Textron Reports Third Quarter 2019 Results

October 17, 2019
  • EPS of $0.95, up 56% from adjusted EPS a year ago
  • Operating margin of 9.1%, up from 7.7% a year ago
  • $109 million returned to shareholders through share repurchases
  • Full-year EPS guidance narrowed to a range of $3.70 to $3.80
  • Full-year cash flow guidance revised to a range of $600 to $700 million

PROVIDENCE, R.I.--(BUSINESS WIRE)-- Textron Inc. (NYSE: TXT) today reported third quarter 2019 net income of $0.95 per share, compared to $0.61 per share last year of adjusted net income, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, or net income of $2.26 per share in the third quarter of 2018, which included the gain on the sale of the Tools & Test product line of $1.65 per share.

“Revenues were higher in the quarter primarily driven by Textron Aviation and Industrial, and we continued to have good execution with solid margin performance across our businesses,” said Textron Chairman and CEO Scott C. Donnelly.

Cash Flow

Net cash provided by operating activities of the manufacturing group for the third quarter totaled $238 million, compared to $319 million in last year’s third quarter. Manufacturing cash flow before pension contributions, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, totaled $181 million compared to $259 million last year.

In the quarter, Textron returned $109 million to shareholders through share repurchases.

Outlook

Textron now expects 2019 earnings per share to be in a range of $3.70 to $3.80.

The company revised its expectation for manufacturing cash flow before pension contributions to $600 to $700 million, from $700 to $800 million. Expected pension contributions remain at about $50 million.

Third Quarter Segment Results

Textron Aviation

Revenues at Textron Aviation of $1.2 billion were up $68 million from last year’s third quarter, primarily due to higher jet and aftermarket volume, partially offset by lower defense volume.

Textron Aviation delivered 45 jets, up from 41 last year, and 39 commercial turboprops, down from 43 last year.

Segment profit was $104 million in the third quarter, up $5 million from a year ago due to the higher volume and mix and favorable performance, partially offset by higher net inflation.

Textron Aviation backlog at the end of the third quarter was $1.9 billion.

Bell

Bell revenues were $783 million, up $13 million from last year on higher commercial revenues, partially offset by lower military volume.

Bell delivered 42 commercial helicopters in the quarter, down from 43 last year.

Segment profit of $110 million was down $3 million from a year ago, primarily due to an unfavorable impact from performance which included lower net favorable program adjustments, partially offset by higher volume and mix.

Bell backlog at the end of the third quarter was $5.6 billion.

Textron Systems

Revenues at Textron Systems were $311 million, down $41 million from last year, primarily reflecting lower armored vehicle volume at Textron Marine & Land Systems.

Segment profit of $31 million was up $2 million from last year’s third quarter.

Textron Systems’ backlog at the end of the third quarter was $1.4 billion.

Industrial

Industrial revenues of $950 million increased $20 million from a year ago, primarily related to a favorable impact from pricing within the Textron Specialized Vehicles product line.

Segment profit was up $46 million from the third quarter of 2018, largely due to favorable performance and a favorable impact from net pricing, primarily related to the Specialized Vehicles product line.

Finance

Finance segment revenues were down $1 million, and profit was up $2 million from last year’s third quarter.

Conference Call Information

Textron will host its conference call today, October 17, 2019 at 8:00 a.m. (Eastern) to discuss its results and outlook. The call will be available via webcast at www.textron.com or by direct dial at (800) 230-1951 in the U.S. or (612) 288-0340 outside of the U.S. (request the Textron Earnings Call).

In addition, the call will be recorded and available for playback beginning at 10:30 a.m. (Eastern) on Thursday, October 17, 2019 by dialing (320) 365-3844; Access Code: 457172.

A package containing key data that will be covered on today’s call can be found in the Investor Relations section of the company’s website at www.textron.com.

About Textron Inc.

Textron Inc. is a multi-industry company that leverages its global network of aircraft, defense, industrial and finance businesses to provide customers with innovative solutions and services. Textron is known around the world for its powerful brands such as Bell, Cessna, Beechcraft, Hawker, Jacobsen, Kautex, Lycoming, E-Z-GO, Arctic Cat, Textron Systems, and TRU Simulation + Training. For more information visit: www.textron.com.

Forward-looking Information

Certain statements in this release and other oral and written statements made by us from time to time are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which may describe strategies, goals, outlook or other non-historical matters, or project revenues, income, returns or other financial measures, often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “guidance,” “project,” “target,” “potential,” “will,” “should,” “could,” “likely” or “may” and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update or revise any forward-looking statements. In addition to those factors described in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q under “Risk Factors”, among the factors that could cause actual results to differ materially from past and projected future results are the following: Interruptions in the U.S. Government’s ability to fund its activities and/or pay its obligations; changing priorities or reductions in the U.S. Government defense budget, including those related to military operations in foreign countries; our ability to perform as anticipated and to control costs under contracts with the U.S. Government; the U.S. Government’s ability to unilaterally modify or terminate its contracts with us for the U.S. Government’s convenience or for our failure to perform, to change applicable procurement and accounting policies, or, under certain circumstances, to withhold payment or suspend or debar us as a contractor eligible to receive future contract awards; changes in foreign military funding priorities or budget constraints and determinations, or changes in government regulations or policies on the export and import of military and commercial products; volatility in the global economy or changes in worldwide political conditions that adversely impact demand for our products; volatility in interest rates or foreign exchange rates; risks related to our international business, including establishing and maintaining facilities in locations around the world and relying on joint venture partners, subcontractors, suppliers, representatives, consultants and other business partners in connection with international business, including in emerging market countries; our Finance segment’s ability to maintain portfolio credit quality or to realize full value of receivables; performance issues with key suppliers or subcontractors; legislative or regulatory actions, both domestic and foreign, impacting our operations or demand for our products; our ability to control costs and successfully implement various cost-reduction activities; the efficacy of research and development investments to develop new products or unanticipated expenses in connection with the launching of significant new products or programs; the timing of our new product launches or certifications of our new aircraft products; our ability to keep pace with our competitors in the introduction of new products and upgrades with features and technologies desired by our customers; pension plan assumptions and future contributions; demand softness or volatility in the markets in which we do business; cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or, operational disruption; difficulty or unanticipated expenses in connection with integrating acquired businesses; the risk that acquisitions do not perform as planned, including, for example, the risk that acquired businesses will not achieve revenue and profit projections; the impact of changes in tax legislation; and the impact of the review of strategic alternatives for our Kautex business and any resulting transaction on Textron and on Kautex on a standalone basis, uncertainties as to the terms, structure and timing of any transaction and if a transaction will be completed, and whether the benefits of any transaction can be achieved.

TEXTRON INC.
Revenues by Segment and Reconciliation of Segment Profit to Net Income

(Dollars in millions, except per share amounts)
(Unaudited)
 
Three Months Ended Nine Months Ended
September 28,
2019
September 29,
2018
September 28,
2019
September 29,
2018
REVENUES
MANUFACTURING:
Textron Aviation

$

1,201

 

$

1,133

 

$

3,458

 

$

3,419

 

Bell

 

783

 

 

770

 

 

2,293

 

 

2,353

 

Textron Systems

 

311

 

 

352

 

 

926

 

 

1,119

 

Industrial

 

950

 

 

930

 

 

2,871

 

 

3,283

 

 

3,245

 

 

3,185

 

 

9,548

 

 

10,174

 

 
FINANCE

 

14

 

 

15

 

 

47

 

 

48

 

Total revenues

$

3,259

 

$

3,200

 

$

9,595

 

$

10,222

 

 
SEGMENT PROFIT
MANUFACTURING:
Textron Aviation

$

104

 

$

99

 

$

315

 

$

275

 

Bell

 

110

 

 

113

 

 

317

 

 

317

 

Textron Systems

 

31

 

 

29

 

 

108

 

 

119

 

Industrial

 

47

 

 

1

 

 

173

 

 

145

 

 

292

 

 

242

 

 

913

 

 

856

 

 
FINANCE

 

5

 

 

3

 

 

17

 

 

14

 

Segment Profit

 

297

 

 

245

 

 

930

 

 

870

 

 
Corporate expenses and other, net

 

(17

)

 

(29

)

 

(88

)

 

(107

)

Interest expense, net for Manufacturing group

 

(39

)

 

(32

)

 

(110

)

 

(101

)

Gain on business disposition (a)

 

-

 

 

444

 

 

-

 

 

444

 

Income before income taxes

 

241

 

 

628

 

 

732

 

 

1,106

 

Income tax expense

 

(21

)

 

(65

)

 

(116

)

 

(130

)

Net Income

$

220

 

$

563

 

$

616

 

$

976

 

 
Earnings Per Share (EPS)

$

0.95

 

$

2.26

 

$

2.64

 

$

3.80

 

 
Diluted average shares outstanding

 

231,097,000

 

 

249,378,000

 

 

233,689,000

 

 

256,780,000

 

 
Net Income and Diluted Earnings Per Share GAAP to Non-GAAP Reconciliation:
 
Three Months Ended
September 29,
2018
Nine Months Ended
September 29,
2018
Diluted EPS Diluted EPS
Net income - GAAP

$

563

 

$

2.26

 

$

976

 

$

3.80

 

Gain on business disposition, net of taxes of $34 million

 

(410

)

 

(1.65

)

 

(410

)

 

(1.60

)

Adjusted net income - Non-GAAP (b)

$

153

 

$

0.61

 

$

566

 

$

2.20

 

 
 
(a) On July 2, 2018, Textron completed the sale of the Tools & Test Equipment product line and recorded an after-tax gain of $410 million, subject to post-closing adjustments.

(b)

Adjusted net income and adjusted diluted earnings per share are non-GAAP financial measures as defined in "Non-GAAP Financial Measures" attached to this release.

Textron Inc.
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)
 
 
September 28,
2019
December 29,
2018
Assets
Cash and equivalents

$

931

 

$

987

 

Accounts receivable, net

1,018

 

1,024

 

Inventories

4,436

 

3,818

 

Other current assets

856

 

785

 

Net property, plant and equipment

2,497

 

2,615

 

Goodwill

2,142

 

2,218

 

Other assets

2,225

 

1,800

 

Finance group assets

957

 

1,017

 

Total Assets

$

15,062

 

$

14,264

 

 
 
Liabilities and Shareholders' Equity
Short-term debt and current portion of long-term debt

$

568

 

$

258

 

Current liabilities

3,198

 

3,248

 

Other liabilities

2,130

 

1,932

 

Long-term debt

2,909

 

2,808

 

Finance group liabilities

805

 

826

 

Total Liabilities

9,610

 

9,072

 

 
Total Shareholders' Equity

5,452

 

5,192

 

Total Liabilities and Shareholders' Equity

$

15,062

$

14,264

 

TEXTRON INC.

MANUFACTURING GROUP

Condensed Schedule of Cash Flows

(In millions)

(Unaudited)

 

Three Months Ended

 

Nine Months Ended

September 28,
2019

September 29,
2018

 

September 28,
2019

September 29,
2018

Cash flows from operating activities:
Net income

$

216

 

$

561

 

$

603

 

$

959

 

Depreciation and amortization

 

98

 

 

104

 

 

297

 

 

316

 

Changes in working capital

 

(124

)

 

74

 

 

(840

)

 

(204

)

Changes in other assets and liabilities and non-cash items

 

48

 

 

24

 

 

95

 

 

57

 

Gain on business disposition

 

-

 

 

(444

)

 

-

 

 

(444

)

Dividends received from TFC

 

-

 

 

-

 

 

50

 

 

50

 

Net cash from operating activities of continuing operations

 

238

 

 

319

 

 

205

 

 

734

 

Cash flows from investing activities:
Capital expenditures

 

(81

)

 

(74

)

 

(216

)

 

(233

)

Net proceeds from business disposition

 

-

 

 

807

 

 

-

 

 

807

 

Net proceeds from corporate-owned life insurance policies

 

-

 

 

-

 

 

4

 

 

98

 

Proceeds from the sale of property, plant and equipment

 

2

 

 

2

 

 

6

 

 

12

 

Other investing activities, net

 

-

 

 

(3

)

 

-

 

 

(3

)

Net cash from investing activities

 

(79

)

 

732

 

 

(206

)

 

681

 

Cash flows from financing activities:
Increase in short-term debt

 

118

 

 

-

 

 

118

 

 

-

 

Net proceeds from issuance of long-term debt

 

-

 

 

-

 

 

297

 

 

-

 

Purchases of Textron common stock

 

(109

)

 

(468

)

 

(470

)

 

(1,383

)

Other financing activities, net

 

(1

)

 

16

 

 

8

 

 

49

 

Net cash from financing activities

 

8

 

 

(452

)

 

(47

)

 

(1,334

)

Total cash flows from continuing operations

 

167

 

 

599

 

 

(48

)

 

81

 

Total cash flows from discontinued operations

 

(1

)

 

-

 

 

(2

)

 

(1

)

Effect of exchange rate changes on cash and equivalents

 

(10

)

 

(3

)

 

(6

)

 

(9

)

Net change in cash and equivalents

 

156

 

 

596

 

 

(56

)

 

71

 

Cash and equivalents at beginning of period

 

775

 

 

554

 

 

987

 

 

1,079

 

Cash and equivalents at end of period

$

931

 

$

1,150

 

$

931

 

$

1,150

 

 
Manufacturing Cash Flow GAAP to Non-GAAP Reconciliation:

Three Months Ended

 

Nine Months Ended

September 28,
2019

September 29,
2018

 

September 28,
2019

September 29,
2018

Net cash from operating activities of continuing operations - GAAP

$

238

 

$

319

 

$

205

 

$

734

 

Less: Capital expenditures

 

(81

)

 

(74

)

 

(216

)

 

(233

)

Dividends received from TFC

 

-

 

 

-

 

 

(50

)

 

(50

)

Plus: Total pension contributions

 

11

 

 

12

 

 

36

 

 

37

 

Taxes paid on gain on business disposition

 

11

 

 

-

 

 

11

 

 

-

 

Proceeds from the sale of property, plant and equipment

 

2

 

 

2

 

 

6

 

 

12

 

Manufacturing cash flow before pension contributions - Non-GAAP (a)

$

181

 

$

259

 

$

(8

)

$

500

 

 

(a)

Manufacturing cash flow before pension contributions is a non-GAAP financial measure as defined in "Non-GAAP Financial Measures" attached to this release.

TEXTRON INC.

Condensed Consolidated Schedule of Cash Flows

(In millions)

(Unaudited)

 

Three Months Ended

 

Nine Months Ended

September 28,
2019

September 29,
2018

 

September 28,
2019

September 29,
2018

Cash flows from operating activities:
Net Income

$

220

 

$

563

 

$

616

 

$

976

 

Depreciation and amortization

 

100

 

 

106

 

 

302

 

 

322

 

Changes in working capital

 

(84

)

 

50

 

 

(787

)

 

(214

)

Changes in other assets and liabilities and non-cash items

 

49

 

 

24

 

 

94

 

 

57

 

Gain on business disposition

 

-

 

 

(444

)

 

-

 

 

(444

)

Net cash from operating activities of continuing operations

 

285

 

 

299

 

 

225

 

 

697

 

Cash flows from investing activities:
Capital expenditures

 

(81

)

 

(74

)

 

(216

)

 

(233

)

Net proceeds from business disposition

 

-

 

 

807

 

 

-

 

 

807

 

Net proceeds from corporate-owned life insurance policies

 

-

 

 

-

 

 

4

 

 

98

 

Finance receivables repaid

 

-

 

 

-

 

 

20

 

 

25

 

Other investing activities, net

 

2

 

 

7

 

 

9

 

 

37

 

Net cash from investing activities

 

(79

)

 

740

 

 

(183

)

 

734

 

Cash flows from financing activities:
Increase in short-term debt

 

118

 

 

-

 

 

118

 

 

-

 

Net proceeds from issuance of long-term debt

 

-

 

 

-

 

 

297

 

 

-

 

Principal payments on long-term debt and nonrecourse debt

 

(7

)

 

(23

)

 

(42

)

 

(60

)

Purchases of Textron common stock

 

(109

)

 

(468

)

 

(470

)

 

(1,383

)

Other financing activities, net

 

(1

)

 

17

 

 

9

 

 

53

 

Net cash from financing activities

 

1

 

 

(474

)

 

(88

)

 

(1,390

)

Total cash flows from continuing operations

 

207

 

 

565

 

 

(46

)

 

41

 

Total cash flows from discontinued operations

 

(1

)

 

-

 

 

(2

)

 

(1

)

Effect of exchange rate changes on cash and equivalents

 

(10

)

 

(3

)

 

(6

)

 

(9

)

Net change in cash and equivalents

 

196

 

 

562

 

 

(54

)

 

31

 

Cash and equivalents at beginning of period

 

857

 

 

731

 

 

1,107

 

 

1,262

 

Cash and equivalents at end of period

$

1,053

 

$

1,293

 

$

1,053

 

$

1,293

 

 

TEXTRON INC.
Non-GAAP Financial Measures
(Dollars in millions, except per share amounts)

We supplement the reporting of our financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial measures. These non-GAAP financial measures exclude certain significant items that may not be indicative of, or are unrelated to, results from our ongoing business operations. We believe that these non-GAAP measures may be useful for period-over-period comparisons of underlying business trends and our ongoing business performance, however, they should be used in conjunction with GAAP measures. Our non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define similarly named measures differently. We encourage investors to review our financial statements and publicly-filed reports in the entirety and not to rely on any single financial measure. We utilize the following definition for the non-GAAP financial measure included in this release:

Net income and adjusted diluted earnings per share

Net income and adjusted diluted earnings per share exclude Gain on business disposition, net of taxes. The Gain on business disposition is not considered indicative of ongoing operations as it is a significant one-time transaction related to the sale of our Tools and Test product line.

Manufacturing cash flow before pension contributions

Manufacturing cash flow before pension contributions adjusts net cash from operating activities (GAAP) for the following:

  • Deducts capital expenditures and includes proceeds from the sale of property, plant and equipment to arrive at the net capital investment required to support ongoing manufacturing operations;
  • Excludes dividends received from Textron Financial Corporation (TFC) and capital contributions to TFC provided under the Support Agreement and debt agreements as these cash flows are not representative of manufacturing operations;
  • Adds back pension contributions as we consider our pension obligations to be debt-like liabilities. Additionally, these contributions can fluctuate significantly from period to period and we believe that they are not representative of cash used by our manufacturing operations during the period.
  • Excludes taxes paid related to the gain realized in 2018 on the Tools and Test business disposition. We have made this adjustment to the non-GAAP measure because we believe this use of cash is not representative of cash used by our manufacturing operations.

While we believe this measure provides a focus on cash generated from manufacturing operations, before pension contributions, and may be used as an additional relevant measure of liquidity, it does not necessarily provide the amount available for discretionary expenditures since we have certain non-discretionary obligations that are not deducted from the measure.

Net Income and Diluted Earnings Per Share (EPS) GAAP to Non-GAAP Reconciliation and Outlook:
 
Three Months Ended
September 29,
2018
Nine Months Ended
September 29,
2018
Diluted EPS Diluted EPS
Net income - GAAP

$

563

$

2.26

$

976

 

$

3.80

Gain on business disposition, net of taxes of $34 million

(410

)

(1.65

)

(410

)

(1.60

)

Adjusted net income - Non-GAAP

$

153

$

0.61

$

566

 

$

2.20

 
 
Manufacturing Cash Flow Before Pension Contributions GAAP to Non-GAAP Reconciliation and Outlook:
 
Three Months Ended

 

Nine Months Ended
September 28,
2019
September 29,
2018

 

September 28,
2019
September 29,
2018
Net cash from operating activities of continuing operations - GAAP

$

238

$

319

 

$

205

 

$

734

Less: Capital expenditures

(81

)

(74

)

 

(216

)

(233

)

Dividends received from TFC

-

-

 

(50

)

(50

)

Plus: Total pension contributions

11

12

 

36

37

Taxes paid on gain on business disposition

11

-

 

11

-

Proceeds from the sale of property, plant and equipment

2

2

 

6

12

Manufacturing cash flow before pension contributions - Non-GAAP

$

181

$

259

 

$

(8

)

 

$

500

 

 
2019 Outlook
Net cash from operating activities of continuing operations - GAAP

$

933

 

-

 

1,033

Less: Capital expenditures

 

 

(350)

Dividends received from TFC

 

(50)

Plus: Total pension contributions

 

50

Taxes paid on gain on business disposition

 

11

Proceeds from the sale of property, plant and equipment

 

6

Manufacturing cash flow before pension contributions - Non-GAAP

$

600

 

-

$

700

 

 

Investor Contacts:
Eric Salander – 401-457-2288
Jeffrey Trivella – 401-457-2288

Media Contact:
David Sylvestre – 401-457-2362

Source: Textron

Connect with Textron IR

Eric Salander, Vice President, Investor Relations
(401) 457-2288
Jeffrey Trivella, Manager,
Investor Relations (401) 457-2288

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