Will Solid Bell Unit Sales Aid Textron's (TXT) Q3 Earnings?

Textron Inc. (NYSE:TXT) is scheduled to report third-quarter 2019 results on Oct 17, before market open.

Sales growth in the Bell and Aviation segments is expected to have aided revenues in the quarter to be reported and, in turn, the company’s earnings.

Industrial Segment

Divestiture of the tools and test product line from Textron’s Industrial segment has been limiting the company’s revenues over the past couple of quarters. We expect this trend to have likely impacted this segment’s third-quarter 2019 performance as well. Moreover, dearth of notable innovations in the soon-to-be reported quarter is likely to have adversely affected this unit’s top line.

The Zacks Consensus Estimate for the Industrial segment’s third-quarter sales is pegged at $920 million, indicating a 1.1% decline from the prior-year quarter’s $1,222 million.

Nevertheless, keeping its usual trend, the Specialized Vehicles product line can be expected to have performed well in the third quarter.

Bell Segment to Show Growth

The Bell segment has been witnessing strong demand in its commercial business for the past couple of quarters. We expect a similar trend to have contributed to this unit’s third-quarter results as well. To this end, Textron’s management announced its expectation to witness deliveries growth for Bell commercial products in the second half of the year, supported by continued strong order activity and increased production rates.

Thus, the Zacks Consensus Estimate for the segment’s third-quarter sales stands at $794 million, implying 3.1% improvement from the prior-year quarter’s $770 million. However, the military business line within the Bell unit may not have witnessed impressive figures, as the unit is transitioning to lower production quantities on its military programs.

Other Factors to Consider

During the second quarter, Textron’s TRU Training business formed a new company with FlightSafety International, which provides training services through Textron Aviation's broad product line of general aviation aircraft. The combination of the strengths and resources of these businesses are likely to have contributed to Textron Aviation unit’s top-line growth in the third quarter. The Zacks Consensus Estimate for the segment’s third-quarter sales is pegged at $1,389 million, implying 22.5% improvement from $1,133 million reported in the prior-year quarter.

Interestingly, most of Textron’s business segments are likely to have witnessed an increase in sales. The Zacks Consensus Estimate for the company’s third-quarter sales stands at $3.42 billion, suggesting an increase of 7% from the figure reported in the prior-year quarter. The Zacks Consensus Estimate for third-quarter earnings is pegged at 85 cents, suggesting 39.3% improvement from the year-ago quarter’s reported figure.

What Does the Zacks Model Predict?

Our proven model does not conclusively show a beat for Textron this earnings season. The odds of a beat increase with a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). This is not the case here as you will see below.

Earnings ESP: Textron has an Earnings ESP of -2.75%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #4 (Sell).

We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some defense companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

The Boeing Company (NYSE:BA) is scheduled to report third-quarter 2019 results on Oct 23. The company has an Earnings ESP of +1.66% and a Zacks Rank #3.

Leidos Holdings, Inc. (NYSE:LDOS) is set to report third-quarter 2019 results on Oct 29. The company has an Earnings ESP of +4.96% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

A Recent Defense Release

AAR Corp. (NYSE:AIR) reported first-quarter fiscal 2020 adjusted earnings of 57 cents per share, which surpassed the Zacks Consensus Estimate of 52 cents by 9.6%. The figure reflected a year-over-year improvement of 5.6% from 54 cents reported in the year-ago quarter.

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