Textron (NYSE: TXT)
Business Profile: Textron Inc. (NYSE: TXT) is one of the world's largest and most successful multi-industry companies. Founded in 1923, we have grown into a network of businesses with total revenues of $11 billion, and approximately 40,000 employees in 32 countries, serving a diverse and global customer base. Headquartered in Providence, Rhode Island, Textron is ranked 190th on the FORTUNE 500 list of largest U.S. companies. Organizationally, Textron consists of numerous subsidiaries and operating divisions, which are responsible for the day-to-day operation of their businesses ("Textron businesses").
Textron’s Business Segments:
Bell: The Bell segment includes Bell Helicopter [2], Textron Systems Corporation [3] and Lycoming Engines [4]. Bell Helicopter is a leader in the global helicopter industry and the pioneer of tiltrotor aircraft. Textron Systems provides innovative technology solutions to meet the needs of the global aerospace and defense industries. Lycoming Engines is the world leader in reciprocating aircraft engines.
Cessna: Cessna Aircraft Company is the leading worldwide manufacturer of general aviation aircraft, with product lines spanning single-engine piston aircraft, utility turboprop aircraft and Citation business jet models. Citation customers have access through a network of 10 company-owned Citation Service Centers.
Industrial: The Industrial segment is a diverse collection of high-powered industrial businesses including Greenlee E-Z-GO, Jacobsen Kautex , and Fluid & Power Group as well as various smaller brands within the Fluid & Power Group.
Finance: Textron Financial is a diversified commercial finance company with core operations in Aviation Finance, Asset-Based Lending, Distribution Finance, Golf Finance, Resort Finance, and Structured Capital.
Textron 2006 Revenue breakdown
Textron 2006 Segment Profit Breakdown
Source: Company website.
Recent Quarter (3Q07):
Textron reported a solid 3rd quarter with revenue increased 15% (13% organic sales growth) to $3.3 billion. Earnings per share from continuing operation increased 40% compared to 3Q06. The strong operating performance in Textron was continued to be driven by strong demand for business jets (Cessna) and continue strong military spending (Bell). Cessna’s backlog continues to show strength with 609 business jet orders added to date. All of Textron’s business segments show top-line growth and margin expansion. Top-line growth at Textron was mainly driven by increase in volume and offset by inflation. The Finance segment continued to perform in spite of a shaky credit market. Full year free cash flow now expected to come in at $600-650 million. The free cash flow would likely be used for strategic acquisition (recent purchase of UIC), and for shareholder enhancement (shares repurchases).
Risk factors: (Source: Textron 2006 10-K filing)
-Textron might unable to effectively mitigate pricing pressures. (Industrial segment)
-Delays in aircraft delivery schedules or cancellation of orders. (Cessna)
-19% of revenue derived from U.S. Government. (Bell)
-U.S. Gov’t can terminate contracts with Textron at anytime. (Bell – V-22s)
-Cost overruns on U.S. Gov’t contract
-Interruptions of production and supplies chain and labor disruptions (All manufacturing segment)
-Disruptions in the capital market. (Finance segment)
-Macro economics factors: interest rate, currency and raw material prices
-Legal proceeding and claims.
Overall, Textron is a very solid industrial company that is more aerospace and defense oriented. The management was able to keep cost under control as we saw segment profit margin expanded during times of high commodities prices and higher labor costs. The big question for TXT's future is how well can the non-military related segments weather out a potential slow down in the global economy? That has yet to be seen.
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