Why Textron Stock Just Popped
Key Points
Textron beat on Q1 earnings this morning.
Textron is also shedding its weakest business to focus on more profitable aerospace and military products.
Textron (NYSE: TXT) stock jumped 4.9% through 1:20 p.m. ET Thursday after beating on top and bottom lines in its Q1 earnings report.
Analysts had forecast the defense contractor would earn $1.32 per share on quarterly sales of $3.5 billion. Textron actually earned $1.45 per share, pro forma, on $3.7 billion in sales.
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And that wasn't even Textron's biggest news.
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Textron Q1 earnings
Textron's sales grew 12% year over year in Q1, while pro forma earnings climbed 13%. (Actual earnings calculated under generally accepted accounting principles (GAAP) were only $1.25 per share, but still up 11%.) The weakest performance in the quarter came from Textron's Industrial business, which builds such things as golf carts and specialized commercial vehicles; there, sales declined 1%.
Which brings us to the big news: Textron is dumping Industrial.
What's next for Textron stock
Compared to strong growth in Textron's Bell Helicopter and Aviation divisions and "excellent execution" at Textron Systems, the $3 billion Industrial unit is looking like a laggard. To focus on its core business, Textron plans to sell or spin off Industrial and become a pure-play aerospace and defense company -- building helicopters at Bell, Beechcraft and Cessnas at Aviation, and military vehicles at Systems.
"New Textron" (I'm assuming that's a working title) will boast a $19 billion backlog of contracts and $12 billion in annual revenue. With Bell growing sales at 9% in Q1, Systems up 13%, and Aviation up a stellar 22%, Textron will likely enjoy a significant growth spurt after unloading Industrial. These three divisions also happen to provide Textron its strongest profit margins on sales.
If all goes as planned, this should be great news for Textron. Investors are right to applaud it today.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Textron. The Motley Fool has a disclosure policy.