Textron Reports Second Quarter EPS of $1.23
20 July 2000
Operating Margin Increases 110 Basis Points; Revenues Up 12%
PROVIDENCE, R.I. - Textron Inc. today reported second-quarter diluted earnings per share of $1.23, up 17% from $1.05 in 1999, marking Textron's 43rd quarter of consecutive quarter-over-year-ago-quarter earnings growth.Revenues for the quarter increased to $3.2 billion, up 12% from $2.9 billion, while operating income increased to $372 million, up 24% from $300 million last year. Operating margin rose 110 basis points to 11.5% from 10.4% in 1999, led by manufacturing margins, which were up 100 basis points. Net income increased to $179 million from $162 million a year ago. During the quarter, Textron repurchased 1.5 million shares.
Lewis B. Campbell, Chairman and Chief Executive Officer said, "We are pleased to be able to deliver another quarter of strong earnings growth, while continuing to make investments in our businesses to improve operational efficiency and product innovation."
Textron Quality Management initiatives (including operating process improvements, intensified integration efforts and targeted cost reductions) led strong results across Textron's segments:
--Aircraft's operating margin increased 270 basis points to 11.2%, while revenues increased 8%. Bell and Cessna continued to focus on more efficient supply chain management and other Textron Quality Management initiatives. In early July, Cessna announced the formation of a new fractional ownership business, CitationShares, in partnership with TAG Aviation USA, Inc. CitationShares will be focused on regional travel and the light jet market with the lowest cost for fractional ownership in a new business jet.
--Automotive reported another exceptional quarter of improved profitability as a result of the continued implementation of Textron Quality Management at all divisions, increasing the operating margin 120 basis points to 9.4% from 8.2% last year. Automotive's sales increased 3%, overcoming customer pricing pressures and a 2% net unfavorable impact of foreign exchange.
--Industrial's operating margin demonstrated sequential quarterly improvement, increasing to 11.2% from 10.1% in the first quarter, down slightly compared with the year ago quarter. Acquisitions in Industrial drove an increase in revenues of 15%. "We are intensifying acquisition integration efforts and Textron Quality Management implementation in our Industrial segment. We just appointed Sam Licavoli to head the Industrial Products group, which represents about 55% of the Industrial segment, and we fully expect he will lead improvements in organic sales growth and operating margins. He has successfully demonstrated his ability to deliver these improvements in Automotive, and we are confident in his commitment to achieve these results in the Industrial Products group," said Campbell.
--Textron Financial continued to achieve strong growth, reporting a 63% improvement in revenue, while delivering an increase in operating income of 47%.
During the quarter, Textron also continued to execute upon its e-business strategy aimed at reducing costs and driving growth throughout the company.
Continuation of "JumpSmart" employee training sessions with Safeguard Scientifics
--As part of Textron's partnership with Safeguard Scientifics, Textron teamed with Cambridge Technology Partners (a Safeguard network company) for a comprehensive e-business immersion program. To date, this program has included training on e-business opportunities in the new economy to hundreds of Textron managers as well as the company's Board of Directors.
E-Procurement Agreement with CoNext and Ariba
--In June, Textron teamed with EDS CoNext and Ariba to implement B2B e-procurement processes for the purchase of indirect goods and services at the company's worldwide divisions. Globally, Textron purchases $1.5 billion of indirect goods and services annually. Over the next three to four years, Textron expects that its total e-procurement initiatives related to indirect spending will reduce costs by over $150 million.
Investment in EqualFooting.com
--In early July, Textron announced an investment of $25 million in EqualFooting.com, an online B2B marketplace primarily for small businesses offering a variety of products and services, including purchasing, financing and shipping. The partnership is the latest in a series of recent Internet-related investments, alliances and internal initiatives by Textron.
"As our Textron Quality Management and e-business initiatives continue to gain momentum, we are well on track to achieve our full-year and long-term targets for revenue and operating income growth and return on capital," said Campbell.
For the first six months of 2000, diluted earnings per share from continuing operations increased 16% to $2.29 per share from $1.98 in 1999. Revenues grew 15% to $6.5 billion from $5.6 billion the prior year, while operating income rose 23% to $708 million from $577 million last year. Income from continuing operations increased to $337 million from $307 million in 1999. During the six months, Textron repurchased 3.9 million shares.
Textron Inc. is an $11.6 billion, global, multi-industry company with market-leading businesses in Aircraft, Automotive, Industrial and Finance. Textron has a workforce of over 68,000 employees and major manufacturing facilities in 30 countries. Textron is among Fortune magazine's "Global Most Admired Companies."
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, including the following: (a) the extent which Textron is able to successfully integrate acquisitions, (b) changes in worldwide economic and political conditions and associated impact on interest and foreign exchange rates, (c) the occurrence of work stoppages and strikes at key facilities of Textron or Textron's customers or suppliers, (d) the extent to which the Company is able to successfully develop, introduce, and launch new products and enter new markets, (e) the level of government funding for Textron products, and (f) successful implementation of e-procurement strategies. For the Aircraft Segment: (a) the timing of certifications of new aircraft products and (b) the occurrence of a severe downturn in the U.S. economy that discourages businesses from purchasing business jets. For the Automotive Segment: (a) the level of consumer demand for the vehicle models for which Textron supplies parts to automotive original equipment manufacturers ("OEM's") and (b) the ability to offset, through cost reductions, pricing pressure brought by automotive OEM customers. For the Industrial Segment: the ability of Textron Fastening Systems to offset, through cost reductions, pricing pressure brought by automotive OEM customers. For the Finance Segment: (a) the level of sales of Textron products for which TFC offers financing and (b) the ability of TFC to maintain credit quality and control costs when entering new markets.
TEXTRON SEGMENT ANALYSIS
AIRCRAFT
The Aircraft segment's revenues and income increased 8% and 43%, respectively.
Cessna's revenues increased due to higher sales of business jets, primarily the Citation Excel and Citation Bravo, higher Caravan sales, and increased spares and service revenues. Income increased as a result of the higher sales and improved operating performance. Cessna's backlog increased to a record $5.6 billion from $5.5 billion at the end of the first quarter.
Bell Helicopter's revenues decreased as higher revenues on the V-22 production contract and the Huey and Cobra upgrade contracts, higher foreign military sales and increased military spares sales were offset by lower sales of commercial and other military helicopters and lower V-22 spares sales. Bell's income increased due to improved margins and lower product development costs, primarily as a result of the contribution from a new supplier on the BA 609 fuselage. The favorable impact was partially offset by the impact of the lower revenues and a lower 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 at $1.9 billion remained unchanged from the end of the first quarter.
AUTOMOTIVE
The Automotive segment's revenues increased 3%, while income increased 18%, with operating margins up 120 basis points.
Increased revenues were due to the contribution from the Plascar acquisition, the Breed Automotive S.r.l. joint venture, and increased volume at GM, primarily the new GM Malibu cockpit program. This increase was partially offset by lower builds on other Trim platforms, customer price reductions and a $13 million unfavorable impact of foreign exchange at Kautex. Income increased due to the contribution from higher revenues and improved operating performance.
INDUSTRIAL
The Industrial segment's revenues and income increased 15% and 11%, respectively.
Textron Fastening Systems revenues increased, reflecting the contribution from acquisitions, primarily InteSys. This increase was partially offset by lower sales at Automotive Solutions, reflecting the unfavorable impact of foreign exchange in its European operations and customer pricing pressures, and reduced customer requirements related to the heavy truck business at the Supply Chain Solutions group. Income decreased as the benefit of higher sales and improved operating performance in Commercial Solutions was more than offset by unfavorable operating performance at certain plants in North America, lower volume at the Supply Chain Solutions group, and the foreign exchange impact.
Textron Industrial Products revenues increased as a result of the contribution from acquisitions, primarily OmniQuip, and higher organic sales at Greenlee, Motion Control Products and Textron Lycoming. These increases were partially offset by lower revenues at Textron Systems due to a change in contract mix and reduced customer requirements, and lower demand at Fluid Handling Products, Turbine Engine Components and Power Transmission Products. Income increased primarily as a result of the contribution from acquisitions and improved margins at Motion Control Products and Textron Lycoming.
FINANCE
The Finance segment's revenues increased 63% due to a higher level of average receivables, reflecting both acquisitive and organic growth, a higher yield on receivables, and higher syndication and other income. Income increased 47% as the benefit of higher revenues was partially offset by higher expenses related to the growth in managed receivables and a higher provision for loan losses related to the growth in receivables. Net interest margin was also adversely impacted by a delay in re-pricing short-term loans as a result of increases in the prime rate.
CORPORATE EXPENSES AND OTHER - NET
Corporate expenses and other - net increased $6 million primarily due to the impact of costs associated with strategic and e-business initiatives.
INTEREST INCOME AND EXPENSE - NET
Net interest for Textron manufacturing increased $44 million from the second quarter of 1999, due to the re-leveraging that occurred following the divestiture of AFS. Interest expense increased $38 million due to a higher level of average debt as a result of acquisitions and share repurchases. In 1999, Textron realized interest income of $6 million as a result of its net investment position.
INCOME TAXES
The current quarter's effective income tax rate of 35.9% was lower than the corresponding prior year rate of 36.5%. The decrease in the 2000 tax rate was primarily due to the benefit of tax planning initiatives.
RECENT COMPANY HIGHLIGHTS
Corporate
--In June, Textron further advanced its e-procurement strategy teaming with EDS CoNext(TM) and Ariba, to begin to bring significant cost savings on the purchase of indirect goods and services across the company's divisions.
--In early July, Textron announced an investment of $25 million in EqualFooting.com. EqualFooting.com is a B2B online marketplace offering a wide variety of products and services, including purchasing, financing and shipping, targeting small businesses primarily in the manufacturing and construction industries.
--In early July, Textron named Sam Licavoli chairman, president and chief executive officer of the company's $3.0 billion Industrial Products group. Licavoli was previously chairman, president and chief executive officer of Textron Automotive Company.
Aircraft
--In May, Bell Helicopter received Dual Pilot IFR and Category A Flight Operations certification from the FAA for the Bell 427 light twin-engine helicopter. Currently, there are 80 orders from 50 different customers around the world for the 427.
--In early July, Bell Helicopter received approval from the House and Senate for the procurement of 42 Huey II helicopters. The Huey II's will be purchased for the Colombian army's transport of counter-narcotics units.
--During the quarter, Cessna received FAA certification for the Citation Encore (certified on April 26th), an upgrade to the Citation Ultra providing improved mission flexibility, ground handling and maintainability, and the Citation CJ2 (certified on June 21), a larger, faster version of the Citation CJ1. Also certified this year was the Citation CJ1 (certified on February 16th), the successor to the CitationJet.
--In May, Cessna dedicated its newest Citation Service Center at Sacramento International Airport. With 40,000 square feet of hangar space, the new facility is designed to accommodate all Citation products and offers a full-range of maintenance, repair, overhaul and other services, including avionics and engine support. The new facility replaces the 12,000-square-foot Service Center opened in 1973 to serve Citation customers in northern California. Cessna has nine service centers in the United States and one in Paris, France.
--In early July, Cessna and TAG Aviation USA, Inc. announced the formation of CitationShares, a new company to serve the rapidly expanding fractional ownership market. The new joint venture will be 50% owned by Cessna and will provide customers with the lowest cost for fractional ownership in a new business jet. This includes the lowest purchase price, monthly management fee and hourly operating cost.
Automotive
--During the quarter, Textron Automotive received over $130 million in new contract awards for platforms beginning between 2002 and 2004, with major automakers including GM, Mazda, Ford, BMW, Audi and Skoda.
--During the quarter, three separate Trim facilities - Port Huron, Guelph and Rantoul - received the DaimlerChrysler Gold Award.
--In May, McCord Winn Textron, a leading supplier of fluid management systems, automotive windshield and headlamp washing systems, seating comfort systems and electro-mechanical components, was presented with The 2000 Industrial Plastics Product Design Award for the design and development of the RITec(TM) (Reservoir Integration Technology). Presented at the Society of Plastics Engineers 58th Annual Technical Conference, the award is the fifth award for a RITec(TM) innovation.
--During the quarter, Kautex received the 1999 Supplier Quality Award from Subaru-Isuzu Automotive, Inc., for their exemplary quality on the Isuzu Amigo fuel tank system.
--In May, Mitsubishi Motor Manufacturing of America Inc., recognized Kautex Textron, a market leader in the development and manufacturing of blow molded plastic products for automotive supply and packaging with the Supplier Award, Production for their excellence in the areas of product quality, delivery and competitive value. Mitsubishi also recognized Textron Automotive Company Trim, a leading worldwide supplier of automotive interior and exterior plastic components for their effort and achievement in C.A.R.E., (Mitsubishi's Cost Avoidance and Reduction Effort).
--In June, Textron Automotive acquired Invensys plc's 56.6% interest in Brazil-based Plascar Industria e Comerico Ltda for approximately $36 million in debt guarantees. Plascar is the leading supplier of instrument panels and automotive trim products to global automotive manufacturers producing vehicles in South America. Plascar's 1999 revenues were approximately $108 million, and are projected to grow at a double-digit rate over the next three years.
Industrial
--In May, HR Textron, a provider of engineered motion control component and system solutions for a variety of factory automation, mobile equipment, automotive aerospace and defense needs, received the Design News Excellence in Design Award for its model 27N Rotary Direct Drive Servovalve. This product has applications ranging from automotive vehicle component testing to semiconductor manufacturing.
--In May, Textron Fastening Systems acquired Karl Oelschlager GmbH, a leading German manufacturer of metal stamped parts and engineered assemblies utilizing proprietary technologies in laser welding. Oelschlager's 1999 sales were approximately $19 million.
--In June, Greenlee Textron's RIFOCS business announced a $14 million contract awarded by the Space and Naval Warfare Systems Center in San Diego, California. As prime contractor, RIFOCS will manufacture, test and ship up to 270 units plus spares of the Global Positioning Fiber Optic Antenna Link Subsystem over a 5-year period.
--In June, Textron Fastening Systems acquired Advantage Molding and Decorating, a leading supplier of injection-molded parts, tooling, and pad-printed designs for the telecommunications industry. Advantage adds to Textron Fastening Systems' Advanced Solutions Group located in Gilbert, Arizona. Advantage's 1999 sales were approximately $12 million.
--In June, Textron Systems announced an agreement with Alliant Integrated Defense Company to jointly develop and produce a tactical munition system. The two companies will work closely with the U.S. Army Armament, Research, Development and Engineering Center to develop and propose the system.
Finance
--During the quarter, Textron Financial Corporation announced a number of new agreements to advance its financial service offerings over the internet. These included:
--An agreement with Live Capital(TM) to provide internet-based services for equipment financing and internet access to Textron Financial's franchise financial services and SBA backed loans.
--The use of CapitalStream.com to create an Internet-based application process and offer faster, more cost effective services, particularly in the area of vendor financing.
--An agreement with EqualFooting.com to provide loan and working capital financing for businesses that are procuring products on this internet site.
TEXTRON INC.
SECOND QUARTER AND SIX MONTHS
(Dollars in millions except per share amounts)
Second Quarter Six Months
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
Revenues $ 3,222 $ 2,887 $ 6,459 $ 5,636
Income before
income taxes $ 290 $ 266 $ 547 $ 508
Income taxes (104) (97) (197) (188)
Distribution on
preferred securities of
manufacturing subsidiary
trust, net of income taxes (7) (7) (13) (13)
Income from continuing
operations 179 162 337 307
Discontinued operation,
net of income taxes (a) -- -- -- 1,615
Extraordinary loss
on retirement of
debt, net of income taxes -- -- -- (43)
Cumulative effect of change
in accounting principle,
net of income taxes (b) -- -- (59) --
Net income $ 179 $ 162 $ 278 $ 1,879
Diluted earnings per share:
Income from continuing
operations $ 1.23 $ 1.05 $ 2.29 $ 1.98
Discontinued
operation (a) -- -- -- 10.40
Extraordinary loss
on retirement
of debt -- -- -- (0.27)
Cumulative effect
of change
in accounting
principle (b) -- -- (0.41) --
Net income $ 1.23 $ 1.05 $ 1.88 $ 12.11
Average shares
outstanding 146,304,000 154,096,000 147,630,000 155,230,000
(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.
(b) At its September 23, 1999 meeting, the Emerging Issues Task
Force adopted EITF 99-5 which requires certain pre-production
engineering costs to be expensed as incurred. Textron adopted the
cumulative effect of this accounting change, in January, 2000.
TEXTRON INC.
REVENUES AND INCOME BY BUSINESS SEGMENT
SECOND QUARTER AND SIX MONTHS
(In millions)
Second Quarter Six Months
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
REVENUES
MANUFACTURING:
Aircraft $ 958 $ 885 $ 1,861 $ 1,712
Automotive 777 757 1,625 1,491
Industrial 1,317 1,141 2,651 2,233
3,052 2,783 6,137 5,436
FINANCE 170 104 322 200
Total revenues $ 3,222 $ 2,887 $ 6,459 $ 5,636
INCOME
MANUFACTURING:
Aircraft $ 107 $ 75 $ 185 $ 142
Automotive 73 62 155 124
Industrial 148 133 283 255
328 270 623 521
FINANCE 44 30 85 56
Segment operating income 372 300 708 577
Special (charges) credits -- (2) -- (2)
Corporate expenses and other - net (41) (35) (87) (73)
Interest income -- 6 -- 22
Interest expense (41) (3) (74) (16)
Income before income taxes $ 290 $ 266 $ 547 $ 508