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Textron (TXT) Down 1.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Textron (TXT). Shares have lost about 1.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Textron due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Textron Misses Q3 Earnings Estimates, Narrows EPS View

Textron reported third-quarter 2018 adjusted earnings from continuing operations of 61 cents per share, which missed the Zacks Consensus Estimate of 76 cents by 19.7%. The bottom line also decreased 6.2% from 65 cents in the year-ago quarter.

This year-over-year decline can be attributed to drop in revenues during the reported quarter.

Including one-time gain of $1.65, the company reported GAAP earnings of $2.26 per share, compared with 60 cents registered in third-quarter 2017.

Revenues

Total revenues in the quarter were $3,200 million, which fell short of the Zacks Consensus Estimate of $3,531 million by 9.4%. The reported figure also declined 8.2% from the year-ago figure of $3,466 million due to lower contribution from all the four segments.

Manufacturing revenues were down 9.8% to $3,185 million, while revenues at the Finance division declined 16.7% to $15 million.

Segmental Performance

Textron Aviation: In the quarter under review, revenues at this segment dropped 1.8% to $1,133 million from $1,154 million in the year-ago quarter. The decline can be attributed to lower volume and mix reflecting lower turboprop volume.

The company delivered 41 jets, flat with last year; and 43 commercial turboprops, down from 53 in the previous year.

The segment registered profits of $99 million in the third quarter, up from $93 million in the year-ago quarter owing to favorable price and performance. Order backlog at the end of the quarter was $1.8 billion, slightly up from the prior quarter’s $1.6 billion.

Bell: Revenues from this segment summed $770 million, down 5.2% from the year-ago level of $812 million. Unfavorable commercial mix led to the downside.

Segment profits were up by 6.6% to $113 million. Bell’s order backlog at the end of the quarter was $5.7 billion, up $0.2 billion from the preceding quarter.

Textron Systems: Revenues at this segment came in at $352 million, down from $458 million a year ago mainly due to lower volume in the Simulation, Training & Other product line. Also, lower TAPV deliveries at Textron Marine & Land Systems dented this segment’s top-line performance.

Additionally, segmental profits decreased to $29 million from $40 million on lower net volume.

Textron Systems’ backlog at the end of the third quarter summed $1.1 billion, slightly lower than $1.2 billion in the second quarter of 2018.

Industrial: Revenues at this segment fell 10.7% to $930 million, mainly on account of the divestiture of the company’s Tools & Test product line.
Moreover, segmental profits were down by $48 million, primarily due to unfavorable pricing and performance. Also, sell out of the Tools & Test product line affected profit.

Finance: Revenues at this segment slipped to $15 million from $18 million in the year-ago quarter. Segmental profits also dropped to $3 million.

Financials

As of Sep 29, 2018, cash and cash equivalents were $1,150 million compared with $1,079 million as of Dec 31, 2017.

Cash flow from operating activities totaled $734 million at the end of the reported quarter compared with $327 million at the end of third-quarter 2017.

Capital expenditures amounted to $74 million compared with $115 million in the prior-year quarter.

Long-term debt was $3,069 million as of Sep 29, 2018, compared with $3,074 million as of Dec 31, 2017.


Guidance

Textron narrowed its guidance for 2018. The company currently expects full-year adjusted earnings per share from continuing operations in the range of $3.20-$3.30 per share compared with $3.15-$3.35 projected earlier.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Textron has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Textron has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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