The promise of the Beechcraft acquisition by Textron (NYSE:TXT)


Textron (NYSE:TXT) is set to announce Q3 earnings on Friday the 17th of October. The company’s profits raised to a great extent due to the acquisition of Beechcraft- the airplane manufacturer. It is expected that the company will continue to see increased growth from Beechcraft gains and helicopter deliveries rather than a negative impact from the decreased defense spending in the U.S.

Textron (NYSE:TXT) predicts that its earnings per share will be somewhere between $2.12 and $1.75 in 2013. An estimate of Textron’s (NYSE:TXT) stock price may be $38 which is around 15% more than what the market price is currently. Textron (NYSE:TXT) acquired Beechcraft on March 14, 2014. The aviation revenue of Textron (NYSE:TXT) doubled to $1.2 billion in the last quarter from this acquisition. It was due to this that the Q2 revenue rose by nearly 20% making it $3.5 billion.

The acquisition cost around $1.5 billion which was a good investment with the aviation market picking up pace. This is because business jet demand has been increasing since 2013, after so many years of witnessing a declining demand. Finally when the company carried out an investment, the timing couldn’t have been more perfect. There was an increase of 6 jets in total which were delivered worldwide to customers from 672 to 678 in 2013 to 2014 respectively.

Even though the 2013 amount is still less than industry’s high figure amounting to 1,313 airplanes in 2008, growth is set to rise in the near future. Textron’s (NYSE:TXT) position as a leading manufacturer of business jets has been cemented due to this acquisition. Its Q3 top line is set to increase from the delivery of commercial helicopters due to the Bell segment which makes around 30% of the total revenue.

Bell was able to deliver commercial helicopters amounting to 213 in 2013 from 188 in 2012. The growth is continuing as we speak in 2014 with a 46 unit rise in deliveries in the second quarter compared to the 44 deliveries made a year ago. Textron (NYSE:TXT) may have lower sales in its defense segment with U.S. spending in government defense growing weaker as sales declined in the last quarter in this segment and will continue to drop in Q3.

However, the main thing is that the segment makes only 10% of the company’s revenue therefore it may not have such a major impact on the overall performance of the company. Textron (NYSE:TXT) has other industrial businesses like Kautex, Jacobsen, E-Z-G- and Greenlee. These businesses are most probably going to show moderate growth in Q3 as growth coming from emerging countries increases.

The company is focusing on expanding service and dealer networks which will intern increase the sales capacity of the firm on an international basis. So the bottom line is that no major changes will be seen on Textron’s (NYSE:TXT) third quarter earnings with the likely growth in top line to become profitable. The Beechcraft acquisition is bound to improve the company’s margins considering the aviation business hence posting healthy Q3 earnings.