Textron [TXT] on Wednesday opened its fiscal year with lower top and bottom lines although the company’s overall operating performance was strong due to higher operating profits at its aircraft segments more than offset declines elsewhere.
Sales fell 6 percent to $3.1 billion from $3.3 billion and net income was also down 5 percent to $179 million, 76 cents earnings per share (EPS), from $189 million (72 cents EPS) versus a year ago. Per share results were higher than a year ago due to a lower share count as the company spent $202 million buying back its stock. The results eclipsed analysts’ expectations by 8 cents EPS.
Net income was down due largely to higher corporate expenses and a lesser degree higher income taxes, despite segment operating profit being up 5 percent to $294 million.
Overall segment profit was higher due to improved earnings at the Textron Aviation and Bell segments. Segment operating margin increased a percent to 9.5 percent.
Textron said profit increased at Aviation on increased deliveries of business jets and commercial turboprops and favorable operating performance while Bell’s bottom line benefited from favorable operating performance.
Profit was down at the Textron Systems and Industrial segments, with the systems business reporting fewer sales on lower deliveries of its Textron Armored Patrol Vehicle and lower volume in unmanned systems. The company is also booking zero margin in its Ship-to-Shore Connector program for the Navy, a program it eventually sees contributing to future growth and income, Scott Donnelly, Textron’s chairman and CEO, said during the company’s earnings call.
The first three Ship-to-Shore landing craft are under construction and Donnelly said the program will be a contributor to sales this year. The Navy didn’t request any funding in fiscal year 2020 for the program because there is a backlog of funding in FY ’17 through FY ’19 that has yet to be put under contract, he said, noting there’s “nothing sinister” in terms of the Navy’s thinking on Ship-to-Shore.
Textron is hoping the Navy adds back some funding in FY ’20 for Ship-to-Shore “so we don’t have a break in terms of how we go and negotiate with our suppliers on anticipated volume,” Donnelly said. He also said negotiations with the Navy have begun on definitizing a production contract based on funding appropriated for the program the past three years.
The Navy’s FY ’20 budget request proposes to cut the purchase of landing craft from 32 to 21 through FY ’23. According to budget documents and Navy officials, the landing craft were cut due to contractual delays
in fiscal years 2017, 2018 and 2019 and delivery delays for craft awarded in FY ’15 and FY ’16, resulting in program underexecution (Defense Daily, March 15).
Navy officials said there have been challenges in testing as well as integrating new systems, particularly electrical systems stability and command, control, communications, computers and navigation (C4N) (Defense Daily, April 3).
Textron’s sales fell on declines at Industrial, Bell and Textron Systems. At Bell, revenue was down on fewer commercial helicopter deliveries.
Donnelly also said that Textron is “pleased” with the funding the Army is proposing over the next five years for its Future Vertical Lift programs. He noted the Army wants more funding for the Future Long-Range Assault Aircraft (FLRAA) program to continue flight-testing and begin procurement sooner than currently planned.
Bell has been flight-testing its V-280 Valor advanced tiltrotor aircraft as part of a technology demonstration effort by the Army to help shape requirements for the FLRAA.
Textron left its guidance for 2019 intact with earnings from continuing operations expected to be between $3.55 and $3.75 EPS. Cash flow from its manufacturing segments remains pegged at pegged at between $700 million to $800 million before planned pension contributions of about $50 million. In the first quarter, cash was a $291 million outflow.
Backlog at the end of the quarter stood at $9.7 billion, up about $600 million since the end of 2018.