Textron Reports 50% EPS Increase in Second Quarter
22 July 1999
Textron Reports 50% EPS Increase in Second Quarter; Focused Multi-Industry Strategy Leads Textron to Record Results; 39th Consecutive Quarter of Year-to-Year Income Improvement
PROVIDENCE, R.I.--July 22, 1999--Textron Inc. today reported second quarter diluted earnings per share from continuing operations of $1.05, up 50 percent from $0.70 last year. This marks Textron's 39th consecutive quarter of year-to-year income improvement."As Textron reaches the mid-year point with strong, double-digit earnings and revenue growth, we are poised to deliver another record year in 1999," said Textron Chairman and Chief Executive Officer Lewis B. Campbell.
Through a balance of internal growth and acquisitions, revenues in the second quarter grew 16 percent to a record $2.9 billion from $2.5 billion in 1998. Income from continuing operations increased 40 percent to $162 million from $116 million in the prior year. Net income was $162 million compared with $164 million in 1998, which included $48 million from a discontinued operation.
"This quarter's record results demonstrate the strength of Textron's multi-industry strategy and our ability to continually deliver strong value to our shareholders and customers worldwide," said Campbell. "Double-digit growth in revenues and operating income in our Automotive, Industrial and Finance segments balanced results from our Aircraft segment, where we are investing in innovative products and technologies to fuel future growth," he added.
In April, Textron's Industrial segment acquired Flexalloy, a leader in distribution and logistical services for the fastener industry with approximately $185 million in fiscal year 1998 revenues, adding complementary services to Textron's world-leading, $2 billion Fastening Systems Group. Since April, the Industrial segment has made an additional four acquisitions with approximately $50 million in combined full year 1998 revenues, bringing new technologies and expanded systems support to its $1 billion Fluid & Power Systems Group.
In May, Textron Automotive Company announced strategic partnerships with key suppliers to Fiat for the design, development, manufacture and assembly of instrument panels and integrated cockpit systems for the Italian automotive market. During the same month, the U.S. Marines took delivery of its first production V-22 Osprey aircraft, whose revolutionary tiltrotor technology, jointly developed by Bell Helicopter and Boeing, combines the takeoff and landing capabilities of a helicopter with the speed and range of a fixed-wing turboprop aircraft.
Consistent with Textron's plan to redeploy 60% of the $2.9 billion in after-tax proceeds from the sale of Avco Financial Services to fund acquisitions and the remaining 40% for share buybacks, Textron has made twelve acquisitions and repurchased approximately sixteen million shares since August of 1998.
"With eight acquisitions already completed in 1999 and a full pipeline of opportunities ahead, Textron remains on track this year to acquire complementary businesses that will add $1 billion in revenues to our core operations," said Campbell.
For the first six months of 1999, diluted earnings per share from continuing operations increased 53 percent to a record $1.98 per share from $1.29 in 1998. Revenues grew 19 percent to a record $5.6 billion in 1999 from $4.7 billion the prior year, while income from continuing operations rose 43 percent to $307 million from $215 million last year.
In January 1999, Textron completed the sale of Avco Financial Services and recorded a gain of $1.62 billion. Textron also recorded an extraordinary loss of $43 million on the early retirement of debt in the first quarter of 1999. Net income for the six months, including the gain and extraordinary loss, was $1.88 billion versus $306 million in 1998, which included $91 million from a discontinued operation.
Textron Inc. is a $10 billion, global, multi-industry company with market-leading businesses in Aircraft, Automotive, Industrial and Finance. Textron has a workforce of over 64,000 employees and major manufacturing facilities in 23 countries. Textron is among Fortune magazine's "America's Most Admired Companies," and Industry Week magazine's "Best Managed Companies." Additional information is available at www.textron.com.
Forward-looking Information: Certain statements in this release are forward-looking statements including those that discuss strategies, goals, outlook or other non-historical matters; or project revenues, income, returns or other financial measures. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the statements, and are detailed in our Annual Report and our filings under the Securities and Exchange Act of 1934.
TEXTRON SEGMENT ANALYSIS
Aircraft
For the quarter, segment revenues increased 3%, while income decreased 18%.
Cessna's revenues increased as a result of higher sales of business jets, primarily the Citation Excel, and higher single engine aircraft sales. Income for the quarter decreased slightly as the contribution from the higher sales was more than offset by lower margins on increased international sales, higher manufacturing costs associated with the ramp-up in production of new aircraft, and increased new product development expense related to the Citation CJ2. Cessna's backlog remained at a record $4.2 billion.
Bell's revenues decreased primarily due to lower commercial and U.S. Government helicopter sales, partially offset by higher U.S. Government revenues on the V-22 production contract and the Huey and Cobra upgrade contracts. Income for the quarter decreased primarily due to the lower revenues, a change in product mix reflecting lower margins on commercial and U.S. Government helicopter sales, and higher expenses related to new product development. This unfavorable impact was partially offset by the recognition into income of cash received in the fourth quarter of 1998 on the formation of a joint venture on the BA 609 program. Bell's backlog of $1.8 billion remained unchanged from the end of the first quarter.
Automotive
For the quarter, revenues and income increased 30 percent and 44 percent, respectively.
The increase in revenue was primarily due to higher volume at Kautex associated with capacity expansion in North America and higher sales at Trim, reflecting increased DaimlerChrysler and General Motors production which was depressed in 1998 by a strike at General Motors. The increase in revenue also reflected the benefit of acquisitions. Despite customer price reductions, income for the quarter increased due to the contribution from higher organic sales and improved performance at Trim and Kautex.
Industrial
For the quarter, revenues and income increased 20 percent and 23 percent, respectively.
Results reflected the contribution from acquisitions and higher organic sales in the Golf, Turf Care & Specialty Products Group, combined with ongoing margin improvement. In addition, second quarter 1998 results were depressed by a one month strike at Textron's Jacobsen plant and a strike at General Motors. The following acquisitions were the primary drivers of growth for the quarter: Ring Screw Works (5/9/98), David Brown (10/10/98) and Flexalloy (3/31/99). Partially offsetting the benefit from acquisitions were the divestiture of Fuel Systems (6/19/98) and lower organic sales in the Fluid & Power Systems Group.
Finance
For the quarter, revenues and income increased 14 percent and 11 percent, respectively.
Revenues for the quarter increased due to a higher level of average receivables and an increase in servicing fee income, partially offset by lower yields on receivables and a decrease in lease revenues. Income increased as the benefit of higher revenues more than offset higher expenses related to growth in the service and fee-related business and a higher provision for loan losses related to the equipment finance portfolio.
Interest Income and Expense - Net
For the second quarter, net interest for Textron decreased $39 million as a result of the proceeds received in January 1999 from the sale of Avco Financial Services. Interest income increased $6 million as a result of the company's net investment position, while interest expense decreased $33 million due to a lower level of average debt, resulting from the pay down of debt with the Avco Financial Services proceeds.
RECENT COMPANY HIGHLIGHTS
Corporate
--In June, Textron Inc. credit ratings from Standard & Poor's,
Moody's and Duff & Phelps were raised, reflecting the company's strong
earnings stability, continuing year-over-year income growth and
improving quantitative credit measures. The new credit ratings are as
follows:
Senior Short-Term
Long-Term Commercial Paper
Standard & Poor's A A-1
Moody's A2 P-1
Duff & Phelps A D-1
Aircraft
--In April, ahead of schedule, Cessna's Citation CJ2 program reached its first major milestone with the first flight of the CJ2 prototype. The new CJ2 was introduced in response to market demand for higher cruise speeds, more cabin room and greater range than the CitationJet. Full FAA type certification for the aircraft is expected during the second quarter 2000 with first deliveries in the third quarter.
--In June, at the Paris Air Show, the Bell/Agusta Aerospace Company (joint venture) introduced the AB139 helicopter, which accommodates up to 15 passengers and will meet a wide range of market demands. In addition to the AB139, the Bell/Agusta Aerospace Company is also partnering for the continued development, marketing and sales of the BA609 commercial tiltrotor aircraft. Both aircraft are expected to receive certification in 2002.
--On June 25 and July 5, the 4th Cessna Citation Special Olympics Airlift took place. Nearly 275 Cessna Citation business jets, donated by 260 individuals and companies, transported almost 2,000 Team USA athletes and coaches from 27 states and the District of Columbia to and from the Special Olympics Summer World Games.
Automotive
--In April, Textron Automotive Company acquired Bates Technologies, Inc., a $5 million-in-sales manufacturer and distributor of after-market honing products. The acquisition was integrated into Micromatic Textron, which produces proprietary machine tools, components and assembly systems for automotive and commercial markets.
--In May, Textron Automotive Company partnered with Magneti Marelli of Italy and U.S.-based Breed Technologies, for the manufacture and assembly of instrument panels and integrated cockpit systems to the Italian automotive market, primarily Fiat.
--In June, Textron Automotive Company celebrated the opening of its new 87,000 square-foot DaimlerChrysler Integration and Advanced Technology Centers in Auburn Hills, Michigan.
--In June, Kautex received the Audi Quality Award for 1998. The award is a measure of quality, technical innovation, flexibility, cost discipline and partnership. Kautex was among 40 suppliers to receive this honor and the only supplier to be recognized in the area of fuel systems.
--In June, at the fourth annual Automotive & Transportation Interiors Design & Technology Awards, Textron Automotive Company received honorable recognition for product innovations at McCord Winn for the development of the ASCTec(R) seat comfort system and at TAC-Trim for the Envirosoft (tm) process that increases durability of instrument panels.
Industrial
--In April, Textron Fastening Systems acquired Flexalloy, a leading distributor and provider of vendor managed inventory services for the North American fastener market. Flexalloy's 1998 revenues were approximately $185 million.
--In April, Textron's Fluid & Power Systems Group acquired LCI Corporation International's Fluid Systems Division, a $12 million manufacturer and assembler of gear pumps, filtration systems and accessory equipment for the polymer, extrusion and industrial pump industry.
--In June, Textron's Fluid & Power Systems Group acquired Energy Mfg. Co., Inc. and Williams Machine & Tool Co., leading manufacturers of welded hydraulic cylinders, valves, pumps and reservoirs for the agriculture, construction, waste handling, truck equipment and other industries utilizing hoist and material handling technology. Combined 1998 revenues for the companies were approximately $28 million.
--In July, Textron's Fluid & Power Systems Group acquired ALSTOM Gears, part of the France-based multi-industry ALSTOM. Based in the U.K., ALSTOM Gears manufactures and sells a range of gears and gearboxes, including high-speed epicyclic and parallel shaft gearboxes, for the industrial, rail and marine industries. For the fiscal year-ended March 1999, ALSTOM Gears' revenues were approximately $10 million.
Finance
--In April, Textron Financial Corporation President Stephen Giliotti assumed the additional titles of Chairman and Chief Executive Officer. The diversified commercial finance company specializes in aircraft, golf and equipment finance and revolving credit arrangements including the financing of Textron products.
--In July, Textron Financial Corporation acquired RFC Capital Corporation (RFC). With approximately $70 million in receivables, RFC is a specialty finance company serving the telecommunications industry.
TEXTRON INC.
SECOND QUARTER AND SIX MONTHS
(Dollars in millions except per share amounts)
Second Quarter Six Months
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
Revenues $2,887 $2,484 $5,636 $4,736
Income before
income taxes $266 $209 $508 $379
Income taxes (97) (86) (188) (151)
Distribution on
preferred securities
of subsidiary trust,
net of income taxes (7) (7) (13) (13)
Income from continuing
operations 162 116 307 215
Discontinued operation,
net of income taxes (a) -- 48 1,615 91
Extraordinary loss on
retirement of debt,
net of income taxes -- -- (43) --
Net income $162 $164 $1,879 $306
Diluted earnings per share:
Income from
continuing operations $1.05 $0.70 $1.98 $1.29
Discontinued
operation (a) -- 0.28 10.40 0.54
Extraordinary loss on
retirement of debt -- -- (0.27) --
Net income $1.05 $0.98 $12.11 $1.83
Average shares
outstanding 154,096,000 168,027,000 155,230,000 167,541,000
(a) The gain on the sale of Avco Financial Services, Inc. which was
sold to Associates First Capital Corporation on January 6, 1999 was
recorded in the Q1 1999 results.
TEXTRON INC.
REVENUES AND INCOME BY BUSINESS SEGMENT
SECOND QUARTER AND SIX MONTHS
(In millions)
Second Quarter Six Months
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
REVENUES
MANUFACTURING:
Aircraft $ 885 $ 858 $ 1,712 $ 1,514
Automotive 757 583 1,491 1,201
Industrial 1,141 952 2,233 1,845
2,783 2,393 5,436 4,560
FINANCE 104 91 200 176
Total revenues $ 2,887 $ 2,484 $ 5,636 $ 4,736
INCOME
MANUFACTURING:
Aircraft $ 75 $ 91 $ 142 $ 152
Automotive 62 43 124 99
Industrial 133 108 255 203
270 242 521 454
FINANCE 30 27 56 52
Segment operating
income 300 269 577 506
Gain on sale of
division -- 97 -- 97
Special (charges)
credits (2) (87) (2) (87)
Corporate expenses
and other - net (35) (34) (73) (68)
Interest income 6 -- 22 --
Interest expense (3) (36) (16) (69)
Income before income
taxes $ 266 $ 209 $ 508 $ 379