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Textron Rides Bell Helicopter and Arctic Cat to a Quarterly Win

Textron (NYSE: TXT) announced solid second-quarter 2017 results on Wednesday, punctuated by strength at Bell Helicopter, modest top-line growth thanks to a recent acquisition, and a reiteration of its full-year financial guidance.

Let's take a closer look, then, at how the industrial conglomerate capped the first half of the year, as well as what investors can expect going forward.

IMAGE SOURCE: TEXTRON/BELL HELICOPTER

Textron results: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Revenue

$3.604 billion

$3.511 billion

2.6%

GAAP net income

($153 million)

($177 million)

13.6%

GAAP earnings per share

($0.57)

($0.65)

12.3%

Data source: Textron Inc.

What happened this quarter?

  • On an adjusted (non-GAAP) basis, income from continuing operations was $0.60 per share -- easily outpacing analysts' expectations for adjusted earnings of $0.55 per share.
  • Revenue at Textron Aviation declined 2.1% year over year to $1.171 billion, including delivery of 46 new Citation jets (up from 45 a year earlier), 19 King Air turboprops (down from 23 in Q2 2016), and four Beechcraft T-6 trainers (down from 11). Aviation segment profit declined 33.3% to $54 million on lower volume and product mix, while its backlog remained flat from last quarter at roughly $1.0 billion.
  • Industrial segment revenue grew 10.9% year over year to $1.113 billion, thanks primarily to contributions from its $247 million all-cash acquisition of ATV and snowmobile specialist Arctic Cat earlier this year. Industrial segment profits declined 17.1% to $82 million, due to an expected operating loss at Arctic Cat that was in line with Textron's integration plan. 
  • Revenue at Bell climbed 2.6% to $825 million, including deliveries of 14 H-1's (up from nine last year), four V-22 Ospreys (down from six previously), and 21 commercial helicopters (down from 24). Bell segment profit climbed 38.3% year over year to $112 million "due to improved performance," while its backlog declined $234 million sequentially, to roughly $5.4 billion.
  • Textron Systems segment revenue declined 2.1% to $477 million, as lower volumes in both its unmanned systems and weapons and sensors product lines partially offset higher volumes at marine and land systems. Textron Systems' segment profit declined 30% to $42 million on lower volume and product mix, while its backlog fell $170 million sequentially to $1.6 billion.
  • Finance segment revenue declined 10% year over year to $20 million, and profit declined by roughly $2 million, to $5 million.
  • Continuing operations of the manufacturing group generated quarterly operating cash flow of $413 million. Before pension contributions, manufacturing cash flow totaled $341 million.
  • 3 million shares were repurchased for a total of $143 million during the quarter, bringing year-to-date repurchases to 7 million shares.

What management had to say

Textron Chairman and CEO Scott Donnelly stated:

Revenues were up in the quarter, primarily driven by the Arctic Cat acquisition. We saw strong performance at Bell, and were encouraged by the continued strengthening in commercial helicopter demand. We saw strong year-over-year cash performance, principally driven by improvements in working capital. We are continuing to invest in our businesses, while taking the opportunity to buy back shares.

Looking forward

For the full year, Textron continues to expect GAAP earnings per share from continuing operations to fall in the $2.22 to $2.45 range, and adjusted EPS in the range of $2.40 to $2.60. In addition, Textron reiterated its expectation to generate full-year cash from continuing operations of the manufacturing group of $1.045 billion to $1.145 billion, and adjusted manufacturing cash flow (before pension contributions) of $650 million to $750 million.

In the end, apart from its slight bottom-line beat relative to expectations, there were no big surprises in Textron's latest quarter. And the company is rightly pleased to see its integration of Arctic Cat going as planned while commercial helicopter demand continues to recover. So while shares were little changed on the news, long-term investors should be happy with Textron's position right now.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Textron. The Motley Fool has a disclosure policy.