Textron Inc. [TXT] on Wednesday posted a drop in net income and sales in the first quarter driven by declines in most of its operating segments and charges related to a recent acquisition and ongoing restructuring actions.
Net income tumbled 33 percent to $101 million, 37 cents earnings per share (EPS), from $150 million (55 cents EPS) a year ago. The bottom line results in the quarter included an after tax charge of 9 cents EPS due to the acquisition of all-terrain vehicle manufacturer Arctic Cat and restructuring costs. Absent the charges, adjusted per share earnings of 46 cents topped consensus estimates by a penny.
Sales in the quarter dipped 3 percent to $3.1 billion from $3.2 billion a year ago, led downward by declines at the Textron Aviation and Bell segments, which more than offset gains at Textron Systems and Industrial.
Bell’s sales were down on a drop in deliveries of commercial helicopters and H-1 military helicopters while the Aviation segment was pinched by a steep drop in deliveries of King Air turboprops and Beechcraft T-6 military trainers. Textron Systems benefited from higher sales of a weapons system, and continued deliveries of the Tactical Armoured Patrol Vehicle (TAPV) to the Canadian Army.
The TAPV program “remains a challenge,” Scott Donnelly, Textron’s chairman and CEO, said on the company’s earnings call, noting that production hasn’t ramped up as expected, leading to “inefficiencies and revised production costs on the remaining vehicles still to be delivered under this contract.” The revisions led to a $24 million loss on the contract in the quarter and drove Textron Systems’ operating profit down in the quarter, he said.
Donnelly said that the issues around the TAPV program include things like finishing and painting, which are leading to increased build and material costs. He said none of these issues are “rocket science,” but nonetheless have led to more costs and rework.
The loss on the TAPV program was partially offset by increased efficiencies in the unmanned systems portfolio, Donnelly said.
Profits at Textron Aviation fell by more than half on the lower sales that tended toward lower margin products.
Earlier this week the second Scorpion production jet successfully completed its first flight test, Donnelly said. Textron has offered to demonstrate the Scorpion and its AT-6, a variant of its T-6 trainer, to the Air Force later this summer as part of the service’s Light Attack Aircraft Experiment. In another month Textron will know if it will be invited to participate in the experiment, he said.
Donnelly said the company continues to pursue potential international opportunities for the Scorpion, adding that for better or worse, foreign customers are monitoring the Air Force Light Attack Aircraft Experiment program.
Bell’s profit was up a percent in the quarter due to improved performance.
Textron lowered its earnings guidance for the year to account for dilution from the Arctic Cat acquisition. Earnings are expected to be between $2.22 EPS and $2.45 EPS versus prior expectations of between $2.40 EPS and $2.65 EPS.
Backlog at the end of the quarter stood at $8.4 billion, up $200 million since the end of 2016, driven by an increase at Bell.