Textron Q3 Profit Plunges As Revenues Drop 27%; Revises FY09 EPS Outlook - Update

(RTTNews) - Industrial conglomerate Textron, Inc. (TXT | Quote | Chart | News | PowerRating) reported Tuesday a profit for the third quarter that plunged from the year-ago quarter, hurt by significant drop in revenues across three of its four manufacturing divisions. Quarterly revenues recorded a double-digit drop of 27%.

However, the company returned to a profit after reporting a loss in the previous quarter. The company also said it now anticipates fiscal 2009 earnings at the upper end of the prior guidance range, and backed its revenue outlook for the full year 2009.

In order to tackle the global recession, the company earlier in the year announced several restructuring actions, including reduced production at the Cessna unit and elimination of thousands of jobs. The company also suspended the development of Citation Columbus jet.

The company's financial division run up huge losses, being heavily exposed to mortgage-backed securities, while its largest subsidiary Cessna Aircraft Co. scrambled to cut production as new orders for business jets have plummeted.

In a statement, chairman and chief executive officer, Lewis Campbell said, "Third quarter results reflect continued stabilization in most of our commercial markets. We have made good progress this year generating cash through the process of winding down TFC's non-captive business, as well as improving cost productivity in our manufacturing businesses. With a positive long-term outlook for our company, this is an excellent time to transfer executive leadership to Scott Donnelly, as announced last month."

Third Quarter Results

The Providence, the Rhode Island-based maker of Cessna jets, Bell helicopters and E-Z-GO golf carts reported net income of $4 million or $0.01 per share for the third quarter, sharply lower than $206 million or $0.83 per share in the prior-year quarter.

Income from continuing operations for the quarter plunged to $6 million or $0.02 per share from $205 million or $0.83 per share in the year-ago quarter. Textron recorded pre-tax, special charges of $42 million in the latest quarter, associated with its restructuring program.

Excluding special charges of $0.10 per share, non-GAAP income from continuing operations for the latest quarter was $0.12 per share. On average, 10 analysts polled by Thomson Reuters expected the company to report a loss of $0.03 per share for the third quarter. Analysts' estimates typically exclude special items.

Total revenues for the quarter dropped 27% to $2.55 billion from $3.47 billion in the same quarter last year, but narrowly topped six Wall Street analysts' consensus estimate of $2.52 billion.

Segmental Details

Manufacturing revenues for the third quarter dropped to $2.48 billion from $3.29 billion in the year-ago quarter, and revenues for finance segment were $71 million, sharply down from $184 million in the prior-year quarter. The poor performance in the Finance segment was attributable to higher portfolio losses, lower other income and securitization gains as well as the impact of lower average finance receivables.

Breaking up manufacturing revenues further, the Bell segment, which mainly focuses on helicopters, saw revenues declining to $628 million from $702 million last year, due to lower commercial helicopter revenues.

Cessna segment, primarily manufacturing general aviation aircraft, had revenues dropping to $825 million from $1.42 billion in the year-ago quarter, reflecting a drop in jet deliveries and lower aftermarket volumes, partially offset by an increase in used aircraft volume.

The Industrial segment, which is mainly into manufacturing blow-molded fuel systems, had revenues of $523 million, down from $726 million in the prior-year quarter, due to lower volumes.

Textron Systems segment revenues grew to $502 million from $441 million a year ago, due to higher volume of unmanned aircraft systems, partially offset by lower aircraft engine volume.

Combined backlog at Cessna, Bell Helicopter and Textron Systems was $14.3 billion at the end of the quarter, up from $12.62 billion at the end of the previous quarter.

Managed receivables at the company's finance business were further reduced by $700 million and, the company generated third quarter manufacturing free cash flow of $327 million. The company ended the third quarter with cash and cash equivalents of $2.58 billion, compared to $0.36 million at end of the prior-year quarter.

Last Month, Textron revealed that Campbell would retire on December 1, and be succeeded by current President and Chief Operating Officer Scott Donnelly. However, Campbell will remain as non-executive Chairman of the board until no later than the 2011 annual meeting of shareholders. Campbell, who joined Textron in September 1992 as executive vice president and chief operating officer after a 24-year career at General Motors, was named CEO in July 1998 and appointed chairman in February 1999. Donnelly joined Textron in June 2008 as chief operating officer, and added the title of president in January 2009.

Nine Month Highlights

For the nine month period, Textron reported net income of $32 million or $0.12 per share, sharply lower than $695 million or $2.76 per share in the prior-year period.

Loss from continuing operations for the period was $13 million or $0.05 per share, compared to income of $680 million or $2.70 per share in the year-ago period. Excluding special charges, non-GAAP income from continuing operations for the latest period was $0.44 per share. Total revenues for the year-to-date period dropped to $7.69 billion from $10.46 billion in the same period last year.

Looking Ahead........

"The demand environment for our commercial products continues to show signs of stabilization, but we believe that market recovery likely will be slow and modest. Therefore, we will maintain our focus on improving operating and working capital productivity, while investing in new product development to spur future growth," Donnelly added.

For fiscal 2009, Textron continues to anticipate earnings from continuing operations, excluding special charges, in a range of $0.33 to $0.63 per share, but now at the upper end the prior guidance . Analysts currently expect the company to report a loss of $0.06 for the full year 2009, with estimates ranging between a loss of $0.24 per share and earnings of $1.02 per share.

The company also currently anticipates full year revenues to still be about $10.6 billion. The Street is looking for revenues of $10.30 billion for fiscal 2009.

Further, the company said it still sees 2009 manufacturing free cash flow between $300 million and $400 million.

Stock Quote

TXT closed Monday's regular trading session at $18.36, down $0.75 on a volume of 7.01 million shares, higher than the three-month average volume of 6.50 million shares. In the past 52-week period, the stock has been trading in a broad range of $3.57 to $20.99.

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