What happened

Shares of Textron Inc. (NYSE:TXT) fell 25% in October, according to data from S&P Global Market Intelligence, after the aerospace and defense conglomerate announced disappointing third-quarter 2018 results

To be sure, Textron fell 11% on Oct. 18, 2018 alone, the same day it revealed quarterly revenue had fallen 8.2% year over year to $3.2 billion, translating to a similar modest decline in earnings from continuing operations, to $0.61 per share. Most analysts were modeling earnings of $0.76 per share on revenue of $3.53 billion.

Yellow and white helicopter from Textron's Bell


So what

Textron's falling revenue streams were broad-based as well. Aviation segment sales declined 2% to $1.133 billion, driven mostly by a lower number of commercial turboprops sold as compared to the same year-ago period (43 versus 57, respectively). Bell revenue also dropped 5% to $770 million, as higher military sales were offset by unfavorable pricing from its mix of commercial helicopters sold. Meanwhile, Textron Systems revenue came in 23.1% lower at $352 million, hurt by lower TAPV deliveries. And Industrial business sales declined 10.7% to $930 million, albeit primarily due to Textron's $810 million sale of its Tools and Test businesses to Emerson in July.

During the subsequent conference call, Textron CEO Scott Donnelly added that they "haven't seen the planned level of growth or delivered the operating leverage necessary to support the expected returns" in their specialized vehicles segment -- a reference to Textron's acquisition of Arctic Cat last year. Donnelly did insist, however, that the company remains confident the potentially lucrative business "will be a valuable part of our portfolio moving forward."

Now what

With one quarter left in 2018, Textron also revised its full-year guidance to call for adjusted earnings of $3.20 to $3.30 per share, compared to a range of $3.15 to $3.35 before. Of course, that Textron was able to avoid reducing guidance (rather narrowing its expected earnings ranges) is a testament to operational improvements in the Aviation and Bell businesses despite lower revenue.

Nonetheless, the market understandably frowned on Textron's relative underperformance this quarter, and the stock responded in kind. Until the company can demonstrate its ability to return to sustained, profitable growth, I suspect shares will remain under pressure.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.