Textron Inc. Form 10-Q Summary
Reporting period: Quarter and six months ended June 29, 2013, compared with the corresponding 2012 periods. Although the request metadata says 2012 Q2, the supplied filing is for 2013 Q2.
Key financial results
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Total revenue | $2.839 billion | $3.019 billion | $5.694 billion | $5.875 billion |
| Income from continuing operations | $114 million | $173 million | $229 million | $293 million |
| Net income | $113 million | $172 million | $232 million | $290 million |
| Diluted EPS | $0.40 | $0.58 | $0.81 | $0.98 |
| Manufacturing gross margin | 16.7% | 17.8% | 16.0% | 17.6% |
| Operating cash flow | Not separately stated for the quarter | $(462) million | $28 million |
Quarterly revenue fell 6% and first-half revenue fell 3% year over year. First-half operating cash flow declined sharply, primarily due to working-capital needs, including inventory growth at Bell, and lower income. Capital expenditures were $190 million in the first half versus $158 million a year earlier.
Balance sheet and liquidity
- At June 29, cash and equivalents were $571 million ($459 million in Manufacturing and $112 million in Finance), down from $1.413 billion at year-end 2012.
- Total debt was approximately $3.609 billion, compared with $3.987 billion at December 29, 2012. Manufacturing debt was $2.278 billion; Finance debt was $1.331 billion.
- Manufacturing net debt to capital was 35%, up from 24% at year-end; debt to capital was 40%, down from 44%. Textron reported no borrowings on its $1.0 billion revolving credit facility.
- Inventory increased to $3.203 billion from $2.712 billion. Total assets were $12.440 billion and shareholders’ equity was $3.380 billion.
- Finance receivables held for investment, net, declined to $1.510 billion from $1.850 billion. Nonaccrual receivables were $124 million; 60-plus-day delinquencies were 4.12%, down from 4.65% at year-end.
Material changes and segment performance
- Cessna: Q2 revenue declined 27% to $560 million and the segment recorded a $50 million loss, versus $35 million profit. Citation jet deliveries fell to 20 from 49. First-half segment loss was $58 million. Results included $28 million of severance costs; production was adjusted amid continued softness in the jet market.
- Bell: Q2 revenue declined 3% to $1.025 billion and profit fell 11% to $135 million. First-half revenue and profit declined 4% and 11%, respectively. Backlog fell to $6.946 billion from $7.469 billion, largely as V-22 and H-1 deliveries exceeded new orders.
- Textron Systems: Revenue rose 8% in Q2 and 11% in the first half, but profit declined 15% and 4%, respectively, partly because growth included a higher share of lower-margin service work. Backlog was $2.620 billion, down from $2.919 billion.
- Industrial: Q2 revenue rose 6% and profit rose 30%; first-half revenue rose 1% and profit rose 1%. Cost efficiencies helped, while inflation weighed on first-half results.
- Finance: Revenue fell $24 million in Q2 and $43 million in the first half, mainly due to a smaller average receivables portfolio; lower portfolio gains also affected Q2. First-half segment profit was unchanged at $34 million.
Outlook, commentary, and risks
- Management expected first-half working-capital investment to reverse in the second half, supporting positive operating cash flow for the full year, as Bell deliveries increased and Cessna certified new models and delivered higher volumes. This is management’s expectation, not a guarantee.
- Textron expected full-year Cessna jet deliveries to be below the prior year, reflecting lower anticipated light-jet deliveries. In Q2, Bell signed a multiyear V-22 production contract for 99 aircraft, with options for 23 more.
- Key exposures include U.S. and foreign government defense budgets and contract performance, aircraft-market demand and certification timing, supplier performance, cost control, pension costs, foreign exchange and interest rates, and Finance portfolio credit quality.
- The company disclosed ongoing legal, government-contract, product-liability, and environmental matters; management did not believe currently known proceedings and claims would materially affect financial position or results.
- Long-term contract estimate changes increased pretax income by $2 million in Q2 and $9 million in the first half of 2013. The filing also reported $28 million in Cessna severance costs and the May 2013 settlement of $215 million face value of convertible notes; related share transactions resulted in a net issuance of 7.4 million shares.
Important facts for investors to verify
- Whether the expected second-half working-capital reversal and full-year positive operating cash flow occurred.
- Cessna jet demand, production adjustments, new-model certification and delivery timing, and the costs or benefits of workforce reductions.
- Bell program deliveries, contract backlog conversion, and the effect of government procurement or budget changes.
- Finance receivables’ delinquency, nonaccrual levels, allowance adequacy, and proceeds or losses from portfolio exits.
- Whether inventory growth, leverage, and liquidity improved after June 29, 2013.