Textron: The Year In Review

2017 has not been a very good year for Textron (NYSE:TXT). In general, the financials in the year have been hurt on deteriorating global economic conditions, rising oil prices, and increasing competitive pressures. Right from the start, the company witnessed revenues and earnings come in rather flat. Specifically, Aviation and Bell saw business stagnate. That said, Industrial and Systems stepped up and helped drive the top line throughout the year. Given that the macro economic conditions are yet to stabilize fully, we can expect this dreary momentum to carry into the first half of 2018 as well.

Key Highlights From The Year:

• As mentioned previously, the company suffered heavily at the hands of adverse macro conditions. For much of the year, Aviation saw revenues come in the red. This was primarily because global uncertainty forced corporations, business tycoons and oil barons to watch their spending, consequently hurting demand for business jets. Furthermore, the weak oil prices hurt demand for commercial helicopters at Bell through the first half of the year. That said, with the recent uplift in oil prices, we expect a resurgence in demand going forward.
• The Industrial segment had been the shining star in 2016, and it seems as though the good fortune stayed with the business through 2017. The company managed to post positive results in the segment throughout the financial year. The segment witnessed a further boost to the top line this year on the conclusion of the Arctic Cat acquisition for $247 million in the first quarter. This buyout helped Textron expand its existing product portfolio, while helping enhance its footprint in the outdoor recreational and utility market, courtesy of Arctic Cat’s established dealer network. Going forward, as synergies begin to be realized, we can see heavy increases in the top line through 2018, as well.
• At Systems, the company managed to sign a few high-yielding deals with the Pentagon through the year that helped boost the top line. 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. We expect further such contracts to be awarded to the company in 2018.
• In the year, Textron launched its Cessna SkyCourier 408. Thus far, the plane has been received very well. FedEx has placed an order for 50 aircraft already, with an option to buy 50 more in the future. Including options, the order carries a potential value of up to $550 million, based on the $5.5 million list price. Plans call for delivery of the aircraft to begin to FedEx in 2020 and continue at a pace of one per month over more than a four-year period for the firm orders. The SkyCouriers will help FedEx replenish its fleet of existing turboprops, including some older Caravans and ATRs, in an effort to best counter the Amazon threat.

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