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Textron Banks On Diversification

By Constance Gustke   |   Wednesday, 06 Jul 2011 02:57 PM

Generating consistent earnings in good and bad times from multiple businesses is a conglomerate’s mission. Some, like Berkshire Hathaway (BRK.B), even notch outstanding returns. This model has been the objective of Textron (TXT) since the early 1950s. Now the conglomerate counts on several unrelated businesses, ranging from turf-care products (Jacobsen) to helicopters (Bell) to aerospace (Cessna), for its earnings power. Textron also makes engine components for cars (Kautex).

The strategy is working. Among industrial conglomerates, Textron is a favorite among analysts. Textron’s first quarter revenues grew 12.2 percent to $2.5 billion, versus $2.2 billion a year ago. Earnings per share ticked up 10 cents versus a loss of 1 cent, though lower than consensus estimates.

Still, Cessna lost $38 million in the quarter, as costs increased. Yet industrial and helicopter units turned profits and revenues rose.

Headwinds coming?

Textron isn’t home-free, though. A shrinking U.S. military budget could dampen orders for Bell helicopters, say analysts. They made up nearly a third of Textron’s 2010 revenues.

Zacks Investment Research analysts issued a neutral rating for Textron, citing its soft aerospace business and vulnerability to military cutbacks.

Analysts are largely bullish on Textron, though. Of the 16 that follow the company tracked by Thomson/First Call, four have strong buys, with six buys and six holds.

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Generating consistent earnings in good and bad times from multiple businesses is a conglomerate s mission. Some, like Berkshire Hathaway (BRK.B), even notch outstanding returns. This model has been the objective of Textron (TXT) since the early 1950s. Now the conglomerate...
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