Textron Q2 Earnings Review: Total Revenues Decline, Profits Remain Flat

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Textron (NYSE:TXT) announced its second quarter results for 2015 on Tuesday, July 28th. [1] The multi-industry company reported a year-over-year decline in overall revenues of 7.4%, hit hard by a 24% decline in revenues at Bell Helicopters. [2] Textron Aviation witnessed a 5% year-over-year decline in revenues due to a change in delivery mix. However, the segment single handedly supported profits, increasing more by more than a factor of two between Q2 2014 and Q2 2015. All other segments displayed a  decline in profits in Q2 2015. Total profits at Textron remained flat in Q2 2015 on a year-over-year basis.

Bell Helicopters continued to face the brunt of soft commercial rotorcraft markets and low military spending. The segment witnessed a 24% decline in revenues and 28% decline in profits, hence becoming a drag on overall performance. A decrease in sales of the V-22 to the U.S. military is the cause.  Profit margins in the segment declined by approximately 70 basis points moving from 12.6% in Q2 2014 to 11.9% in Q2 2015, due to under-absorbtion of fixed costs.  ((Textron Reports Second Quarter 2015 Income from Continuing Operations of $0.60 per Share, up 17.6%, Textron Investor Relations)) The company is confident that no significant fall in margins will occur in the remainder of the year. At the end of Q2 2015, Textron maintains guidance issued at the beginning of the year which outlines 11-12% margin for Bell Helicopters for the full year.

Earnings from continuing operations at the end of Q2 2015 stood at $0.60 per share, displaying an impressive 17.6% year-over-year growth. [3] At $0.60 per share, earnings from continuing operations fit in analysts’ expected range of $0.55-$0.64 per share.

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At the end of the second quarter, Textron believes it is on track to achieve its issued guidance of EPS from continuing operations ranging between $2.30-$2.50 for the full year.

We currently have a price estimate of $43.24 for Textron, which is roughly its current market price. However, this price estimate will be updated shortly in light of the recent earnings release.

See our complete analysis of Textron here

Strong Aviation Bottom-line Performance Due To Cost Synergies Kicking In From the Beechcraft Acquisition

With the acquisition of Beechcraft in 2014, Textron increased its market share from approximately 19% to 27% between 2013 and 2014. The continued impact of this acquisition, along with the uptrend in the global aviation market, was visible in the bottom-line results posted for Q2 2015, even as revenues in the segment witnessed a decline. Revenue at Textron Aviation experienced a 5% year-over-year decline.  However, this should not concern investors much as it is primarily due to a shift in jet deliveries mix in Q2 2015 as compared to Q2 2014. The segment showed impressive bottom-line growth due to improved performance and cost synergies achieved from the Beechcraft acquisition. Segment profit increased by more than a factor of two from $28 million in Q2 2014 to $88 million in Q2 2015. The increase in segment profits also incorporates a $27 million lower fair-value step-up adjustment. ((Textron Reports Second Quarter 2015 Income from Continuing Operations of $0.60 per Share, up 17.6%, Textron Investor Relations))

The industrial segment reported a 3.7% year-over-year increase in revenues. Organically, without considering the $69 million unfavorable impact of currency headwinds over the quarter, the segment showed impressive 9.8% top-line growth on a year-over-year basis. The higher revenues were driven by higher volumes across the segment. On the other hand, segment profits witnessed a 9% decline on a year-over-year basis. ((Textron Reports Second Quarter 2015 Income from Continuing Operations of $0.60 per Share, up 17.6%, Textron Investor Relations)) This decline was driven by softer markets and delivery timing issues in the Tools & Test subdivision in the Industrials segment. ((Q2 2015 Textron Inc. Earnings Conference Call, Textron Investor Relations))

Bell Helicopter Continued To Be A Drag On Overall Growth

Bell Helicopter is continuing to struggle as military spending continues to remain weak and commercial helicopter markets are showing sluggish growth. In Q2 2015, Bell delivered 6 V-22’s and 6 H-1’s as compared to the 10 V-22’s and 8 H-1’s in Q2 2014. Driven primarily by lower volumes, the segment reported approximately 24% fall in revenues and 28% fall in segment profits on a year-over-year basis. ((Textron Reports Second Quarter 2015 Income from Continuing Operations of $0.60 per Share, up 17.6%, Textron Investor Relations)) Military spending is expected to remain weak through this year and before a recovery from 2016. The global commercial helicopter market is also expected to continue to remain soft through the rest of this year. Consequently, Textron had stated in the beginning of this year that it will be adjusting production levels and engaging in cost-cutting activities to ensure that Bell’s margins for 2015 remain within the targeted range of 11-12%. At the end of Q2 2015, Textron management continues to remain confident about this guidance for margins at Bell Helicopters for full year 2015.

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Notes:
  1. Q2 2015 Textron Inc. Earnings Conference Call, Textron Investor Relations []
  2. Q2 2015 Earnings Call Presentation, Textron Investor Relations []
  3. Textron Reports Second Quarter 2015 Income from Continuing Operations of $0.60 per Share, up 17.6%, Textron Investor Relations []