What Can We Expect From Textron’s Q4 2016 Earnings?

Textron (NYSE:TXT) is set to report its fourth quarter and full year earnings release on January 25th before the markets open. The company has performed solidly in the year thus far. It beat consensus earnings and revenue estimates in all quarters barring the third. The third quarter revenue was flatter than expected while earnings were hit on the back of higher than anticipated corporate expenses. Overall, growing revenues the aviation and industrial segments were partially offset by slowing business at Bell Helicopter. Going forward, we can expect Bell to continue to dampen growth as the commercial helicopter market continues to remain slumped.

Aviation And Industrial To Continue Its Uptrend

In recent quarters, 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 has 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. That said, we can expect orders to remain flat while deliveries increase this quarter.

Furthermore, the Cessna Pilot Center (CPC) network added more than 24 new partners in 2016, including five international flight schools in Argentina, Canada, Columbia, Germany and Poland. At present, the CPC network is the largest and most experienced flight training team. The momentum generated in the year is expected to continue well into 2017. Furthermore, in 2016, the CPC recorded its highest curriculum sales ever. The network now includes close to 163 flight schools, with more to come in the future. This is bound to drive Textron Aviation’s revenues in the coming quarters.

In the past, business at Industrial has benefitted greatly from newer acquisitions and higher volumes in the automotive and specialised vehicle businesses. In the third quarter alone, Textron acquired a Swedish De-Icer manufacturer, Safeaero. The acquisition complements the continually growing ground support equipment portfolio. Furthermore, management announced a consolidation between Jacobson and a specialised vehicle business in order to optimise efficiency. Within the commercial business, the company introduced a new line of Cushman Hauler utility vehicles. At Kautex, Textron’s selective catalytic reduction product line continues to drive growth above the current auto market rate.

We can expect the Industrial segment to consistently perform going forward, barring some seasonal factors that could affect sales.

Sales At Bell Flat In The Quarter; Could See Increase In Revenues Going Forward

As mentioned previously, the commercial helicopter market has been suffering on the back of low energy prices. The fall in oil prices led to the temporary closure of oil rigs across the globe. To put this into perspective, the rig count, which stood at close to  1,900 in 2014,  fell to just over 400 in May last year. Helicopters are the primary mode of transporting workers from land to the rigs. Almost 25% of the the entire commercial helicopter fleet is engaged in the oil and gas industry. This situation led to a heavy loss in revenues at Bell this year. Revenues are expected to remain sluggish this quarter as well. However, going forward, we could see revenues increase gradually on the back of a recovery in oil prices.

With the softness in the oil markets creating pressure on the finances of the Middle Eastern countries, the Organization of Petroleum Exporting Countries (OPEC) members decided to hold an unplanned meeting in September to revisit their stance on their rising oil production. To everyone’s surprise, the cartel announced its plans to put a ceiling on their cumulative production to reverse the decline in oil prices. This is bound to have a positive effect on the revenues at Bell, as production rates at rigs increase.

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