Textron Inc. (TXT) posted earnings per share of 29 cents for the quarter excluding one-time items, handsomely outpacing both the Zacks Consensus Estimate of 10 cents and the year-ago quarterly earnings of 8 cents per share. On a reported basis, after including a restructuring charge, income from continuing operations came in at 27 cents in the reported quarter, compared to a loss of 23 cents in the year-ago quarter.

Operational Results

Textron in the reported quarter witnessed 3.7% higher revenues year-over-year to $2.7 billion. The upside was reflected in the operating profit, which jumped 83% year-over-year to $161 million in the reported quarter. Operating profit was boosted by a lower cost structure, good operational execution and the ramp-up in military programs at Bell.

Segment Results

Cessna

Cessna’s revenues decreased 27.1% year-over-year to $635 million. The downside came from lower volumes, primarily reflecting the delivery of 43 new jets in the reported quarter, compared to 84 new jets in the year-ago quarter. These were partially offset by higher aftermarket and used aircraft volumes.

Cessna registered an operating profit of $3 million in the reported quarter compared to a profit of $48 million in the year-ago quarter. The downside is attributed to lower volume and a reduction in deposit forfeiture income, partially offset by lower used aircraft write-downs, inventory reserves and selling and administrative expenses.

Bell

Bell’s revenues increased 22.8% to $823 million in the reported quarter, due to lower deliveries of V-22 and H-1 aircraft along with higher spares and support volume. This was partially offset by lower commercial aircraft volume.

Segmental profit increased $36 million year-over-year to $108 million due to improved performance, higher military volume and re-pricing of commercial aircraft to adjust for inflation. The improved performance reflects the recognition of expected reimbursements for prior-period H-1 and V-22 program costs and the non-recurrence of costs related to the termination of certain commercial models in 2009.

Textron Systems

Revenues at Textron Systems increased 12% year-over-year to $534 million in the reported quarter. The upside was primarily due to higher Unmanned Aircraft Systems volume.

Segmental profit increased $15 million to $70 million due to the impact of higher volume and improved performance.

Industrial

Revenue in the Industrial segment increased $153 million year-over-year to $661 million in the reported quarter. The topline was boosted primarily by higher volumes, partially offset by an unfavorable foreign exchange impact.

Industrial segment profit increased $39 million year-over-year to $51 million in the reported quarter. This was due to higher volumes and improved cost performance.

Finance

Finance revenues decreased $30 million year-over-year to $56 million in the reported quarter. However, revenues were higher in the year-ago period due to gains from debt extinguishment and higher average finance receivables.

In the reported quarter, the Finance segment’s loss improved $28 million year-over-year to a loss of $71 million. This was primarily due to lower loan loss provisions, portfolio losses and selling and administrative expenses. This was partially offset by the non-recurrence of gains on debt extinguishment and the impact of lower average finance receivables.

Compared to the first quarter of 2010, Textron was able to reduce 60-day plus delinquencies of finance receivables held for investment to $385 million from $515 million and non-accrual finance receivables decreased to $876 million from $1.03 billion. At the reported quarter-end managed receivables were $5.6 billion, down from $6.3 billion at the end of the first quarter of 2010.

Financial Condition

Textron ended the quarter with cash and cash equivalents of approximately $1 billion, compared to $1.4 billion at the end of the year-ago period. The company generated $339 million of cash for operations in the reported quarter, compared to $169 million in the year-ago quarter. Long-term debt decreased to $2.9 billion at the end of the quarter from $3.5 billion at the end of fiscal 2009.

Outlook

Textron has revised upwards its fiscal 2010 EPS from continuing operations in the range of 55 cents – 65 cents from 30 cents – 50 cents. The current Zacks Consensus Estimate for fiscal 2010 is a tad lower at 53 cents. Textron has reaffirmed its free cash flow guidance range of $500 – $550 million for fiscal 2010.

We maintain our Neutral recommendation on Textron with a quantitative Zacks #3 Rank (Hold), indicating no clear directional pressure on the shares over the near term.
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