Textron’s Results Likely To See Continued Secular Decline In Q2

by Trefis Team
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Textron (NYSE:TXT) produces aviation, industrial, finance and software products for both commercial and government clientele. Textron’s results for Q2 are slated for release on Wednesday, 17th of July. We expect earnings to come in relatively muted, with only the commercial Aviation division performing well. Per Trefis, Textron’s shares have a fair value of $65 – a figure that is 20% higher than the current market price. We capture trends in Textron’s Earnings over recent quarters in an interactive dashboard, along with our forecast for full-year 2019.

Business Overview:

Aviation: Aviation is the main source of revenue for the company. Textron Aviation produces a range of small-bodied aircraft under the Cessna and Beechcraft brands.

Bell: The Bell division provides a range of commercial and military helicopters.

Industrial: The industrial segment primarily deals in a range of automobile, and automobile part solutions. This mainly includes golf carts, ATVs, etc.

Systems: The systems segment provides a range of military solutions, providing key services for unmanned drones, electronic systems, and advanced information systems.

Finance:  The finance division provides a range of financing solutions, that mainly center around providing credit to customers.

Our expectations from the second quarter

  • Textron is expected to post revenues of $3.2 billion for the quarter, which represents a decrease of 15% Y-o-Y.
  • The decrease can be attributed to lower revenue from the Bell and Industrial segments.
  • The Aviation segment is expected to show an increase in revenue, in the high single digits.
  • Earnings per share are expected to come in at $0.85 for the quarter, which would be 3% lower than figure for Q2 2018.

Our takeaway for the quarter:

Overall, Textron continues to struggle with demand and competitive issues. The Bell segment is largely dependent on legacy contracts that have a limited future due to Textron’s technology being from the 3rd and 4th generation. The increasing capital needs for 5th and 6th generation military technology has forced the hand of many defense companies to merge in order to survive. And this has resulted in new contracts reducing considerably for Textron. In fact, we believe Textron may be forced to merge its Bell segment with another large player in the future to be able to compete effectively.

The Industrial’s division is expected to show little traction for the quarter, with the division facing demand issues for its products. As a result we expect little-to-no-growth from this segment. Textron’s key industrial products, golf-carts and ATVs, continue to face issues of both broader market demand and the fact that their technology is older than that of their competitors.

Textron’s Systems division has seen nearly no contract flow over recent quarters, and the trend is expected to continue this quarter. Revenue is expected to come in flat, as Textron struggles to win new government bids. Competitors like Raytheon (who have far more competitive products) have won key software and security bids.

Textron is currently facing adverse conditions. The product line that it carries is facing issues of both lack of demand, and an uncompetitive future. Unless the management takes the necessary steps to improve its competitiveness, the company faces continued secular decline. The only division that remains competitive is the Aviation division – on the back of the Cessna aircraft models that have seen strong demand in the small-bodied aircraft segment.

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