Textron Q4 Earnings: Shares Tumble On The Back Of A Gloomy 2017

Textron reported dismal earnings for the final quarter of FY 2016. The company fell short of earnings and revenue consensus estimates by a wide margin. Furthermore, the defense and aerospace company reported a gloomy outlook for 2017. Increased revenues at Industrial were offset by weak sales at Bell and Cessna. Global economic and political issues, along with increased competition, has caused quite a problem for the company this time around. With such conditions expected to continue into the next year, we could be seeing a weak 2017 as well.

The company reported earnings of about 80 cents per share, while the consensus estimate stands at about 87 cents per share. Revenues in the quarter were down 2.5% year over year to $3.8 billion, in contrast to the expected revenue of $4.1 billion.

As for 2017, Textron said it expects full-year 2017 earnings of $2.50 to $2.70 per share on revenue of $14.3 billion, below analysts’ expectations of $2.93 per share on $14.4 billion in revenue.

Industrial and Systems Provide Buoyancy In The Quarter

Industrial and Systems are the saving graces for the company, yet again, this quarter. At Industrial, revenues increased by about 4% on the back of higher volumes at Kautex and specialised vehicles.

Going forward, the company has decided to acquire one of the industry’s most recognized brands, Arctic Cat, in an effort to continue its expansion into the power sports market. This acquisition is bound to have an immediate effect on the product portfolio. Additionally, the induction of Jacobsen into the company’s specialised vehicle business is on track to be completed later on this year.

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. Such strategic moves are bound to keep Industrial in the positive in the long term.

At Systems, revenues increased 15%, driven by higher Marine and Land Systems volumes. The segment has  begun the initial deliveries of the TAPV systems and expect to deliver the first ship to shore connector later in the year. At TRU Simulation and Training, initial deliveries of the full flight simulators for a plethora of aircraft is ongoing. The simulators are used to train pilots for a range of commercial, general aviation, and helicopter aircraft. It looks like things are moving in the right direction for the segment.

Aviation and Bell End The Year In Red

We must keep in mind that despite the great performances at Industrial and Systems, both divisions account for only 26% of the total revenues. The much larger divisions in the company have ended the year with declining revenues. Aviation witnessed a fall in revenues of close to 3.5%. Furthermore, the number of deliveries of King Airs and jets were also down in the quarter in comparison to the same period last year. That said, the division delivered 178 jets in contrast to 166 jets last year. This includes the increased Latitude deliveries of 42. However, this growth in Latitude volume was offset by lower deliveries on other Citation models and turboprops, for which the company is lowering production in 2017. Aviation business is expected to remain slow in the coming year as well.

Bell’s segment revenues fell by about 14% in comparison to Q4 last year. The commercial helicopter market was hurt by the closure of oil rigs forced by falling oil prices. Almost a quarter of the commercial helicopter fleet is engaged in transporting workers from the mainland to the rig. However, with the newly decided  ceiling on oil production, we can expect prices to rise in the near future. This is bound to help nudge Bell’s sales into the green. Going forward, we can expect conditions at Bell to improve.

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