Textron: The Original Bad Bank

Stories about a hypothetical Bad Bank are all the rage these days, or so I've been told. So let me tell you another one today: the story of a great industrialist who turned out to be a particularly miserable banker. Its name is Textron (NYSE: TXT  ) .

Textron reported its fiscal Q4 and full-year numbers last week, and they went a little something like this:

Bad bank
As revealed in December, Textron's "non-captive financial business" is ruining the company, and management has decided to exit the business. "Finance" cost Textron $50 million in profits last year, reversing a $222 million profit for the segment from the previous year. Management doesn't seem to hold much hope that things will improve in the midst of a particularly brutal global economy, so it's elected to take a total of more than $557 million in "one-time" (let's hope) charges.

Good industrialist
And yet, were it not for the financial-segment vampire draining this firm's lifeblood, Textron would probably be in decent shape. Last year, the firm's manufacturing operations generated some $357 million in free cash flow before certain adjustments. Sales were up in all four of the firm's major industrial divisions:

  • 59% at Textron Systems, where the firm's Shadow unmanned aerial vehicle appears to be competing effectively against UAVs offered by Lockheed Martin (NYSE: LMT  ) , Honeywell (NYSE: HON  ) and Northrop Grumman (NYSE: NOC  ) ;
  • 13% at Cessna, where Textron does battle with the likes of General Dynamics (NYSE: GD  ) and Embraer (NYSE: ERJ  ) for business jet sales;
  • 10% at Bell Helicopter, Boeing's (NYSE: BA  ) archrival;
  • … And even the "Industrial" business eked out a 3% rise in sales.

This year, management projects that free cash flow from its manufacturing better half will rise to $450 million, and that's just the beginning. Textron claims backlog at year-end 2008 rose some 23% year over year, hitting $23.2 billion. That's half again as fast as sales grew on the manufacturing side. With net income of $1.95 per share for the full year, and a current price of $8 and change, the stock looks like an out-and-out bargain to me.

Foolish takeaway
Unfortunately, Textron is shackled to its bad banking business. And this makes valuing the company an exceedingly dicey proposition. Against $531 million in cash and equivalents, Textron's manufacturing businesses claim a total of about $1.7 billion in long-term debt, which doesn't seem so bad. Whether this stock ever becomes worth owning again, however, depends on the fate of the $8.3 billion in obligations carried by Textron Financial -- and whether management can figure a way to unload 'em.

For further Foolishness on Textron, read:

Embraer is a Motley Fool Stock Advisor pick. Fool contributor Rich Smith owns shares of Boeing. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (24)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 02, 2009, at 7:15 PM, Varchild2008 wrote:

    I know!!! (HOG) Harley Davidson will buy Textron's bad bank and add it to their own:-)

  • Report this Comment On February 02, 2009, at 7:28 PM, Seano67 wrote:

    Eerily similar to how GE has been dragged into the ground by GE Capital.

    These companies are industrials and makers of heavy machinery, things which they do very, very well.....so what in the hell were they doing getting involved in the finance business in the first place? Why not leave the finance to the bankers, and just focus on doing what you do best????

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 822655, ~/Articles/ArticleHandler.aspx, 10/24/2014 5:30:19 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement