What To Expect From Textron’s Q2 Earnings

Textron (NYSE:TXT) is all set to report earnings for the second quarter of FY 2017 on 19 July. The company witnessed a rather slow start to the year with earnings just about beating the consensus estimate, while missing completely on revenues. We can expect this slow momentum to lull over most of 2017 given the current global economic climate and slowing commercial demand.

That said, Q2’s top line is most likely going to benefit from a slew of deals that were signed in the early months of the quarter with the Pentagon. Furthermore, the industrial segment is expected to record a swell in its revenues, courtesy of the Arctic Cat buyout in the first quarter of 2017, which is expected to give Textron a strong foothold in the adventure sports and vehicles market.

The consensus estimates peg EPS at about 55 cents for the quarter, while revenues are expected to come in around $3.59 billion, implying a 2.29% year-over-year increase.

Probable Highlights:

• As mentioned previously, the company managed to sign a few high-yielding deals with the Pentagon through the quarter. The first contract was awarded by the U.S. Special Operations Command (USSOCOM) for the Mid-Endurance Unmanned Aircraft Systems (MEUAS) worth $475 million, while the second contract was awarded by the Navy for repairing parts of the UH-1Y and AH-IZ aircraft worth $146.6 million. These deals mark the first two of many more the company plans to conclude throughout the year. We can expect to learn a lot more about this in the upcoming earnings call.
• Industrial is set to shine yet again. We can expect revenues at the segment to benefit significantly from the acquisition of Arctic Cat that was completed earlier in the year. The acquisition significantly helped Textron enhance its footprint in the outdoor recreational and utility market, while greatly increasing its product offerings overall. Additionally, the growth at the segment could be further boosted by the company’s continued deliveries of the highly efficient ELiTE series lithium golf carts that began in Q1.
• The company’s Bell segment has suffered from a slow commercial helicopter market ever since the oil prices plummeted a few years back. With more than half the world’s commercial fleet employed in the ferrying of workers to and from rigs, the closure of such rigs meant a mammoth shrinkage in demand. However, now that oil prices seem to be on the rise again, we can expect to see some upward potential, at least in terms of margins, starting in Q2.

• Additionally, Textron’s new V-280 Valor program is on track to record its first flight this year. Going forward, maintaining a flow of new product offerings will ensure competitiveness and order growth. In general, the company expects to close further foreign military deals through the year.
• That said, Systems could see sustained losses incurred at the Tactical Armored Patrol Vehicle (TAPV) program. The lower-than-expected TAPV production significantly hurt the company’s overall growth in the first quarter. Similar conditions are expected to prevail in Q2 also, since there has been no notable improvement in this situation. Thus far, Textron has incurred a loss of about $24 million under a contract related to TAPV.

• Further, in the first quarter, Textron incurred pre-tax special charges of almost $22 million, owing to the Arctic Cat acquisition. This has forced the company to increase the overall pre-tax charges forecast for FY 2017 by close to $15 million. Such charges are expected to impose greater expenses on the company’s upcoming results.

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