Business context and reporting period
Textron Inc. filed this Form 10-Q for the quarter ended April 3, 2021, comparing results with the quarter ended April 4, 2020. The request metadata says “2020 Q1,” but the filing itself is for 2021 Q1. Textron reports Textron Aviation, Bell, Textron Systems, Industrial, and Finance, with separate Manufacturing and Finance borrowing groups.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $2.879 billion | $2.777 billion | +4% |
| Income before taxes | $190 million | $69 million | +$121 million |
| Net income | $171 million | $50 million | +$121 million |
| Diluted EPS | $0.75 | $0.22 | +$0.53 |
| Operating cash flow, consolidated | $181 million | $(394) million | +$575 million |
| Manufacturing gross margin | 16.2% | 13.6% | +260 bps |
Manufacturing revenue was $2.864 billion; Finance revenue was $15 million. Segment profit rose 64% to $256 million. Segment results: Textron Aviation revenue $865 million and profit $47 million; Bell $846 million and $105 million; Textron Systems $328 million and $51 million; Industrial $825 million and $47 million; Finance $15 million and $6 million. Consolidated operating cash flow improvement reflected higher earnings and working-capital changes, including accounts payable and inventory, partly offset by cash use from accounts receivable.
Balance sheet and liquidity
At April 3, 2021, cash and equivalents were $2.078 billion ($1.897 billion Manufacturing; $181 million Finance), compared with $2.254 billion at January 2, 2021. Total debt was $4.093 billion ($3.440 billion Manufacturing; $653 million Finance), versus $4.369 billion at year-end. Manufacturing net debt to capital was 20%, compared with 21%; debt to capital was 36%, compared with 39%. Total assets were $15.414 billion and shareholders’ equity was $5.996 billion. Textron reported no borrowings on its $1.0 billion revolving credit facility and stated that it expects sufficient cash from existing balances, operating cash generation, and other funding sources to meet future needs.
Material changes versus the prior period
- Revenue increased $102 million, led by Industrial (+$85 million) and Bell (+$23 million); Aviation revenue declined slightly and Textron Systems was flat.
- Industrial profit increased to $47 million from $9 million, reflecting stronger volume/mix, pricing, and performance. Aviation profit rose to $47 million from $3 million, while Bell profit fell to $105 million from $115 million, partly due to higher research and development costs.
- Textron Systems profit rose to $51 million from $26 million, primarily on lower costs and improved performance, including comparison with prior-year weakness at TRU Canada.
- Cash used in financing was $359 million, versus $1.543 billion of financing cash provided in Q1 2020, when Textron raised debt and borrowed against corporate-owned life insurance. Q1 2021 financing included $287 million of debt repayments and $91 million of share repurchases.
- Backlog was $9.606 billion, up from $9.501 billion at January 2, 2021. Remaining performance obligations were $9.6 billion; Textron expected to recognize approximately 73% through 2022.
Outlook, commentary, risks, and unusual items
Management said demand for many commercial products increased relative to levels experienced since the pandemic began. The filing provides no specific full-year earnings or revenue guidance. Management expected the pandemic-related restructuring plan to be substantially completed in Q3 2021 and anticipated an additional $14 million to $24 million of contract termination and other charges, primarily in Industrial.
- Q1 2021 included $6 million of restructuring charges and a $15 million gain on the sale of TRU Simulation + Training Canada, completed for $39 million net proceeds. The restructuring program had incurred $114 million of total charges since inception.
- Q1 2020 included $39 million of intangible asset impairment charges, associated with pandemic-driven demand deterioration.
- The effective tax rate was 10.0%, versus 27.5%; Q1 2021 benefited from $12 million of additional prior-year R&D tax credits.
- Finance receivables’ nonaccrual ratio increased to 15.89% from 11.94% at year-end. The allowance for credit losses was $33 million, or 4.68% of finance receivables. Textron cited collateral values as support for its allowance assessment.
- Risks identified include pandemic effects and demand volatility, U.S. Government funding and contract performance, supplier and subcontractor issues, Finance portfolio credit quality, foreign exchange and interest-rate movements, product development and certification, cost control, and cybersecurity. The company said existing legal proceedings and claims were not expected to materially affect financial position or results, based on information available.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied metadata says 2020 Q1, while the filing covers Q1 2021.
- Assess whether stronger commercial demand, segment margins, and backlog convert into sustained revenue and cash flow.
- Monitor Finance segment nonaccrual receivables, customer modifications, and credit-loss allowances.
- Track the remaining restructuring costs and completion timing, and distinguish recurring earnings from the TRU Canada gain and tax-credit benefit.
- Review debt maturities, liquidity and cash use, including repurchases and debt repayments, against management’s liquidity assessment.