Textron (NYSE: TXT) released fourth-quarter 2018 results on Thursday. Considering recent divestments and the ebbs and flows of military spending, the industrial conglomerate detailed deceivingly strong operational results even as its revenue continued to decline on a year-over-year basis.
With shares up around 6% on the heels of its report, let's dig deeper to see how Textron ended the year, and what investors should be watching as we enter 2019.
A Cessna SkyCourier, one of the turboprops that boosted Textron's results. Image source: Textron.
Textron's results: The raw numbers
|Metric||Q4 2018||Q4 2017||Year-Over-Year Change (Decline)|
GAAP net income
GAAP earnings per share
Data source: Textron quarterly filings. GAAP = generally accepted accounting principles.
What happened with Textron this quarter?
- Excluding one-time items, Textron's non-GAAP income from continuing operations was $279 million, or $1.15 per share, up from $197 million, or $0.74 per share, in the same year-ago period.
- That brought Textron's full-year adjusted net income to $3.34 per share, up from $2.45 per share in 2017, and above the high end of its latest guidance, provided in October, for a per-share earnings range of $3.20 to $3.30.
- By segment:
- Textron Aviation revenue climbed 11.6% year over year to $1.552 billion, driven by higher volume, as well as favorable pricing and mix from jet and commercial turboprop product lines. Aviation delivered 63 jets and 57 commercial turboprops this quarter, up from 58 and 45, respectively, in the same year-ago period. Segment backlog was $1.8 billion at the end of the quarter.
- Bell revenue declined 15.9% to $827 million, due to lower military volume; Bell delivered 46 commercial helicopters this quarter, up from 45 in the same year-ago period. Segment backlog was $5.8 billion at the end of the quarter.
- Textron Systems revenue fell 29.4% to $345 million, due to lower unmanned systems volume and lower Tactical Armoured Patrol Vehicle (TAPV) deliveries. Segment backlog was $1.5 billion at the end of the quarter.
- Industrial revenue dropped 11.5% to $1.008 billion, driven mostly by last year's divestment of Textron's Tools & Test product line.
- Finance revenue increased by $3 million to $18 million, and finance segment profit climbed 50% to $9 million.
- Textron repurchased $400 million in shares this quarter, bringing repurchases for all of 2018 to $1.8 billion.
What management had to say
"We had strong execution in both the quarter and full year with significant margin improvements at Aviation, Bell, and Systems," said CEO Scott Donnelly. "We were also encouraged by the continued strength in new aircraft demand at Aviation."
During the subsequent conference call, Donnelly called it a "very strong quarter," noting margins expanded despite the company's lower revenues. He added:
We continued our strategy of investing in new products and leveraging operations to drive earnings growth and margin expansion across Aviation, Bell, and Systems while returning significant capital to shareholders. While we're disappointed in our Industrial results due to the performance of our specialized vehicle business, we've implemented a number of changes. We made several leadership changes, rationalized product lines, reduced the manufacturing footprint, implemented a cost-reduction program, and launched a new distribution partnership for our power sports product, all of which we expect will position the business for success going forward.
For the full-year 2019, Textron told investors to expect revenue to be roughly flat from 2018 at around $14 billion. On the bottom line, that should translate to full-year 2019 EPS from continuing operations of $3.55 to $3.75. For perspective -- and though we don't usually pay close attention to Wall Street's demands -- most analysts were modeling lower 2019 earnings of $3.49 per share on modest 2.8% revenue growth.
Textron is also targeting 2019 net cash from continuing operations of the manufacturing group to be between $1.02 billion to $1.12 billion, and manufacturing cash flow before pension contributions to land between $700 million and $800 million.
"Our outlook reflects the continued improvement in our operations to drive earnings growth and margin expansion," Donnelly said. "As we look to the future, we are investing for long-term growth to generate increases in shareholder value."
In the end, Textron's headline numbers may not look impressive at first glance. But they did mark a notable improvement from last quarter's earnings decline as the company worked to mitigate weakness from its specialized vehicle business. Assuming Textron can continue bolstering margins as it plants the seeds for longer-term revenue growth, it should emerge a stronger business for its efforts.
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