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Textron Inc. Q1 2010 Earnings Call Transcript

Textron Inc. Q1 2010 Earnings Call Transcript

Textron Inc. (TXT)

Q1 2010 Earnings Call

April 22, 2010 09:00 a.m. ET


Doug Wilburne - VP, IR

Scott Donnelly - President and CEO

Frank Connor - CFO


Cai von Rumohr - Cowen & Company

Noah Poponak - Goldman Sachs

Jeff Sprague - Vertical Research

Steve Levenson - Stifel Nicolaus

Ron Epstein - Merrill Lynch

Steve Tusa - JPMorgan

Heidi Wood - Morgan Stanley

Brian Jacoby - Goldman Sachs

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Welcome to the Textron first quarter earnings call. (Operator instructions) I would now like to turn the conference over to our host, Vice President of Investor Relations, Mr. Doug Wilburne. Please go ahead, sir.

Doug Wilburne

Thank you, Rich, and good morning, everyone. Before we begin, I'd 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 President and CEO; and Frank Connor, Textron's Chief Financial Officer. Our customary earnings call presentation can be found in the Investor Relations section of our website.

Moving now to first quarter results, which appear on slide three of the presentation, revenues in the quarter were $2.2 billion, down 12.5% from a year ago, which yielded a loss from continuing operations of $0.01 per share.

During the quarter, we incurred special charges which include the following two items; $12 million in pre-tax restructuring costs or $0.02 per share on an after-tax basis, and a discrete tax charge of $11 million related to the recently enacted federal healthcare law or $0.04 per share.

Adjusted earnings from continuing operations excluding special charges then were $0.05 per share compared to $0.26 a year ago. On the pre-tax role front, manufacturing operations used $153 million of cash, reflecting normal seasonality compared to a use of $286 million in the first quarter of 2009.

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

Scott Donnelly

Thanks, Doug, and good morning, everyone. While overall revenues were down, reflecting lower aircraft deliveries and the wind-down of our non-captive finance business, we had strong performance across the rest of the company.

Industrial revenues were up 33%, reflecting strong growth in the global automotive markets and early signs of growth in our non-U.S. markets for EZ-GO and Jacobsen agreement. Aftermarket revenue with Bell and Cessna were both up solid single digits, reflecting increased aircraft utilization. And our Systems business revenues were up over 9.5%. Bell and Systems also delivered solid margins in the quarter. As we look at the trends, we believe the first quarter margin revenue dropped for Textron and we expect our earnings will clearly grow over the course of the year.

So let's discuss highlights of each of our segments beginning with Finance where we continue to make excellent progress with our liquidation strategy. We reduced managed receivables by $769 million in the quarter, bringing our total reductions since the beginning of 2009 to $4.5 billion. About $380 million of first quarter reduction occurred in our distribution finance business, which contributed to an overall favorable cash conversion rate of 95%. We also made progress in our timeshare portfolio in the quarter, reducing it by $100 million.

In total, the credit performance, 60-day delinquencies were $515 million, down from $569 million in the fourth quarter; and non-accruals stabilized at $1.03 billion, down modestly from $1.04 billion last quarter. Charge-offs were $31 million, up from $22 million in the fourth quarter, as previously reserved losses were realized. Looking forward, we're increasing our 2010 liquidation target by $200 million to $1.8 billion, which will bring us to a two-year reduction of $5.6 billion.

At Cessna, we delivered 21 Mustangs and 10 light mid-sized jets in the quarter, consistent with our expectation. Orders in the first quarter were also consistent with our expectations. However, cancellations came in slightly above plan, although a majority were for deliveries in 2011 and beyond. Looking forward, we see additional cancellations in the second quarter, but we're expecting orders to pick up as market and economic indicators continue to trend in the right direction.

For example, used Citation aircraft available for sale continued to decrease, ending the quarter with 15.1%, down from a peak of 17.3% and 15.4% at the end of 2009. Used pricing remained stable. Average daily utilization of Cessna aircraft also remained stable at 0.66 hours for the quarter, while FA reported takeoff and landing cycles were up. As I mentioned, Cessna aftermarket revenues were up about 6%.

U.S. corporate profit, a key leading indicator, has been up over the past several quarter, and earning results so far in the quarter have been positive as well. And finally, we are seeing increased sales, particularly in our low-to-mid sized jet models. In the meantime, we continue to work on reducing costs, including consolidation of facilities and moving certain activities to lower-cost locations.

On the new product development front, the CJ4 was certified during the quarter, and we've already delivered our first unit earlier this month. Looking over the second quarter, we're expecting to deliver between 40 and 45 jets for the balance mixed of Mustangs and light-to-mid sized jets.

In the Industrial business, we're getting conversion on volume growth, achieving a margin of 7.8%. This reflects the positive impact that our cost reduction programs are having on these businesses. We're also pursuing new business opportunities to launch new products, winning new accounts and expanding geographically.

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