Ordinarily, when a company announces that it "beat earnings" by $0.25, you don't expect a selloff to ensue. Further, when a company "beats" by as little as a penny, you expect something between a sigh of relief and a mad dash to buy the stock.
Then again, Textron
As you may have surmised by now, Textron reported its fiscal first-quarter numbers yesterday. On the one hand, the news was good -- in that Textron reported $0.26 per share in pro forma earnings versus Wall Street's expected $0.01. On the other hand:
- GAAP profits came in at $0.35 per share -- a 62% year-over-year decline.
- Management cut this year's earnings guidance in half, meaning it may earn as little as a dime a share over the next three quarters.
- Part of the reason for the lower-than-expected profits: Textron has joined a parade of big-name industrialists -- Cummins
(NYSE:CMI) , Boeing(NYSE:BA) , Caterpillar(NYSE:CAT) , and General Motors(NYSE:GM) , to name just a few -- in laying off workers in recent months. Severance payments to the workers, and the cost of shuttering factories, are eating into profits.
Meanwhile, free cash flow, already negative a year ago, swelled to 6.8 times more negative in Q1 2009, as Textron burned through $286 million in cash.
Cash, cash -- my kingdom for some cash
Speaking of cash, in a separate release, Textron announced it hopes to float as much as $345 million in new "convertible senior notes," and issue perhaps 21.85 million new common shares. If implemented in full, this should amount to a nearly $585 million cash influx. The news prompted a debt downgrade from Moody's
Foolish takeaway
One last point that may set off your B.S.-meter*. Management says it will generate $400 million in "manufacturing free cash flow" this year. But if that's true, then why does Textron need to tap the debt markets and seek out new suckers -- er, shareholders?
One clue: As recently as three months ago, Textron thought it would generate $450 million.
