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Will Poor Deliveries Hurt Textron's (TXT) Earnings in Q3?

Zacks.com logo Zacks.com 10/27/2020

Textron Inc. TXT is scheduled to report third-quarter 2020 results on Oct 29, before market open.

In the last reported quarter, the company delivered an earnings surprise of 186.67%. Moreover, it surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average earnings surprise being 44.33%.

Textron’s Bell segment’s dismal performance is likely to have hurt results in the soon-to-be-reported quarter.

Let’s see how things are shaping up prior to this announcement.

Poor Bell Segment Projections

The Bell segment has been witnessing dismal performance from its commercial business in recent times due to delivery delays stemming from coronavirus-induced travel restrictions. However, solid military volumes have been boosting the segment’s quarterly results. We may expect the upcoming results to duly reflect these trends.

The Zacks Consensus Estimate for the segment’s third-quarter revenues stands at $767 million, indicating a 2% decline from the year-ago quarter’s tally.

During the third quarter, Textron’s Bell segment delivered the Bell 505 helicopter to the Montenegro Air Force. Also, during the quarter, the segment delivered the first Bell Boeing V-22 Osprey to the Japan Ground Self Defense Force (JGSDF). Such deliveries are likely to have boosted the Bell segment’s quarterly performance.

Other Factors at Play

Apart from the company’s Bell segment, delivery figures made by the other segments remained fairly poor during the third quarter. In addition to the delivery of a Beechcraft King Air 350ER aircraft by Textron Aviation to Australian aviation service company, Skytraders, no other deliveries were executed. Notably, such dismal figures are likely to have negatively impacted overall revenues in the third quarter.

The Zacks Consensus Estimate for third-quarter sales stands at $2.82 billion, suggesting a decline of 13.4% from the figure reported in the prior-year quarter.

The company is expected to have incurred significant idle facility costs due to temporary manufacturing facility closures and employee furloughs, resulting from the COVID-19 pandemic. Further, in the previous quarter, the company announced its restructuring plan that led to significant pre-tax charges and other special charges. We expect these trends to have continued in the third quarter as well, which makes us skeptical about Textron’s third-quarter earnings.

In line with this, the Zacks Consensus Estimate for third-quarter earnings, pegged at 35 cents per share, suggests a 63.2% fall from the year-ago quarter’s reported figure.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Textron this earnings season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Textron has an Earnings ESP of -1.45% and a Zacks Rank #4 (Sell). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Textron Inc. Price and EPS Surprise

chart, line chart, scatter chart: Textron Inc. Price and EPS Surprise © Provided by Zacks.com Textron Inc. Price and EPS Surprise

Textron Inc. price-eps-surprise | Textron Inc. Quote

A Stock to Consider

Here is a defense company you may want to consider as it has the right combination of elements to post an earnings beat in its upcoming release:

L3Harris Technologies Inc. LHX has an Earnings ESP of +0.57% and a Zacks Rank #3. The company will announce third-quarter 2020 earnings on Oct 30. You can see the complete list of today’s Zacks #1 Rank stocks here.

Upcoming Defense Releases

Boeing BA, a Zacks Rank #4 (Sell) company, will release third-quarter results on Oct 28.

General Dynamics GD, another Zacks Rank #4 company, is scheduled to release third-quarter 2020 results on Oct 28.

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