Textron (NYSE:TXT) Misses Q3 Revenue Estimates

Aerospace and defense company Textron (NYSE:TXT) missed Wall Street’s revenue expectations in Q3 CY2024 as sales rose 2.5% year on year to $3.43 billion. Its non-GAAP profit of $1.40 per share was also 6.7% below analysts’ consensus estimates.

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"In the third quarter, Textron Aviation experienced a strike upon the expiration of its existing labor agreement with bargaining unit employees that was recently settled with the ratification of a new five-year contract," said Textron Chairman and CEO Scott C. Donnelly.

Company Overview

Listed on the NYSE in 1947, Textron (NYSE:TXT) provides products and services in the aerospace, defense, industrial, and finance sectors.

Aerospace

Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.

Sales Growth

A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Textron’s demand was weak over the last five years as its sales were flat, a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Textron’s annualized revenue growth of 5.5% over the last two years is above its five-year trend, but we were still disappointed by the results.

This quarter, Textron’s revenue grew 2.5% year on year to $3.43 billion, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6.9% over the next 12 months, an acceleration versus the last two years. Although this projection indicates the market thinks its newer products and services will catalyze better performance, it is still below average for the sector.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling them, and, most importantly, keeping them relevant through research and development.

Textron was profitable over the last five years but held back by its large cost base. Its average operating margin of 7.8% was weak for an industrials business.

On the bright side, Textron’s annual operating margin rose by 2.4 percentage points over the last five years.

This quarter, Textron generated an operating profit margin of 6.5%, down 3 percentage points year on year. This contraction shows it was recently less efficient because its expenses grew faster than its revenue.

Earnings Per Share

Analyzing long-term revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Textron’s EPS grew at a decent 8.7% compounded annual growth rate over the last five years, higher than its flat revenue. This tells us management responded to softer demand by adapting its cost structure.

We can take a deeper look into Textron’s earnings to better understand the drivers of its performance. As we mentioned earlier, Textron’s operating margin declined this quarter but expanded by 2.4 percentage points over the last five years. Its share count also shrank by 18.2%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Textron, its two-year annual EPS growth of 17.3% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q3, Textron reported EPS at $1.40, down from $1.49 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Textron’s full-year EPS of $5.74 to grow by 19.7%.

Key Takeaways from Textron’s Q3 Results

We struggled to find many strong positives in these results. Its EPS forecast for the full year missed and its revenue fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 2.6% to $84.65 immediately following the results.

Textron’s latest earnings report disappointed. One quarter doesn’t define a company’s quality, so let’s explore whether the stock is a buy at the current price. When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.