Textron: Flying High

Textron (TXT) is flying after the maker of Cessna airplanes and Bell helicopters reported stronger-than-expected earnings that’s also given a boost to other aircraft stocks including Spirit AeroSystem (SPR), Boeing (BA) and Embarer (ERJ).

Textron reported an adjusted profit of 60 cents a share, easily topping forecasts for 53 cents, although sales came in below expectations. Textron also increased its full-year earnings guidance to a range of $2.05 to $2.15 a share. The beat was driven by a pickup in margins, which came in at 8.5%m ahead of forecasts for 8.0%.

A Cessna 414

RBC Capital Markets’ Robert Stallard said Textron had an “overall solid quarter.” He explains:

Systems ‘underperformance’ isn’t necessarily surprising given what is still some uncertainty in defense, while we’d like to get a better understanding of the mix issues in Industrial. The improvement in margin in Aviation is encouraging, especially given that margin expansion in this segment is one of the main drivers of profit growth over the next several years. Given the usual seasonal weakness in Aviation in 3Q, we think this result should be well received.

That’s an understatement, as Textron’s shares have jumped 9.8% to $36.97, and have helped lift Spirit AeroSystems 3.4% to $36.66, Boeing 2.4% to $123.26 and Embraer 3.1% to $36.18. Still, Nomura’s Jonathan Wright worries that not everything is right with Textron:

While a solid EPS beat, we are concerned that some of the negative trends that we highlighted…are coming to fruition. Bell commercial helicopter deliveries were down 24% in the quarter and, while an uptick in V-22 deliveries helped in 3Q this is now expected to halve in 4Q to meet full-year guidance for 36 shipments. Similarly, Cessna jet deliveries of 33 were materially below our forecast of 44, with the Sovereign in particular seeing a step down (quarterly deliveries have trended: 9, 7, 3). So, while bulls will no doubt point to impressive margin performance from Textron Aviation, we think that top-line pressure at both Cessna and, increasingly, Bell are of greater importance to profitability.

Just not today.