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Textron Reports 2nd Quarter 2017 Financial Results


(7/19/2017)

Textron Arctic Cat

Textron Inc. (NYSE: TXT) today reported second quarter 2017 income from continuing operations of $0.57 per share or $0.60 per share of adjusted income from continuing operations, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, compared to $0.66 per share in the second quarter of 2016. During this year’s second quarter, the company recorded $13 million of pre-tax special charges ($0.03 per share, after-tax).

Revenues in the quarter were $3.6 billion, up 2.6 percent from the second quarter of 2016. Textron segment profit in the quarter was $295 million, down $33 million from the second quarter of 2016.

“Revenues were up in the quarter primarily driven by the Arctic Cat acquisition,” said Textron Chairman and CEO Scott C. Donnelly. “We saw strong performance at Bell and were encouraged by the continued strengthening in commercial helicopter demand.”

Cash Flow

Net cash provided by operating activities of continuing operations of the manufacturing group for the second quarter totaled $413 million, compared to $107 million in last year’s second quarter. Manufacturing cash flow before pension contributions, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, totaled $341 million compared to a use of cash of $26 million during last year’s second quarter.

Donnelly continued, “we saw strong year over year cash performance principally driven by improvements in working capital. We are continuing to invest in our businesses, while taking the opportunity to buy back shares.”

Outlook

Textron reiterated its full-year 2017 GAAP earnings per share from continuing operations guidance of $2.22 to $2.45, or $2.40 to $2.60 on an adjusted basis (non-GAAP), which is reconciled to GAAP in an attachment to this release. The company also confirmed its net cash provided by operating activities of continuing operations of the manufacturing group guidance of $1,045 million to $1,145 million and manufacturing cash flow before pension contributions (the non-GAAP measure) of $650 to $750 million.

Second Quarter Segment Results

Textron Aviation

Revenues at Textron Aviation were down $25 million, primarily due to lower military and commercial turboprop volume, partially offset by higher jet volume.

Textron Aviation delivered 46 new Citation jets, up from 45 jets last year, 19 King Air turboprops compared to 23 in last year’s second quarter, and 4 Beechcraft T-6 trainers, down from 11 last year.

Textron Aviation recorded a segment profit of $54 million in the second quarter compared to $81 million a year ago, primarily due to lower volume and mix.

Textron Aviation backlog at the end of the second quarter was $1.0 billion, approximately flat from the end of the first quarter.

Bell

Bell revenues were up $21 million, as Bell delivered 14 H-1’s up from 9 H-1’s last year, 4 V-22’s in the quarter, down from 6 in last year’s second quarter, and 21 commercial helicopters compared to 24 units last year.

Segment profit was up $31 million primarily due to improved performance.

Bell backlog at the end of the second quarter was $5.4 billion, down $234 million from the end of the first quarter.

Textron Systems

Revenues at Textron Systems decreased $10 million, primarily due to lower volumes in the Weapons and Sensors and Unmanned Systems product lines partially offset by higher volumes at Marine and Land Systems.

Segment profit was down $18 million, due to lower volume and mix.

Textron Systems’ backlog at the end of the second quarter was $1.6 billion, down $170 million from the end of the first quarter.

Industrial

Industrial revenues increased $109 million largely due to the impact of the Arctic Cat acquisition.

Segment profit was down $17 million due to an operating loss at Arctic Cat, which was consistent with our integration plan, and unfavorable pricing and inflation.

Finance

Finance segment revenues decreased $2 million and segment profit decreased $2 million.

 

 

TEXTRON INC.

Revenues by Segment and Reconciliation of Segment Profit to Net Income

Three and Six Months Ended July 1, 2017 and July 2, 2016

(Dollars in millions, except per share amounts)

(Unaudited)


               








Three Months Ended


Six Months Ended









July 1, 2017

      July 2, 2016


July 1, 2017

      July 2, 2016

REVENUES









     




     
MANUFACTURING:


















Textron Aviation





$ 1,171



$ 1,196



$ 2,141



$ 2,287
Bell







825




804




1,522




1,618
Textron Systems






477




487




893




811
Industrial






  1,113  


  1,004  


  2,105  


  1,956  









3,586




3,491




6,661




6,672




















 
FINANCE






  18  


  20  


  36  


  40  
Total revenues





$ 3,604  


$ 3,511  


$ 6,697  


$ 6,712  




















 

SEGMENT PROFIT





















MANUFACTURING:


















Textron Aviation





$ 54



$ 81



$ 90



$ 154
Bell







112




81




195




163
Textron Systems






42




60




62




89
Industrial






  82  


  99  


  158  


  190  









290




321




505




596




















 
FINANCE






  5  


  7  


  9  


  12  
Segment Profit






295




328




514




608




















 
Corporate expenses and other, net





(31 )



(31 )



(58 )



(63 )
Interest expense, net for Manufacturing group




(36 )



(37 )



(70 )



(70 )
Special charges (a)





  (13 )


  -  


  (50 )


  -  




















 
Income from continuing operations before income taxes



215




260




336




475
Income tax expense





  (62 )


  (82 )


  (83 )


  (146 )




















 
Income from continuing operations





153




178




253




329
Discontinued operations, net of income taxes



  -  


  (1 )


  1  


  (2 )
Net income






$ 153  


$ 177  


$ 254  


$ 327  




















 
Earnings per share:


















Income from continuing operations




$ 0.57



$ 0.66



$ 0.94



$ 1.21
Discontinued operations, net of income taxes



  -  


  (0.01 )


  -  


  (0.01 )
Net income






$ 0.57  


$ 0.65  


$ 0.94  


$ 1.20  




















 
Diluted average shares outstanding




  269,299,000           271,316,000  


  271,076,000           272,172,000  




















 

Income from Continuing Operations and Diluted Earnings Per Share (EPS) GAAP to Non-GAAP Reconciliation:













         


         








Three Months Ended

July 1, 2017




Six Months Ended

July 1, 2017









        Diluted EPS


        Diluted EPS
Income from continuing operations - GAAP




$ 153



$ 0.57



$ 253



$ 0.94
Restructuring, net of taxes of $4 million and $9 million, respectively



8




0.03




18




0.07
Arctic Cat restructuring, integration and transaction costs,

net of taxes of $0 million and $7 million, respectively




  1  


  -  


  16  


  0.05  
Total Special charges, net of income taxes



  9  


  0.03  


  34  


  0.12  

Adjusted income from continuing operations - Non-GAAP (b)




$ 162  


$ 0.60  


$ 287  


$ 1.06  
























 

(a) During 2016, we initiated a plan to restructure and realign our businesses by implementing headcount reductions, facility consolidations and other actions in order to improve overall operating efficiency across Textron. In the three and six months ended July 1, 2017, we recorded Special charges of $12 million and $27 million, respectively, related to this plan. In connection with the acquisition of Arctic Cat, we recorded Special charges of $23 million in the six months ended July 1, 2017, which consisted of severance costs of $19 million, principally related to change-of-control provisions, and integration and transaction costs of $4 million.

(b) Adjusted income from continuing operations and adjusted diluted earnings per share are non-GAAP financial measures as defined in "Non-GAAP Financial Measures" attached to this release.


     

   

Textron Inc.
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)
 



           





July 1,
2017

   

 

December 31,
2016

Assets








Cash and equivalents


$ 938

$ 1,137
Accounts receivable, net



1,236


1,064
Inventories



4,655


4,464
Other current assets



357


388
Net property, plant and equipment



2,669


2,581
Goodwill



2,340


2,113
Other assets



2,376


2,331
Finance group assets


  1,204       1,280
Total Assets


$ 15,775     $ 15,358










 










 
Liabilities and Shareholders' Equity








Short-term debt and current portion of long-term debt


$ 362

$ 363
Current liabilities



3,643


3,530
Other liabilities



2,275


2,354
Long-term debt



2,774


2,414
Finance group liabilities


  1,039       1,123
Total Liabilities



10,093


9,784










 
Total Shareholders' Equity


  5,682       5,574
Total Liabilities and Shareholders' Equity


$ 15,775     $ 15,358










 
 
   
     
     
     
TEXTRON INC.
MANUFACTURING GROUP
Condensed Schedule of Cash Flows
(In millions)
(Unaudited)




 


 




Three Months Ended


Six Months Ended




July 1,


July 2,


July 1,


July 2,




2017       2016


2017      

2016

Cash flows from operating activities:














Income from continuing operations

$ 150



$ 174



$ 244



$ 322
Depreciation and amortization


108




111




211




217
Changes in working capital


88




(211 )



(225 )



(601 )
Changes in other assets and liabilities and non-cash items


67




4




40




(8 )
Dividends Received from TFC

  -           29  


  -           29  
Net cash from operating activities of continuing operations

  413           107  


  270           (41 )
Cash flows from investing activities:














Net cash used in acquisitions


(11 )



(15 )



(329 )



(179 )
Capital expenditures


(85 )



(119 )



(161 )



(207 )
Proceeds from the sale of property, plant and equipment


-




3




-




5
Other investing activities, net

  -           -  


  1           (2 )

Net cash from investing activities



  (96 )         (131 )


  (489 )         (383 )
Cash flows from financing activities:














Proceeds from long-term debt


-




-




347




345
Increase (decrease) in short-term debt


(100 )



(30 )



-




12
Purchases of Textron common stock


(143 )



-




(329 )



(215 )
Other financing activities, net

  (3 )         (2 )


  10           (1 )
Net cash from financing activities

  (246 )         (32 )


  28           141  
Total cash flows from continuing operations


71




(56 )



(191 )



(283 )
Total cash flows from discontinued operations


2




(1 )



(23 )



(1 )
Effect of exchange rate changes on cash and equivalents

  7           (5 )


  15           (1 )
Net change in cash and equivalents


80




(62 )



(199 )



(285 )
Cash and equivalents at beginning of period

  858           723  


  1,137           946  
Cash and equivalents at end of period

$ 938         $ 661  


$ 938         $ 661  
















 

Manufacturing Cash Flow GAAP to Non-GAAP Reconciliation:




















         


         
Net cash from operating activities of continuing operations - GAAP

$ 413



$ 107



$ 270



$ (41 )
Less: Capital expenditures


(85 )



(119 )



(161 )



(207 )

Dividends received from TFC




-




(29 )



-




(29 )
Plus: Total pension contributions


13




12




27




24
Proceeds from the sale of property, plant and equipment

  -           3  


  -           5  
Manufacturing cash flow before pension contributions- Non-GAAP (a)

$ 341         $ (26 )


$ 136         $ (248 )
















 
















 

(a) Manufacturing cash flow before pension contributions is a non-GAAP financial measure as defined in "Non-GAAP Financial Measures" attached to this release.

















 
TEXTRON INC.
Condensed Consolidated Schedule of Cash Flows
(In millions)
(Unaudited)




         


         




Three Months Ended


Six Months Ended





July 1,


July 2,


July 1,


July 2,




2017       2016


2017       2016
Cash flows from operating activities:














Income from continuing operations

$ 153



$ 178



$ 253



$ 329
Depreciation and amortization


112




114




218




223
Changes in working capital


128




(168 )



(219 )



(568 )
Changes in other assets and liabilities and non-cash items

  65           (4 )


  37           (14 )
Net cash from operating activities of continuing operations

  458           120  


  289           (30 )
Cash flows from investing activities:














Net cash used in acquisitions


(11 )



(15 )



(329 )



(179 )
Capital expenditures


(85 )



(119 )



(161 )



(207 )
Finance receivables repaid


9




19




24




36
Other investing activities, net

  21           42  


  34           52  
Net cash from investing activities

  (66 )         (73 )


  (432 )         (298 )
Cash flows from financing activities:














Proceeds from long-term debt


13




-




375




362
Increase (decrease) in short-term debt


(100 )



(30 )



-




12
Principal payments on long-term debt and nonrecourse debt


(36 )



(44 )



(74 )



(90

)
Purchases of Textron common stock


(143 )



-




(329 )



(215 )
Other financing activities, net

  (3 )         (2 )


  10           (1 )
Net cash from financing activities

  (269 )         (76 )


  (18 )         68  
Total cash flows from continuing operations


123




(29 )



(161 )



(260 )
Total cash flows from discontinued operations


2




(1 )



(23 )



(1 )
Effect of exchange rate changes on cash and equivalents

  7           (5 )


  15           (1 )
Net change in cash and equivalents


132




(35 )



(169 )



(262 )
Cash and equivalents at beginning of period

  997           778  


  1,298           1,005  
Cash and equivalents at end of period

$ 1,129         $ 743  


$ 1,129         $ 743  























 

 
TEXTRON INC.
Non-GAAP Financial Measures
  (Dollars in millions, except per share amounts)

We supplement the reporting of our financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial measures.  These non-GAAP financial measures exclude certain significant items that may not be indicative of, or are unrelated to, results from our ongoing business operations.  We believe that these non-GAAP measures may be useful for period-over-period comparisons of underlying business trends and our ongoing business performance, however, they should be used in conjunction with GAAP measures.  Our non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define similarly named measures differently. We encourage investors to review our financial statements and publicly-filed reports in the entirety and not to rely on any single financial measure.  We utilize the following definitions for the non-GAAP financial measures included in this release:

Adjusted income from continuing operations and adjusted diluted earnings per share
Adjusted income from continuing operations and adjusted diluted earnings per share both exclude Special charges, net of income taxes. We consider items recorded in Special charges, net of income taxes, such as enterprise-wide restructuring and acquisition-related restructuring, integration and transaction costs, to be of a non-recurring nature that is not indicative of ongoing operations.  

Manufacturing cash flow before pension contributions
Manufacturing cash flow before pension contributions adjusts net cash from operating activities of continuing operations (GAAP) for the following:

  • Excludes dividends received from Textron Financial Corporation (TFC) and capital contributions to TFC provided under the Support Agreement and debt agreements as these cash flows are not representative of manufacturing operations;
  • Deducts capital expenditures and includes proceeds from the sale of property, plant and equipment to arrive at the net capital investment required to support ongoing manufacturing operations;
  • Adds back pension contributions as we consider our pension obligations to be debt-like liabilities. Additionally, these contributions can fluctuate significantly from period to period and we believe that they are not representative of cash used by our manufacturing operations during the period.

While we believe this measure provides a focus on cash generated from manufacturing operations, before pension contributions, and may be used as an additional relevant measure of liquidity, it does not necessarily provide the amount available for discretionary expenditures since we have certain non-discretionary obligations that are not deducted from the measure.  

Income from Continuing Operations and Diluted Earnings Per Share (EPS) GAAP to Non-GAAP Reconciliation and Outlook:

 
                 





Three
Months Ended
July 1, 2017





Six
Months Ended
July 1, 2017






        Diluted EPS

      Diluted EPS
Income from continuing operations - GAAP


$ 153       $ 0.57



$ 253       $ 0.94
Restructuring, net of taxes of $4 million and $9 million, respectively



8



0.03




18



0.07
Arctic Cat restructuring, integration and transaction costs,

net of taxes of $0 million and $7 million, respectively




  1         -



  16         0.05
Total Special charges, net of income taxes


  9         0.03



  34         0.12
Adjusted income from continuing operations - Non-GAAP


$ 162       $ 0.60



$ 287       $ 1.06





















 





                         





2017 Outlook





                  Diluted EPS
Income from continuing operations - GAAP


$ 600 - $ 659



$ 2.22 - $ 2.45
Restructuring, net of taxes of $18 million and $12 million


29 - 20



0.10 - 0.07
Arctic Cat restructuring, integration and transaction costs, net of taxes of $9 million


21



0.08
Total Special charges, net of income taxes


50 - 41



0.18 - 0.15
Adjusted income from continuing operations - Non-GAAP


$ 650 - $ 700



$ 2.40 - $ 2.60

















 

















 

















 
Manufacturing Cash Flow Before Pension Contributions GAAP to Non-GAAP Outlook:























       














2017 Outlook
Net cash from operating activities of continuing operations - GAAP











$ 1,045 - $ 1,145
Less: Capital expenditures











(450)
Plus: Total pension contributions











55
Manufacturing cash flow before pension contributions- Non-GAAP











$ 650 - $ 750













 

 

 



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