Textron: The Year In Review

Textron‘s (NYSE:TXT) stock has been extremely volatile ever since the crude oil prices tumbled in 2014. Due to the weaker financial position of many of the oil companies, demand for business jets and helicopters had slowed considerably in the year. That said, the company’s stock has suffered an unfair penalty thus far. The general market perception of the private jet and helicopter market has clouded the fact that Textron actually makes money, while continuing to grow at a modest rate. Two segments in particular (for different reasons) require special mention in this note, Aviation and Bell.

Aviation Shines Despite A Slumped Aviation Market

Over the year, the business jet market has remained soft on the back of slowing GDP growth rates worldwide and a dismal oil market. Since these factors have a direct impact on corporate profit growth, which has suffered in many sectors so far, business jet usage slowed this year. However, despite the downturn, Cessna at Textron has managed to stay on top of things by making market share gains through some of its new business jet-programs and securing large orders.

Aviation has consistently performed this year, with positive revenue growth recorded in all three quarters thus far. It has managed to increase its sales this year after gaining traction for its new Latitude business jets, certified by the FAA (Federal Aviation Administration) in June 2015. The company secured a solid 150 orders from NetJets, a Berkshire Hathway company, and also a world leader in private aviation.

Bell Has Had A Tough Year So Far

The slump in the helicopter manufacturing industry is testament to the fact that the downturn in the oil industry had a domino effect across various sectors in the year. Helicopters are the primary mode of transport used in the oil industry to ferry workers and cargo to oil platforms. Approximately 25% of the global helicopter fleet is deployed in the oil and gas sector. Bell suffered majorly in this respect, with lower commercial deliveries more than offsetting higher military volumes throughout the year. In the latest quarter, the segment managed to deliver only 25 commercial helicopters, down from 45 in the third quarter last year.

Furthermore, test flights on the Bell 525 are still suspended following the crash that took place in June, killing both the test pilots. Before the mishap, Textron was targeting its first delivery in 2017. However, the crash will likely create a variety of uncertainties and delays in FAA certification and, consequently, the delivery of the aircraft. This is bound to have a negative effect on the segment’s top-line this year.

Despite the negatives, Textron management revised GAAP EPS guidance for FY 2016 up to  $2.65 to $2.75 a share.

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