Textron Inc. Form 10-Q Summary
Reporting period: The supplied filing is for the quarter ended April 2, 2022, compared with the quarter ended April 3, 2021. This conflicts with the request metadata identifying 2021 Q1; the filing itself reports 2022 Q1.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $3.001 billion | $2.879 billion | Up 4% |
| Income before taxes | $232 million | $190 million | Up 22% |
| Net income | $193 million | $171 million | Up 13% |
| Diluted EPS | $0.88 | $0.75 | Up 17% |
| Operating cash flow | $241 million | $181 million | Up $60 million |
| Capital expenditures | $48 million | $53 million | Down $5 million |
Manufacturing gross margin was 16.5%, up from 16.2%. The effective tax rate rose to 16.8% from 10.0%, with R&D credits benefiting both periods; Q1 2021 also included a $12 million benefit for prior-year credits. Q1 2022 included no special charges, versus $6 million in Q1 2021, and no business-disposition gain, versus a $15 million gain in Q1 2021.
Segments and backlog
- Textron Aviation: Revenue $1.040 billion, up 20%; segment profit $121 million, versus $47 million. Higher aircraft and aftermarket volume, mix and pricing supported results.
- Bell: Revenue $834 million, down 1%; segment profit $98 million, down 7%. Lower commercial revenue was partly offset by higher military revenue.
- Textron Systems: Revenue $273 million, down 17%; segment profit $33 million, down 35%, mainly reflecting lower volume, including reduced Afghanistan contract activity.
- Industrial: Revenue $838 million, up 2%; segment profit $43 million, down 9%. Pricing gains were offset by lower volume/mix and inflation.
- Finance: Revenue $16 million; segment profit $9 million, compared with $6 million.
- Backlog was $12.074 billion at April 2, 2022, up from $10.135 billion at January 1. Bell’s increase included a new $1.4 billion, five-year U.S. government V-22 spares and logistics contract. Remaining performance obligations were $12.1 billion; approximately 78% was expected to be recognized through 2023.
Cash, debt and liquidity
Cash and equivalents totaled $2.126 billion at quarter-end ($1.978 billion Manufacturing group; $148 million Finance group), versus $2.117 billion at year-end. Manufacturing debt was $3.185 billion and Finance debt $470 million, for total debt of $3.655 billion. Manufacturing net debt to capital was 15%, compared with 16% at year-end. The $1.0 billion revolving credit facility had no borrowings and $9 million of letters of credit outstanding; it expires in October 2024, subject to extension options. Management said available cash, expected manufacturing cash generation and the credit facility should provide sufficient liquidity.
Consolidated operating cash flow improved primarily from working-capital movements, including higher customer deposits, partly offset by accounts-payable changes and lower cash flows from captive financing. Financing cash outflows included $157 million of share repurchases and $121 million of debt payments. The company repurchased 2.245 million shares during the quarter and authorized repurchases of up to 25 million shares, with no expiration date.
Management commentary, outlook and risks
- Cost of sales increased 4%, including $73 million of inflation, particularly higher material costs. Management cited global supply-chain shortages affecting Industrial customers and higher material, energy and shipping costs.
- Contract-estimate catch-up adjustments reduced Q1 2022 segment profit by $17 million and net income by $13 million, or $0.06 per diluted share; the comparable 2021 adjustments increased segment profit by $14 million and net income by $11 million.
- On April 15, 2022, after quarter-end, Textron acquired electric-aircraft maker Pipistrel for approximately $240 million cash. Beginning in Q2 2022, it was to be reported in a new Textron eAviation segment.
- The filing provides no specific financial guidance or quantified full-year outlook. It cautions that interim results are not necessarily indicative of full-year results.
- Risks highlighted include Russia’s invasion of Ukraine and related sanctions, supply disruptions and inflation; COVID-related supply-chain effects; U.S. government budget, contract-performance and procurement risks; supplier execution; demand volatility; foreign exchange and interest rates; and Finance portfolio credit quality. Textron reported that existing legal claims were not expected to materially affect financial position or results, based on information then available.
Important facts for investors to verify
- Confirm the intended reporting period: the filing is Q1 2022, not Q1 2021.
- Track whether inflation and supply constraints continue to pressure margins, especially in Industrial and Aviation.
- Assess backlog conversion, delivery schedules and U.S. government contract performance, including Bell’s new support contract and the H-1 program transition.
- Review cash-flow sustainability and working-capital drivers, particularly customer deposits and accounts payable.
- Monitor Finance receivables: nonaccrual balances were $77 million, or 12.77% of finance receivables, while 60+-day delinquencies were 0.33%.
- Evaluate the Pipistrel acquisition’s integration, investment needs and contribution to the new eAviation segment.