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Textron Rises as Forecast Beats Estimates Amid Cessna Demand

Textron Inc. (TXT) climbed the most in more than two years after forecasting higher 2012 profit than analysts estimated amid growing demand for Cessna aircraft and Bell helicopters.

Textron jumped 15 percent to $24.85 at 10:48 a.m. in New York trading. Earlier the stock advanced as much as 16 percent, its biggest intraday gain since July 2009. Before today, the shares had lost 20 percent of their value in the past year.

Earnings from continuing operations, excluding one-time items, will be $1.80 a share to $2 this year, the Providence, Rhode Island-based company said in a statement. The average of nine analysts’ estimates compiled by Bloomberg was $1.67.

Chief Executive Officer Scott Donnelly is working to leverage the company’s businesses with measures such as having Cessna and Bell share overseas service centers and sales forces. Textron is winding down its finance unit, which struggled during the recession.

“The 2012 guidance is a positive surprise,” since most investors expected a forecast slightly below estimates, Julian Mitchell, a New York-based analyst with Credit Suisse Group AG, said in a note to clients. He rates the shares “neutral.”

Textron posted a fourth-quarter net loss of $19 million, or 7 cents a share, compared with profit of $60 million, or 19 cents, a year earlier.

Cessna Backlog

Excluding 55 cents a share in one-time items such as adjustments in the finance unit and a loss from convertible note repurchases, profit from continuing operations was 49 cents a share. That exceeded the 34-cent average of 14 analysts’ estimates compiled by Bloomberg.

At Cessna, which had to halve its workforce when sales plunged during the recession, fourth-quarter revenue increased 5.3 percent to $1.01 billion. Higher volumes of used jets, single-engine planes and Caravans made up for deliveries of Citation business jets dropping to 67 from 79, the company said. The unit’s backlog dropped 13 percent to $1.9 billion.

“We do not see it as a good sign that the backlog was again down in what was expected to be the strongest quarter for sales,” Robert Stallard, a New York-based analyst at RBC Capital Markets, wrote in a note to clients.

Cessna’s profit more than doubled to $60 million, while Bell helicopter earnings advanced 21 percent to $167 million.

Bell Deliveries

Bell delivered 62 commercial aircraft in the latest period, down from 71 a year earlier. The unit contributed about 31 percent of Textron’s 2011 revenue, compared with Cessna’s 27 percent. Its backlog climbed to $7.3 billion, a $981 million increase.

Revenue at Cessna will probably climb 14 percent to $3.4 billion with profit advancing 3.5 percent to 4.5 percent, Textron said today in a presentation posted on its website.

Demand for business jets “should build throughout the year,” Donnelly said. “Longer term, we expect jet growth to accelerate as the global economy stabilizes, emerging markets develop further and our new products roll into the marketplace,” he said.

Cessna may break even in the first quarter, Donnelly said. In last year’s first quarter, the unit had a loss of $14 million.

Textron will probably make a decision on whether to adjust production rates at Cessna in mid-2012, the CEO said. A drop in demand such as the one that occurred in 2008 and 2009 would “absolutely” trigger cutbacks, he said, though the scenario “seems fairly unlikely given where we are right now, and certainly unlikely given the level of activity we are seeing with our customers.”

‘Huge Investment’

Cessna isn’t considering building bigger business jets, Donnelly said, adding that there are better investments to be made in its line of light and midsized aircraft.

A bigger jet “would be a huge investment,” he said. “I don’t think it would be the right use of our capital.”

Bell will probably record a “significant” increase in commercial helicopter deliveries this year from last year’s tally of 125, Donnelly said. Revenue at the unit will probably climb 19 percent to about $4.2 billion, with profit advancing 13 percent to 14 percent, Textron said.

Textron builds the V-22 Osprey plane with Boeing Co. and makes other military equipment, including drones and armored vehicles. The company, founded as a textile producer in 1923, also builds E-Z-GO golf carts, Greenlee tools and Kautex plastic fuel systems.

Total quarterly revenue rose 4.1 percent to $3.25 billion from $3.13 billion a year earlier, outpacing analysts’ estimates of $3.24 billion. Revenue in 2012 may climb to $12.5 billion from last year’s $11.28 billion, the company said.

Golf Mortgage

Textron may need as long as two years to sell its finance unit’s Golf Mortgage assets, which include loans for golf courses as well as construction and refinancing of hotels, Donnelly said. The portfolio is valued at about $381 million.

“I don’t think it’s going to be one transaction, I don’t think it’s going to happen within six months,” he said. “It’s not our objective to fire-sale these things. It’s probably more like a two-year time horizon kind of a deal.”

Textron plans to boost spending on research and development by 22 percent to about $590 million, Chief Financial Officer Frank Connor said. Pension costs this year will be little changed at about $180 million.

To contact the reporters on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net; Susanna Ray in Seattle at sray7@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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