I suppose investors could have been upset by defense contractor Textron's (NYSE:TXT) Q1 earnings report. After all, management had predicted that it would grow operating profits to about $1.20 per share. The fact that it actually reported $1.55 suggests that management didn't have a very good handle on its business. But the shares are trading 7% higher since earnings came out last week, suggesting that shareholders were willing to let that oversight slide.
Textron revealed that sales had risen 13% versus last year's Q1, and profits more than twice that -- up 30% for "continuing operations." (The company made some divestitures in its industrial operations segment.) Management also upped its earnings guidance and now expects to rake in about $1.40 per share in Q2, and close the year in the neighborhood of $6.20.
Business by business, things didn't work out ideally this quarter, but they were good enough. Cessna was the firm's most profitable business (with a 16% operating margin) and its second-fastest grower, with 11% sales growth. Flip the relationship between profits and growth, and the second-most profitable Textron unit, Bell Helicopter, which sports 10% operating margins, grew sales 20%. Finally, the least profitable business -- industrial operations, with 7% margins -- experienced the most anemic growth in sales, at just 6%.
Who could ask for anything more?
Shareholders. They're insatiable.
Fortunately for Textron's, the company looks well-placed to satisfy their desires. According to CEO Lewis Campbell, the "longer-term" outlook is "clearly positive." While backlog declined slightly at Bell Helicopter this quarter, Cessna more than made up for the shortfall. According to Campbell, backlog at Cessna rose $500 million over the course of the quarter. Moreover, this business continues to experience "favorable pricing" and a good "mix" in its Citation business jet sales.
Based on these comments, I think management had good reason to increase the earnings guidance. If Textron did this well in Q1, with its second-most-profitable unit serving as the engine of growth, just imagine how well it can do when its most profitable unit shoulders that load come Q2 earnings in July.
For more on Textron, read:
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Fool contributor Rich Smith does not own shares of any company named above.
