Providence, RI - October 19, 2000 - Textron Inc. (NYSE: TXT) today reported third-quarter diluted earnings per share of $1.08, up 14% from $0.95 in 1999, marking the company's 44th consecutive quarter, or eleven years, of earnings improvement.
Revenues for the quarter increased to $3.1 billion, up 16% from $2.7 billion, with organic sales growth of 8.5% before a negative 1.7% impact of foreign exchange.
Operating income improved 18% to $333 million from $283 million and net income increased to $158 million from $146 million a year ago.
Textron Chairman and Chief Executive Officer Lewis B. Campbell said, "We are seeing significant strengthening in the organic growth of our marquee-branded businesses, such as Cessna, Bell, Kautex, E-Z-GO and Greenlee. This improved level of growth is a reflection of the strength of our global, all-star brands in their respective markets. However, certain of our Industrial markets, particularly the construction equipment market, experienced a slowdown during the quarter. Delivering 14% earnings per share growth required the determination of Textron's management and its employees and reflects operating efficiencies we continue to achieve through the Textron Quality Management (TQM) process."
Campbell continued, "However, we expect continued softness in a number of our Industrial markets and have determined that we must immediately accelerate the cost improvement activities of our TQM process through a restructuring plan." Under this plan, Textron will close and consolidate a number of manufacturing facilities, primarily within its Industrial segment.
The Company expects to finalize the restructuring plan in the fourth quarter and incur non-recurring charges over the next four to five quarters, as the actions are implemented. Textron estimates these charges, exclusive of any associated goodwill write-downs and before the effect of taxes, will be about $200 million in aggregate.
"These actions will allow us to continue to post double-digit operating earnings per share growth and position us for even stronger growth beyond 2001. We are intensely focused on restoring and increasing shareholder value by continuously improving the returns of our businesses," said Campbell.
Third Quarter Discussion
- In Aircraft, revenue growth was driven by increased demand reflected in a record backlog and increased sold out positions of Cessna Citation business jets, new product launches at both Bell and Cessna, and the beginning of a gradually improving commercial helicopter environment for Bell Helicopter. In addition, improved profitability in the segment reflected improved delivery scheduling at Cessna and supply chain management initiatives.
- Earlier this month, Marine Corps officials announced that the MV-22 Osprey has been judged operationally suitable for land-based operations, validating eight months of comprehensive evaluation and moving the tiltrotor a major step closer to full-rate production. Bell remains on track to deliver eight V-22 tiltrotors this year. The current total requirement among the Marines, Navy and Air Force is for 458 V-22 Ospreys for production through 2014.
- Textron's Aircraft segment expects full-year ROIC improvement of 200 - 250 basis points to the 17% level this year.
- Textron's Automotive segment posted a slight sales increase and solid double-digit operating income growth, increasing margins 70 basis points, primarily as a result of cost cutting initiatives. These results were achieved despite a 2% negative foreign exchange impact to sales, pricing concessions and reduced volumes on certain car platforms.
- Textron's Automotive segment expects full-year ROIC improvement of 200 - 250 basis points to the 16% level this year, significantly above the automotive supplier industry standard.
- The Industrial segment achieved double-digit revenue growth, while operating income decreased slightly.
- Textron Fastening Systems revenues were up slightly during the quarter, primarily as a result of acquisitions in the Advanced Solutions Group. Partially offsetting these results were mainly the adverse impact of foreign exchange for European operations and lower volumes in the automotive and heavy truck industry.
- Textron Fastening Systems improved its operating margin in the third quarter.
- Industrial Products experienced slowing in the fluid handling, power transmission, and light construction markets. OmniQuip's sales were significantly down year-over-year on a pro forma basis and the business posted an operating loss for the quarter, adversely impacting Industrial Products' operating margin.
- Strong organic sales growth in the Golf and Turf Group and Greenlee Textron of 13% and 14% (exclusive of foreign exchange), respectively, as well as the contribution from other acquisitions, continued growth in the motion control industry and government contract-driven businesses partially offset this weakness.
- The large number of recent acquisitions in the segment adversely impacts current ROIC levels in Industrial. Currently at the 9-10% level, Textron expects the Industrial segment's ROIC to improve to the 15-16% level over the next five years.
- The Finance segment reported 51% revenue growth, including a 21% increase in organic sales, while operating income was up 29%. Currently impacted by recent acquisitions, Textron's Finance segment expects ROIC improvement from the current 12-13% level to 16% by 2004.
2000 and 2001 Outlook
The Company now expects full-year 2000 earnings per share will be within the range of $4.65 to $4.68, reflecting a full-year increase in earnings per share of approximately 15% before possible restructuring charges that may be taken during the fourth quarter. Textron estimates 2001 earnings per share will be up 13% to 15%, before restructuring charges that may be taken in 2001. Campbell said, "We will determine how quickly we can achieve incremental cost savings from our restructuring plans. Depending on next year's economic environment and how our restructuring plans develop, we may be able to deliver at the upper end of that range."
Share Repurchase
During the third quarter Textron repurchased about 900,000 shares. At the end of the quarter, the Company had 5.4 million shares remaining in its repurchase authorization from the Board. Campbell concluded, "Our financial expectations remain very attractive and are fundamentally disconnected from our current share price. As long as our share price remains at these levels, we plan to actively execute our share buyback program."
Textron Inc. (www.textron.com) is an $11.6 billion, global, multi-industry company with market-leading businesses in Aircraft, Automotive, Industrial and Finance. Textron has a workforce of over 68,000 employees and major manufacturing facilities in 30 countries. Textron is among Fortune magazine's "Global Most Admired Companies" and Industry Week magazine's "Best Managed Companies."
Forward-looking Information: Certain statements in this release are forward-looking statements, including those that discuss strategies, goals, outlook or other non-historical matters; or project revenues, income, returns or other financial measures. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the statements, including the following: (a) the extent to which Textron is able to implement and complete restructuring activities (b) the extent which Textron is able to successfully integrate acquisitions, © changes in worldwide economic and political conditions and associated impact on interest and foreign exchange rates, (d) the occurrence of work stoppages and strikes at key facilities of Textron or Textron's customers or suppliers, (e) the extent to which the Company is able to successfully develop, introduce, and launch new products and enter new markets, (f) the level of government funding for Textron products, and (g) successful implementation of e-procurement strategies. For the Aircraft Segment: (a) the timing of certifications of new aircraft products (b) the occurrence of a severe downturn in the U.S. economy that discourages businesses from purchasing business jets and © final contract negotiations for foreign government programs. For the Automotive Segment: (a) the level of consumer demand for the vehicle models for which Textron supplies parts to automotive original equipment manufacturers ("OEM's") and (b) the ability to offset, through cost reductions, raw material price increases and pricing pressure brought by automotive OEM customers. For the Industrial Segment: (a) the ability of Textron Fastening Systems to offset, through cost reductions, pricing pressure brought by automotive OEM customers and (b) improved sales at OmniQuip. For the Finance Segment: (a) the level of sales of Textron products for which TFC offers financing and (b) the ability of TFC to maintain credit quality and control costs when entering new markets.
TEXTRON SEGMENT ANALYSIS
Aircraft
The Aircraft segment's revenues and income increased 22% and 40%, respectively.
- Cessna's revenues increased due to higher sales of business jets, primarily the Citation Excel and the Citation Bravo, and increased spares and service revenues. Income increased as a result of the higher sales and improved operating performance. Cessna's backlog increased to a record $6.1 billion from $5.6 billion at the end of the second quarter. This includes approximately $221 million of backlog from the new CitationShares fractional ownership program.
- Bell Helicopter's revenues increased as a result of higher sales of commercial helicopters and spares and higher foreign military sales. Bell's income increased due to the higher revenues, higher income related to pension benefits and lower product development costs, primarily due to lower spending on the Bell 427 helicopter, which took first delivery in the third quarter. This favorable impact was partially offset by the lower recognition into income of cash received in the fourth quarter of 1998 on the formation of a joint venture on the BA 609 program. Bell's backlog decreased to $1.8 billion from $1.9 billion at the end of the second quarter, primarily as a result of the delivery of V-22 aircraft.
Automotive
The Automotive segment's revenues increased 1%, while income increased 13%. Revenues increased slightly due to the contribution from the Plascar acquisition and increased sales volume at Kautex. The higher revenues were partially offset by lower DaimlerChrysler volume at Trim, customer price reductions and the unfavorable impact of foreign exchange at Kautex's European operations. Increased income and a 70 basis point improvement to operating margin was due to the higher sales and improved operating performance. Improved operating performance at Trim offset the negative impact of higher petroleum-based resin prices and engineering and design expense.
Industrial
The Industrial segment's revenues increased 15%, while income decreased 2%.
- Textron Fastening Systems revenues increased slightly, reflecting the contribution from acquisitions, primarily InteSys Technologies. Partially offsetting this increase in revenues was the unfavorable impact of foreign exchange in its European operations and lower volumes in the automotive and heavy truck industries. Income increased due to improved operating performance in Commercial Solutions and the benefit of acquisitions, partially offset by lower sales and unfavorable operating performance related to the heavy truck fastener businesses.
- Textron Industrial Products revenues increased as a result of the contribution from acquisitions, primarily OmniQuip, and higher organic sales at Golf and Turf, Greenlee, Motion Control Products and Textron Marine and Land Systems. This increase in revenue was partially offset by lower revenues, primarily at Textron Systems, due to a change in contract mix and reduced customer requirements, and lower demand at Fluid Handling Products, Turbine Engine Components and Power Transmission Products. Income decreased in Industrial Products primarily as a result of a loss during the third quarter 2000 at OmniQuip and a $6 million gain on the sale of a product line during the third quarter 1999, which was partially offset by the benefit from other acquisitions and higher income related to pension benefits.
Finance
- The Finance segment's revenues increased 51% due to a higher level of average receivables, reflecting a balance of both acquisitive and organic growth, a higher yield on receivables, and higher securitization and syndication income. Income increased 29% as the benefit of the higher revenues was partially offset by higher expenses related to growth in managed receivable and higher goodwill amortization associated with acquisitions.
Corporate Expenses and Other - Net
Corporate expenses and other - net, decreased $3 million due primarily to higher income related to pension benefits.
Interest Income and Expense - Net
Net interest for Textron manufacturing increased $35 million from the third quarter 1999, due to the re-leveraging that occurred following the divestiture of AFS. Interest expense increased $31 million due to a higher level of average debt as a result of acquisitions and share repurchases. In 1999, Textron realized interest income of $4 million as a result of its net investment position.
Income Taxes
The current quarter's effective income tax rate of 36.2% was lower than the corresponding prior year rate of 37.2%, due primarily to the benefit of tax planning initiatives that are being realized in 2000.
RECENT COMPANY HIGHLIGHTS
Corporate
- In August, Textron was selected by Industry Week magazine as one of the "World's 100 Best-Managed Companies" in the manufacturing industry. The selection was based on operating goals, financial performance, practices in philanthropy and safety, and innovative management strategies. Candidates for the "World's 100 Best-Managed Companies" were chosen by IndustryWeek editors and an international panel of over 90 key business leaders, financial analysts and academicians.
- In October, Textron was recognized by Fortune magazine as a "Global Most Admired Company." The selection was made by senior executives and board members of companies in relevant industries, as well as financial analysts who cover these industries. The selection was based upon criteria such as innovation, management quality and financial performance.
Aircraft
- During the quarter, Cessna began deliveries of the Citation Ultra Encore, an upgrade to the Citation Ultra providing improved mission flexibility, ground handling and maintainability. The Citation Ultra Encore is one of three new business jet models taking first delivery this year. The other two aircraft are the Citation CJ1 and CJ2.
- During the quarter, Bell Helicopter began deliveries of the Bell 427, a new four-bladed light-twin engine helicopter. The outstanding performance and value provided by this helicopter have already established a solid backlog of over $200 million.
Automotive
- In July, Jack Sights was named chairman, president and CEO of Textron Automotive. Sights, formerly the head of Textron Fastening Systems, replaced Sam Licavoli who was named chairman, president and CEO of Textron Industrial Products.
- between 2001 and 2004, including awards for Audi, Chrysler, Ford, General Motors, Mercedes, Mitsubishi, Nissan and Toyota car models. For the first nine months of this year, Textron Automotive has been awarded over $700 million in new business from global OEMs.
- During the quarter, Textron Automotive was recognized by global automakers with the following awards and honors for outstanding quality and innovation:
- Audi Quality Award 1999 for Kautex Textron
- Seat Quality Award Formel-Q 1999 for Kautex Textron's Iberica plant
- VW Quality Award Formel-Q 2000 for Kautex Textron's Ostfriesland plant
Industrial
- In August, Jake Hirsch was named chairman, president and CEO of Textron Fastening Systems. Hirsch, formerly president of Kautex Textron, replaced Jack Sights who was named chairman, president and CEO of Textron Automotive.
- During the quarter, Textron Fastening Systems announced the consolidation of their Commercial and Supply Chain Solutions. The consolidated group combines the manufacturing capability of Commercial Solutions with the inventory and distribution expertise of Supply Chain Solutions. William Barker was named as the new group president of the unit.
- In August, Textron Fastening Systems' Advanced Solutions Group acquired Rego Mold and Tool, a leading supplier of primary tooling and plastic injection molded components for wireless communications market and other market. Rego adds to the fast growing Advanced Solutions group, which also comprises InteSys Technologies and Advantage Molding & Tooling.
- In August, Textron announced the appointment of Neil Feola as president and chief executive officer of OmniQuip Textron, a leading supplier of light construction equipment including telescopic material handlers, aerial work platforms and skid steer loaders. Feola replaces P. Enoch Stiff.
- In October, Textron Fastening Systems named Leonard Griffin as president of the Advanced Solutions Group, a leading supplier of plastic injection molded products to the wireless communications industry and other markets. Finance
- In September, AssetControl.com, Textron Financial's B2B e-commerce marketplace for the management and disposition of industrial equipment, excess inventory and other assets for Fortune 1000 companies, announced a new, web-based service for the disposition of surplus real estate through the CB Richard Ellis global network of real estate professionals.
- In September, Textron Financial formed an alliance with QLender to offer small business lending services via the Internet. Through Qlender's website, a small business user is able, with the services of Textron Financial, to apply for equipment financing, capital to support its franchise, a Small Business Administration guaranteed loan and other commercial finance offerings.
TEXTRON INC.
THIRD QUARTER AND NINE MONTHS
(Dollars in millions except per share amounts)
Third Quarter Nine Months
September October September October
30, 2, 30, 2,
2000 1999 2000 1999
Revenues $ 3,134 $ 2,709 $ 9,593 $ 8,345
Income before
income taxes $ 257 $ 242 $ 804 $ 750
Income taxes (93) (90) (290) (278)
Distribution on
preferred
securities of
manufacturing
subsidiary
trust, net of
income taxes (6) (6) (19) (19)
Income from
continuing
operations 158 146 495 453
Discontinued
operation, net
of income
taxes (a) -- -- -- 1,615
Extraordinary
loss on
retirement of
debt, net of
income taxes -- -- -- (43)
Cumulative effect
of change in
accounting
principle, net
of income
taxes (b) -- -- (59) --
Net income $ 158 $ 146 $ 436 $ 2,025
Diluted earnings
per share:
Income from
continuing
operations $ 1.08 $ 0.95 $ 3.37 $ 2.93
Discontinued
operation (a) -- -- -- 10.44
Extraordinary
loss on
retirement of
debt -- -- -- (0.27)
Cumulative
effect of
change in
accounting
principle (b) -- -- (0.40) --
Net income $ 1.08 $ 0.95 $ 2.97 $ 13.10
Average shares
outstanding 145,325,000 153,406,000 146,911,000 154,654,000
(a) The gain on the sale of Avco Financial Services, Inc. which was
sold to Associates First Capital Corporation on January 6, 1999 was
recorded in the Q1 1999 results.
(b) At its September 23, 1999 meeting, the Emerging Issues Task Force
adopted EITF 99-5 which requires certain pre-production engineering
costs to be expensed as incurred. Textron adopted the cumulative
effect of this accounting change, in January, 2000.
TEXTRON INC.
REVENUES AND INCOME BY BUSINESS SEGMENT
THIRD QUARTER AND NINE MONTHS
(In millions)
Third Quarter Nine Months
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
REVENUES
MANUFACTURING:
Aircraft $ 1,097 $ 899 $ 2,958 $ 2,611
Automotive 669 662 2,294 2,153
Industrial 1,184 1,026 3,835 3,259
2,950 2,587 9,087 8,023
FINANCE 184 122 506 322
Total revenues $ 3,134 $ 2,709 $ 9,593 $ 8,345
INCOME
MANUFACTURING:
Aircraft $ 127 $ 91 $ 312 $ 233
Automotive 43 38 198 162
Industrial 114 116 397 371
284 245 907 766
FINANCE 49 38 134 94
Segment operating
income 333 283 1,041 860
Special (charges)
credits (c) -- 3 -- 1
Corporate expenses
and other - net ( c) (34) (37) (121) (110)
Interest income -- 4 -- 26
Interest expense (42) (11) (116) (27)
Income before income
taxes $ 257 $ 242 $ 804 $ 750
(c) The third quarter 1999 results reflected a gain of $19 million as
a result of shares granted to Textron from Manulife Financial Corp.'s
initial public offering on their demutualization of Manufacturers Life
Insurance Company. This benefit was offset by additional restructuring
reserves for the Industrial segment ($16M), and a contribution of
Manulife shares to the Textron Charitable Trust ($3M), which is
reflected in Corporate expenses and other - net.