Textron Inc. — Form 10-Q Summary
Reporting period: The filing covers the quarter ended April 2, 2011, compared with the quarter ended April 3, 2010. This differs from the request metadata’s “2010 Q1” label. Amounts are in millions of dollars except per-share data.
Business context and financial results
Textron reports Cessna, Bell, Textron Systems, Industrial and Finance segments, organized into separate Manufacturing and Finance borrowing groups. The Finance group was winding down its non-captive commercial finance business.
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Total revenue | $2,479 | $2,210 |
| Income (loss) from continuing operations | $31 | ($4) |
| Net income (loss) | $29 | ($8) |
| Diluted EPS | $0.09 | ($0.03) |
| Operating cash flow | $54 | ($88) |
Revenue increased 12%, led by Bell, Cessna and Industrial; Finance and Textron Systems revenue declined. Manufacturing gross margin was 16.2%, versus 16.8%; management attributed the lower margin mainly to higher Cessna and Bell research and development costs. Income before tax was $46, versus $11. The effective tax rate was 32.6%, compared with 136.4% in the prior-year quarter.
Segment performance and changes
- Cessna: Revenue rose 28% to $556, but segment loss widened to $38 from $24. The company cited product mix, lower forfeited deposits, higher development expense, and costs exceeding pricing.
- Bell: Revenue rose 21% to $749 and segment profit increased 23% to $91. Higher V-22 deliveries were a principal driver; Bell delivered 9 V-22 aircraft versus 4 a year earlier.
- Textron Systems: Revenue fell 3% to $445 and profit declined to $53 from $55, mainly on lower Land and Marine Systems aftermarket volume.
- Industrial: Revenue increased 12% to $703 and profit rose 24% to $61, driven largely by higher volume and automotive-industry improvement; inflation in excess of pricing partly offset gains.
- Finance: Revenue fell 66% to $26, while its loss narrowed to $44 from $58, mainly due to lower loan-loss provision and lower expenses, partly offset by reduced interest margin and portfolio losses.
Backlog at quarter-end was $7,318 at Bell, $2,635 at Cessna and $1,610 at Textron Systems. Bell backlog increased from January 1, while Cessna backlog declined, principally because deliveries exceeded orders.
Cash, debt and liquidity
- Consolidated cash and equivalents were $1,022 at April 2, 2011, compared with $931 at January 1, 2011. Consolidated continuing-operations cash flow was $55 from operations, $355 from investing and ($327) from financing.
- Capital expenditures were $78, up from $38. Manufacturing operating cash flow improved to $73 from ($66); Finance operating cash flow was ($29), versus ($50).
- Manufacturing group debt was $2,549 and cash was $986; its net-debt-to-capital ratio was 33.9%, up from 32.1% at year-end. Finance group debt was $3,152 and cash was $36.
- Textron had $203 of commercial paper outstanding and no borrowings under its new $1.0 billion revolving facility. TFC had $1.2 billion outstanding under its separate credit facility.
- Textron stated it expected available cash, manufacturing cash generation and execution of the Finance exit plan to provide sufficient liquidity. It also paid an additional $49 capital contribution to TFC on April 11, 2011, after quarter-end.
Outlook, risks and unusual items
- No quantified full-year earnings or revenue guidance is provided in the filing text. The non-captive Finance exit plan was expected to take three to five years; management expected nonaccrual levels to remain high and liquidation of nonaccrual receivables to proceed more slowly.
- Finance portfolio credit quality remained a key risk: nonaccrual receivables were $836, or 21.40% of receivables held for investment, versus $850, or 20.17%, at year-end. Delinquencies of 60 days or more rose to 10.71% from 9.77%.
- The $600 face amount of 4.5% convertible notes became convertible at holders’ option through June 30, 2011. Textron intended to settle principal in cash; settlement of conversion value above principal could involve cash, shares or both.
- There were no special charges in Q1 2011; the prior-year quarter included $12 of restructuring charges. Legal and other claims include government-contract, product-liability and environmental matters; management did not believe existing proceedings would materially affect financial position or results.
- Management reported no significant change in market-risk exposure and concluded disclosure controls were effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the filing period: it is the quarter ended April 2, 2011, despite the request metadata’s 2010 Q1 label.
- Track Finance portfolio runoff, nonaccrual and delinquency trends, loan-loss reserves, and proceeds and losses from asset sales.
- Assess whether Cessna can improve profitability and margins, and whether higher manufacturing volumes offset inflation, development spending and other costs.
- Monitor liquidity and debt by borrowing group, TFC support requirements, and the potential cash or share settlement of the convertible notes.
- Review backlog conversion, particularly Bell program deliveries and Cessna orders, against the company’s execution and market risks.