Textron Inc. CEO Discusses Q3 2010 Results - Earnings Call Transcript

Textron Inc. CEO Discusses Q3 2010 Results - Earnings Call Transcript
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Textron Inc. (

TXT

)

Q3 2010 Earnings Call

October 20, 2010 8:00 a.m. ET

Executives

Doug Wilburne - VP of IR

Scott Donnelly - President and CEO

Frank Connor - CFO

Analysts

Cai von Rumohr - Cowen & Company

Jeff Sprague - Vertical Research Partners

David Strouse - UBS

Robert Stallard - Royal Bank of Canada

Noah Poponak - Goldman Sachs

Peter Skibitski - SunTrust

Steve Tusa - JPMorgan

Ron Epstein - Bank of America

Julian Mitchell - Credit Suisse

Steve Levenson - Stifel Nicolaus

Presentation

Operator

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Previous Statements by TXT
» Textron Inc. Q2 2010 Earnings Call Transcript
» Textron Inc. Q1 2010 Earnings Call Transcript
» Textron Inc. Q4 2009 Earnings Call Transcript

Welcome to the Textron third quarter earnings conference call. [Operator Instructions.] I would now like to turn the conference over to your host, Vice President of Investor Relations, Mr. Doug Wilburne. Please go ahead.

Doug Wilburne

Thanks, operator, and good morning everyone. Before we begin, I'd like to mention that 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. We're originating today's call from the National Business Aviation Association conference in Atlanta. Scott and Frank are here meeting with customers and industry participants.

Our customary earnings call presentation can be found in the Investor Relations section of our website.

Moving now to third-quarter results, which appear on slide 3 of the presentation, revenues in the quarter were $2.5 billion, down 2.7% from a year ago, which yielded a GAAP loss per share from continuing operations of $0.17. This compares to income of $0.02 per share a year ago.

During the quarter we recorded $0.30 in special charges. $0.25 of this amount related to the wind-down of TFC's Canadian operation, which we discussed on our second-quarter call. This non-cash charge eliminated the balance of a cumulative currency translation account, which was triggered because TFC's Canadian operation reached a substantially liquidated basis during the quarter.

The remaining $0.05 of special charges was related to restructuring cost. Third-quarter earnings from continuing operations, excluding these charges, were $0.13 per share compared to $0.12 a year ago. Manufacturing operations generated $157 million in free cash flow during the quarter, bringing the year-to-date amount to $174 million, which compares to last year's nine-month cash flow of $68 million.

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

Scott Donnelly

Thanks Doug, and good morning everyone. Since we are here at NBAA, let me just reflect briefly on the mood of the show. I would say that generally speaking, customers appear to be more optimistic and positive than they were ago at the show. Many customers as you talk to them are reaching a point now where they're a year or two beyond what their normal replacement and upgrade cycle would be, so I think we have a fair number of customers who are genuinely looking at getting back into the market.

And so while I'll say it's probably too early to conclude whether this really will be a turning point in the business jet order environment, we are encouraged by the level of customer interest. The recently passed U.S. bonus depreciation bill was certainly a positive factor, and we'll see how much this helps to drive sales.

As we all know, new product announcements also stimulate demand in the business jet market. In that regard, we unveiled our new Citation 10 aircraft earlier this week and it is generating significant attention at the show. The new 10 is a really remarkable aircraft with attractive new features, which we believe will reinvigorate demand for this uniquely capable jet.

The new 10 will be 15 inches longer and equipped with a set of new Rolls Royce engines that will be more powerful and efficient. As a result, the 10 will be able to fly farther and faster and with more payload. Other features include new winglets, the entirely new Garmin 5000 avionics suite, a redesigned cabin with new interiors and cabin appointments, a new fiber optic-based cabin management system including the latest options for greater in-flight productivity and connectivity.

We're particularly excited about the advanced technology incorporated with this special aircraft and the improved performance characteristics that will give our customers a more efficient and productive aircraft and cabin that are designed to meet the demanding requirements of business travel.

So as we move back to the industry conditions, as we discussed on our last call order activity in the business jet market slowed in June and we did not see activity recover into July or August. In September, activity did pick up somewhat, as you would normally expect, and we ended the quarter with new order value exceeding the value of cancellations, although our book to build did remain below one.

On the delivery front, we shipped 26 jets, compared to 68 a year ago. With this continued weakness in demand environment, last month we announced headcount and production cuts as we seek to reduce overhead costs and reduce our production build rate at Cessna.

On the other hand, lead indicators are improving, or at least remaining stable. For example, average daily utilization rate increased to 0.69 hours from 0.68 in the second quarter, and 0.66 in the first quarter, and this is the highest level we've seen since December of 2008. Also, the FAA three month rolling average for takeoffs and landings were up in both July and August. As a result Cessna's aftermarket revenues were also up for the quarter, 11% on a year-over-year basis. Previously owned Citations available for sale remained flat at 15.1%.

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