quarter. These developments altogether are anticipated to substantially boost segmental revenues in the yet-to-be reported quarter. Also, the Zacks Consensus Estimate for this segment's second-quarter sales is pegged at $1.2 billion, reflecting a 0.7% year-over-year rise.

Solid Orders Drive Aviation Unit

Keeping pace with its usual trend, solid order growth and improved delivery figures are anticipated to boost Textron Aviation's top-line expansion. With regards to product innovation, the company earlier announced its expectation to receive final certification for its Longitude jet in the second quarter, which, if successfully secured, will provide impetus to this unit's growth. Moreover, Textron's AT-6 Wolverine aircraft is likely to have participated in the second phase of Light Attack Experiment program beginning second quarter. Considering these factors, the Zacks Consensus Estimate for Textron Aviation's second-quarter sales stands at $1.2 billion, indicating a 1.5% year-over-year improvement.

Textron Inc. Price and EPS Surprise

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

Will the Bell Segment Weigh on Growth?

The Bell segment has managed to generate improved results in past couple of quarters, after delivering weak performance in many of the prior quarters. However, the commercial business within this segment has been sluggish lately along with the dearth of contract inflows witnessed for its military programs from the Pentagon. These, in turn, have made us skeptical about the Bell segment's top-line growth in the second quarter. Currently, the Zacks Consensus Estimate for the segment's second-quarter sales is pegged at $797 million, reflecting a 2.4% decline from the prior-year quarter's $817 million.

Other Factors at Play

Within its Textron Systems business segment, the company has been witnessing lower volumes that are weighing on this unit's sales due to the discontinuance of the sensor-fuzed weapon product line. While management expects this unit to gain from the U.S. administration's increased focus on unmanned aircraft systems, any near-term sales rebound is very unlikely.

The Zacks Consensus Estimate for Textron's second-quarter total sales is pegged at $3.59 billion, mirroring a year-over-year drop of 0.5%.

In terms of segmental profit, majority of the company's business units reflect improved year-over-year projections, which in turn should boost its quarterly bottom line. Meanwhile, lower corporate tax expenses owing to the U.S. government's latest tax reform might favor the company's earnings growth. Consequently, the Zacks Consensus Estimate for Textron's second-quarter earnings is pegged at 70 cents, reflecting a year-over-year improvement of 16.7%.

What Does the Zacks Model Predict?

Our proven model shows that Textron is likely to beat earnings in second quarter. This 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. This is the case here as you will see below.

Zacks ESP : Textron has an Earnings ESP of +0.41%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Zacks Rank : Textron currently carries a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here.

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

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

Boeing BA is expected to report second-quarter 2018 results on Jul 25. The company has an Earnings ESP of +0.28% and a Zacks Rank #2.

Raytheon RTN is expected to report second-quarter 2018 results on Jul 26. The company has an Earnings ESP of +1.10% and a Zacks Rank #3.

Curtiss-Wright Corporation CW is expected to report second-quarter 2018 results on Jul 25. The company has an Earnings ESP of +0.15% and a Zacks Rank of 2.

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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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