Why Is Textron (TXT) Down 1.5% Since Last Earnings Report?

A month has gone by since the last earnings report for Textron (TXT). Shares have lost about 1.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Textron due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Textron’s Q3 Earnings Beat Estimates, Revenues Miss

Textron Inc (NYSE:TXT). reported third-quarter 2019 earnings from continuing operations of 95 cents per share, which surpassed the Zacks Consensus Estimate of 85 cents by 11.8%. The bottom line also increased 55.7% from 61 cents in the year-ago quarter.

This year-over-year improvement can be attributed to lower number of outstanding shares of the company in the quarter under review.

Revenues

Total revenues came in at $3,259 million, which fell short of the Zacks Consensus Estimate of $3,351 million by 2.7%. However, the reported figure increased 1.8% from the year-ago quarter’s $3,200 million on higher contributions from the company’s Aviation, Bell and Industrial segments.

Manufacturing revenues increased 1.9% to $3,245 million, while revenues at the Finance division grew 6.7% to $14 million.

Segmental Performance

Textron Aviation: In the quarter under review, revenues at this segment rose 6% to $1,201 million from $1,133 million in the year-ago quarter. The growth can be attributed to higher jet and aftermarket volumes.

The company delivered 45 jets, up from 41 in the year-ago quarter. It also delivered 39 commercial turboprops, down from 43 in third-quarter 2018.

The segment registered profits of $104 million in the quarter, up from $99 million in the year-ago quarter, owing to higher volume and mix, and favorable performance. The order backlog at the end of the quarter was $1.9 billion.

Bell: Revenues from this segment summed $783 million, up 1.7% from the year-ago quarter’s $770 million, primarily due to higher commercial revenues.

The segment delivered 42 commercial helicopters in the quarter, down from 43 last year.

Segment profits were down 2.7% to $110 million. Bell’s order backlog at the end of the quarter was $5.6 billion, down $0.4 billion sequentially.

Textron Systems: Revenues at this segment came in at $311 million, down from $352 million a year ago. The downside can be primarily attributed to lower armored vehicle volumes at Textron Marine and Land Systems.

Segmental profits increased 6.9% year over year to $31 million in the third quarter.

Textron Systems’ backlog at the end of the third quarter summed $1.4 billion, in line with the figure at the end of the previous quarter.

Industrial: Revenues at this segment rose 2.15% to $950 million, primarily led by a favorable impact of pricing in the Textron Specialized Vehicles product line.

Moreover, segmental profits were up $46 million from the third quarter of 2018, largely owing to a favorable performance and a positive impact of net pricing in the Specialized Vehicles product line.

Finance: Revenues at this segment decreased to $14 million from $15 million in the year-ago quarter. Segmental profits, however, increased $2 million from third-quarter 2018.

Financials

As of Sep 28, 2019, cash and cash equivalents totaled $931 million compared with $987 million as of Dec 29, 2018.

Cash inflow from operating activities amounted to $238 million at the end of the third quarter compared with the cash inflow of $319 million at the end of the prior-year period.

Capital expenditures were $81 million in the third quarter compared with $74 million in the year-ago period.

Long-term debt was $2,909 million as of Sep 28, compared with $2,808 million as of Dec 29, 2018.

Guidance

Textron has slashed its guidance for 2019. The company currently expects full-year earnings from continuing operations of $3.7-$3.8 per share compared with $3.65-$3.85 anticipated earlier.

The Zacks Consensus Estimate for current-year earnings is $3.73, which lies below the midpoint of the company’s guided range.

Textron has also revised its expectation for manufacturing cash flow before pension contributions to $600-$700 million from $700-$800 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -7.29% due to these changes.

VGM Scores

Currently, Textron has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Textron has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.