What: Shares of Textron (TXT 4.00%) fell as much as 11.5% on Wednesday after the industrial conglomerate released weaker-than-expected fourth-quarter 2015 results.
So what: Quarterly revenue fell 4.2% year over year to $3.9 billion, including a 2% decline from Textron Aviation to $1.49 billion, a 3.4% drop from Bell to just under $1.04 billion, a 25.4% decline at Textron Systems to $463 million, and a 6.4% increase in sales at Textron's Industrial segment.
That translated to a 5% decline in segment profit to $378 million and -- thanks partly to expense management and a lack of acquisition/restructuring costs during the quarter -- 5.6% growth in net income from continuing operations to $225 million. On a per-share basis, income from continuing operations climbed 6.6% to $0.81. In addition, manufacturing cash flow before pension contributions rose 18.9% year over year to $534 million.
Analysts, on average, were anticipating income from continuing operations of $0.83 per share on higher revenue of $4.23 billion.
CEO Scott Donnelly said, "We had good execution in the quarter with margin improvements at Aviation, Systems, Industrial and solid double digit margins at Bell. While overall revenues were down in the quarter, we were encouraged by continued strong demand at Industrial, the ramp-up of our new Latitude business jet and the positive customer reception to our new Longitude and Hemisphere jets announced during November's National Business Aviation Association Exhibition."
Now what: For the full-year 2016, Textron anticipates revenue of $14.3 billion, good for 6.5% growth over last year, and earnings per share of $2.60 to $2.80. And manufacturing cash flow from continuing operations before pension contributions are expected to be in the range of $600 million to $700 million. By contrast, analysts were anticipating roughly the same revenue but higher earnings from continuing operations well above the high end of Textron's guidance at $2.88 per share.
That's not to say Textron's results were terrible. But it's hard to blame investors for taking a step back, especially given its underwhelming guidance after falling short of estimates on both the top and bottom lines.
At the same time, this pessimism is arguably baked into Textron's share price; the stock has now fallen 20% year to date, and trades at just 11.8 times next year's estimated earnings. So while I'm not particularly anxious to dive in headlong today given Textron's sluggish growth, I think it's at least worthy of adding to your watch list. As Textron continues to execute its strategy of driving shareholder value through both investing in new products and strategic acquisitions, the stock could offer upside for patient, long-term investors.