Textron (TXT -6.22%) stock fell 8.2% through 10:05 a.m. ET Tuesday after meeting analyst sales forecasts and beating on earnings. Analysts forecast Textron would earn $1.54 per share on $3.8 billion in sales in Q2, and the company actually earned more -- $1.62 per share -- on the same expected revenue: $3.8 billion.
This isn't the reaction to an "earnings beat" that you'd ordinarily expect, so what went wrong?
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Textron Q2 earnings
Start with the earnings. As it turns out, the "$1.62" that Textron "earned" was only a non-GAAP number. Actual earnings as calculated under generally accepted accounting principles (GAAP) were only $1.42 per share -- up only up 5% from last year's Q2, and significantly less than the non-GAAP figure.
On revenue, where Textron only met expectations, sales were up 3% in Q2, significantly slower growth than seen in Q1.
Free cash flow declined significantly year over year, from $395 million in Q2 2025 to $235 million in Q2 2026.
Finally, on guidance, Textron guided slightly below analyst expectations. Combined with the sales slowdown, this probably contributed to investors' lack of enthusiasm about the earnings "beat." Full-year, Textron expects to report non-GAAP profit of about $6.50 per share (a penny less than analysts hoped) and GAAP earnings of about $5.49 per share -- again, much less than GAAP.
NYSE: TXT
Key Data Points
What's next for Textron
One right call Textron's making is trying to sell its Industrial business, which grew sales only 1% in Q2 -- tied with Aviation for last place among the company's four main divisions. Industrial is also the company's least profitable division, with an operating profit margin of only 4.5%.
Selling Industrial would generate cash for the other divisions to deploy, improve profit margins -- and not hurt sales all that much. I think it's the right decision.
