Textron Accelerates Growth Amid Restructuring Initiatives

Textron (TXT 1.59%) released solid fourth-quarter 2019 results early on Wednesday, showcasing accelerated top-line momentum with double-digit percent growth from three of its four core business segments. Shares of the industrial conglomerate climbed around 3% in response as the market absorbed the news.

Let's dig deeper for a better idea of what drove Textron's results as 2019 came to a close, as well as what investors should be watching in the coming quarters.

Data source: Textron quarterly filings. *For the quarter ended Jan. 4, 2020.

Breaking it down

This quarter included around $72 million of pre-tax (or $0.24 per share after-tax) charges mostly driven by restructuring initiatives announced last month with the aim of lowering costs and driving greater operational efficiency. Excluding one-time items, Textron's (non-GAAP) net income arrived at $1.11 per share, down modestly from $1.15 per share in the same year-ago period.

By comparison, most analysts were modeling lower adjusted net income of $1.05 per share on revenue of $3.96 billion.

Image source: Textron.

Textron's Aviation segment led the way, with revenue climbing 11.4% year over year to $1.729 billion, helped by the first deliveries of the company's new Cessna Citation Longitude jets. Textron Aviation delivered 71 jets during the quarter (up from 63 a year earlier) and 59 commercial turboprops (down from 67 a year ago). Segment profit declined 21.2%, however, to $134 million, due to inflation and unfavorable product pricing mix.

Meanwhile, the Bell segment increased revenue 16.2% to $961 million, as the company delivered 76 commercial helicopters during the quarter (up from 46 in last year's Q4). That higher commercial volume drove a 9.3% increase in segment profit, to $118 million. Bell's Boeing program office was also awarded defense-centric support contracts of more than $800 million in the fourth quarter.

Textron Systems segment revenue increased 15.7% to $399 million, primarily driven by higher volumes of unmanned systems products. Systems' segment profit fell 10.8% to $33 million -- a trend management vaguely chalked up to "unfavorable performance" that was only partially offset by the higher volumes and favorable product mix.

Finally, Industrial segment revenue fell 8% to $927 million, driven by lower volumes of Textron's Specialized Vehicles products, given a shift in timing of "snow" product sales at the company's Arctic Cat brand. Industrial segment profit was down 39.7% to $44 million, given both the volume shift and lower volumes at the Kautex business.

Driving forward

For the full year 2020, Textron is targeting revenue of roughly $14 billion (up from $13.6 billion in 2019), including Aviation revenue of roughly $5.4 billion, Bell revenue of $3.3 billion, Systems revenue of $1.5 billion, and Industrial revenue of $3.8 billion. On the bottom line, that should translate to 2020 earnings per share in the range of $3.50 to $3.70. Textron also called for 2020 manufacturing cash flow from continuing operations (before pension contributions of roughly $50 million) of between $700 million and $800 million.

For perspective, this guidance was technically mixed relative to Wall Street's consensus estimates, which called for higher earnings of $3.75 per share on roughly the same revenue.

Of course, Textron could be underpromising with the intention of overdelivering. But even as Textron moves to lower expenses via restructuring and bolster earnings in light of its modest top-line growth, this certainly explains the muted bounce investors offered after the news hit the wires.