April 18, 2018 / 11:16 AM / 2 years ago

Textron profit surges as corporate America buys more business jets

(Reuters) - Cessna jets maker Textron Inc (TXT.N) reported a higher-than-expected quarterly profit on Wednesday, as President Trump’s tax cuts encouraged corporate America to spend more on business jets.

FILE PHOTO: A view of the jet assembly line at a Cessna manufacturing plant in Wichita, Kansas March 12, 2013. REUTERS/Jeff Tuttle/File Photo

Shares of Textron, which also makes Bell helicopters, rose as much as 8.2 percent to hit a more than three-year high of $64.86 on results that surprised some company analysts.

Demand for business jets was strong in the United States and improving in many international markets as global economies strengthen, Chief Executive Officer Scott Donnelly said.

“I think that the (U.S.) tax reform, obviously, is part of it. More importantly, business confidence is strong. People are looking to invest,” said Donnelly.

Worldwide business jet shipments have struggled to recover since the financial crisis, and last year were still only around half a peak of 1,317 hit in 2008.

Textron’s quarterly numbers, which showed its backlog of orders that it has still to fulfill rising by $400 million to $1.6 billion, suggests the tide could be turning. Those numbers rose just $15 million in the fourth quarter.

“Wow. We were not expecting this,” said Vertical Research Partners analyst Robert Stallard.

“Not only was this a much stronger than expected operating quarter from Textron, we’ve also seen some movement on the portfolio which has arguably been long overdue.”

Textron also unveiled the unexpected sale of its tools and test equipment business to Emerson Electric (EMR.N) for $810 million, as it prunes its industrial products unit, which makes blow-molded plastic fuel systems for cars, all-terrain vehicles, golf cars and snowmobiles.

The Providence, Rhode Island-based Textron reaffirmed its full-year earnings forecast of $2.95 to $3.15 per share, including the impact of the divestiture.

J.P. Morgan Securities analyst Seth Seifman said the company seems poised to raise its outlook later in the year.

Textron said it was able to achieve significant margin improvement in the quarter with overall operating margins at 8.5 percent up from 7.1 percent a year earlier, partly due to favorable aircraft volume, mix and price.

The company’s income from continuing operations rose to $189 million, or 72 cents per share, in the quarter, handily beating the Wall Street’s average estimate of 48 cents per share, according to Thomson Reuters I/B/E/S.

Total revenue rose 6.6 percent to $3.30 billion, and was above the market expectation of $3.09 billion.

Reporting by Ankit Ajmera and Arunima Banerjee in Bengaluru; Editing by Anil D'Silva and Supriya Kurane

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