OREANDA-NEWS. 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.

Conference Call Information

Textron will also host a conference call at 8:00 a.m. (Eastern) to discuss the results and the company’s outlook. The call will be available via webcast at www.textron.com or by direct dial at (877) 209-9921 in the U.S. or (612) 332-0107 outside of the U.S. (request the Textron Earnings Call).

In addition, the call will be recorded and available for playback beginning at 10:30 a.m. (Eastern) on Wednesday, July 19, 2017 by dialing (320) 365-3844; Access Code: 408727.

A package containing key data that will be covered on today’s call can be found in the Investor Relations section of the company’s website at www.textron.com.

About Textron Inc.

Textron Inc. is a multi-industry company that leverages its global network of aircraft, defense, industrial and finance businesses to provide customers with innovative solutions and services. Textron is known around the world for its powerful brands such as Bell Helicopter, Cessna, Beechcraft, Hawker, Jacobsen, Kautex, Lycoming, E-Z-GO, Greenlee, Textron Off Road, Arctic Cat, Textron Systems, and TRU Simulation + Training.

 
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