Textron (NYSE:TXT) Misses Q2 Revenue Estimates
Aerospace and defense company Textron (NYSE:TXT) fell short of analysts' expectations in Q2 CY2024, with revenue up 3% year on year to $3.53 billion. It made a non-GAAP profit of $1.54 per share, improving from its profit of $1.46 per share in the same quarter last year.
Is now the time to buy Textron? Find out in our full research report.
Textron (TXT) Q2 CY2024 Highlights:
Revenue: $3.53 billion vs analyst estimates of $3.55 billion (small miss)
EPS (non-GAAP): $1.54 vs analyst estimates of $1.47 (4.6% beat)
Free Cash Flow of $309 million is up from -$80.63 million in the previous quarter
Market Capitalization: $17.56 billion
"In the quarter, our team delivered higher revenue, earnings per share, and cash flow," said Textron Chairman and CEO Scott C. Donnelly.
Listed on the NYSE in 1947, Textron (NYSE:TXT) provides products and services in the aerospace, defense, industrial, and finance sectors.
Aerospace
Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.
Sales Growth
A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Textron struggled to generate demand over the last five years as its sales were flat. This is a tough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Textron's annualized revenue growth of 5.6% over the last two years is above its five-year trend, but we were still disappointed by the results.
This quarter, Textron's revenue grew 3% year on year to $3.53 billion, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 8.3% over the next 12 months, an acceleration from this quarter.
When a company has more cash than it knows what to do with, buying back its own shares can make a lot of sense–as long as the price is right. Luckily, we’ve found one, a low-priced stock that is gushing free cash flow AND buying back shares. Click here to claim your Special Free Report on a fallen angel growth story that is already recovering from a setback.
Operating Margin
Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Textron was profitable over the last five years but held back by its large expense base. It demonstrated mediocre profitability for an industrials business, producing an average operating margin of 7.8%.
On the bright side, Textron's annual operating margin rose by 1.8 percentage points over the last five years.
In Q2, Textron generated an operating profit margin of 7.4%, down 2.3 percentage points year on year.
EPS
We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Textron's EPS grew at a solid 11% compounded annual growth rate over the last five years, higher than its flat revenue. This tells us management responded to softer demand by adapting its cost structure.
Diving into the nuances of Textron's earnings can give us a better understanding of its performance. As we mentioned earlier, Textron's operating margin declined this quarter but expanded by 1.8 percentage points over the last five years. Its share count also shrank by 17.9%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Textron, its two-year annual EPS growth of 22.7% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q2, Textron reported EPS at $1.54, up from $1.46 in the same quarter last year. This print beat analysts' estimates by 4.6%. Over the next 12 months, Wall Street expects Textron to grow its earnings. Analysts are projecting its EPS of $5.82 in the last year to climb by 17.1% to $6.81.
Key Takeaways from Textron's Q2 Results
It was good to see Textron beat analysts' EPS expectations this quarter. On the other hand, its revenue unfortunately missed. Overall, this quarter was mixed. The stock remained flat at $92.15 immediately following the results.
So should you invest in Textron right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.