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Textron (TXT)

Q4 2010 Earnings Call

January 26, 2011 8:00 am ET


Douglas Wilburne - Vice President of Investor Relations

Scott Donnelly - Chairman, Chief Executive Officer, President and Member of Management Committee

Frank Connor - Chief Financial Officer and Executive Vice President


Carter Copeland - Lehman Brothers

Cai Von Rumohr - Cowen and Company, LLC

Robert Stallard - RBC Capital Markets, LLC

Peter Skibitski - SunTrust Robinson Humphrey Capital Markets

Stephen Levenson - Stifel, Nicolaus & Co., Inc.

C. Stephen Tusa - JP Morgan Chase & Co

Ronald Epstein - BofA Merrill Lynch

Heidi Wood - Morgan Stanley

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Jeffrey Sprague - Citigroup

Jason Gursky - Citigroup Inc

Noah Poponak - Goldman Sachs Group Inc.

Myles Walton - Deutsche Bank AG

David Strauss - UBS Investment Bank



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Ladies and gentlemen, thank you for standing by. Welcome to the Textron Fourth Quarter Earnings Call. [Operator Instructions] And I'd now like to turn the conference over to the Vice President of Investor Relations, Doug Wilburne. Please go ahead.

Douglas Wilburne

Thanks, Leah, and good morning, everyone. Before we begin, I would like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release.

On the call today, we have Scott Donnelly, Textron's Chairman and CEO; and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website.

Moving now to fourth quarter results, which appear on Slide 3 of the presentation. Revenues in the quarter were $3.1 billion, up 11.2% from a year ago, which yielded GAAP earnings per share of $0.19 compared to a loss of $0.23 in the fourth quarter of 2009. During the quarter, we recorded $54 million in restructuring charges or $0.13 per share on an after-tax basis. This was higher than we have previously forecast as we accelerated a number of cost actions at each of our Manufacturing segments and corporate, which brings our restructuring program to an official close.

Going forward, we do not expect to record restructuring costs as special charges, although we will certainly continue to pursue cost improvements as part of our ongoing business initiatives. Moving back to the fourth quarter. Excluding special charges, EPS from continuing operations was $0.33 per share compared to $0.15 a year ago. One clarification. Fourth quarter EPS reflected an $0.08 per share benefit for settlement of a few international tax items as we discussed on our October call. Moving to cash flow. Manufacturing operations generated $518 million in free cash flow during the quarter, bringing our full year amount to $692 million.

With that, I'll turn the call over to Scott.

Scott Donnelly

Thanks, Doug, and good morning, everyone. We capped off the year with a solid fourth quarter in terms of demand, strong operating performance of Bell and Systems and continued success in liquidating our non-captive Finance portfolio. Our cash flow was strong, primarily due to higher volumes of Cessna, Bell and Industrial. In the quarter, we took the opportunity to make a $350 million voluntary contribution to our pension plans and also made the first $300 million payment on TFC's $1.75 billion credit line.

The most encouraging news in the quarter was a noticeable improvement in the demand environment for business jets, as well as commercial helicopters. At Cessna, we booked the highest number of fully gross jet orders since the third quarter of 2008. The improved commercial order flow also reflected, we believe, bonus depreciation provisions in the U.S. as well as the relatively stable global economic environment.

Because we had inventory available, we were able to meet the increased spot demand of Cessna and delivered 79 business jets in the quarter, bringing our full year total to 179. We were also encouraged with improvements in the huge aircraft market as units for sale continues to trend in the right direction with Citation availability now down to 14.5% from 15.4% a year ago and our current cycle fee to 17.3%.

Business jet usage also continues to improve, and as a result, Cessna's aftermarket revenues increased 20% during the quarter. On the base of these trends in the marketplace and the availability of bonus depreciation, we continue to believe that 2011 deliveries will be up slightly from 2010.

Moving to Bell. Overall performance continue to be solid, reflecting good management of overhead cost while we are continuing to ramp production volumes. On the commercial side, the strong demand environment led to 71 helicopter deliveries in the quarter, up from 50 in last year's fourth quarter and up from 24 in the third quarter this year. We also had good execution on the 429 program as we delivered 16 units in the quarter, bringing 2010 deliveries to 20.

We're encouraged with what we're seeing in the commercial helicopter industry, and we believe that Bell deliveries in 2011 will also be up slightly from the 131, which we delivered in 2010. On the military front, we delivered seven H-1s and seven V-22s. And importantly in the quarter, the Zulu attack version of the H-1 passed the [indiscernible] of Bell and was approved for full rate production in late November.

Staying with the military, Systems also had a solid quarter with revenues up about 5%, delivering 10.4% margins. Looking forward, we continue to believe Systems will generate top line growth despite pressures on the DoD budget, given the nature of our U.S. programs and international opportunities. For example, December, we were awarded a contract with over $250 million to deliver 512 sensor fuzed weapons to India. We are also working on initial contract for Foreign Military Sale of armored security vehicles that will start with production prototypes and deliveries this year.

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