Sagarika Jaisinghani REUTERS
Cessna Maker Forecasts Lower Business Jet Sales in 2013
April 17, 2013
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  • (Reuters) – Cessna maker Textron Inc (TXT.N) cut its profit forecast and said it would sell fewer corporate jets this year as business owners defer purchases in an uncertain U.S. economy, sending its shares down as much as 14 percent.

    Shares of Textron, the world’s largest business aircraft maker, were among the top percentage losers on the New York Stock Exchange on Wednesday morning after the company’s first-quarter results missed expectations of a recovery in jet orders.

    “We were hopeful that demand would recover as the impact of last year’s election and fiscal uncertainties move behind us,” Textron Chief Executive Scott Donnelly said on a post-earnings conference call.

    Sequestration-related budget cuts, however, have put a lid on spending by many small businesses — Cessna’s main customers.

    The Cessna unit delivered 32 new aircraft in the quarter to March, down from 38 units a year earlier, and Textron said it expected full-year deliveries to be lower than in 2012.

    “Customers, especially in the light jet segment, tend to be small-business owners who continue to defer purchase decisions reflecting continued concerns about the financial outlook,” Donnelly said.

    Shares of other corporate jet makers also fell on Wednesday. Shares of Gulfstream maker General Dynamics Corp (GD.N) and Canada’s Bombardier Inc (BBDb.TO) were down 3 percent, while Brazil’s Embraer SA (EMBR3.SA) fell 6 percent.

    “Lighter airlines, which is where companies such as Cessna play, were heavily affected during the recession and their recovery has also been somewhat delayed,” said Jens Hennig, vice-president operations at the General Aviation Manufacturers Association.

    Total business jet deliveries worldwide fell 3.6 percent to 672 units in 2012, according to data from the association, which represents more than 50 fixed-wing aviation aircraft makers. North America accounted for almost half of all deliveries.

    Textron, which also makes Bell helicopters and EZ-Go golf carts, said in a statement it was cutting costs at Cessna.

    Officials said during the conference call that the company would cut jobs. They did not specify how many jobs would be cut, but said the company expected to incur about $25 million in related costs during the second quarter.

    Textron, which has been trying to trim operating costs and cut back its finance business to boost margins, said it would push ahead with its plans, first announced in late 2011, to introduce new models of business aircraft this year.

    “We welcome the news of extra cost-cutting measures in (the Cessna) division, and believe the second half should see improved performance due to this, and the new model launches,” Credit Suisse analyst Julian Mitchell said.


    Providence, Rhode Island-based Textron said it expected full-year income from continuing operations of $1.90 to $2.10 per share, below its earlier forecast of $2.10 to $2.30.

    First-quarter sales of Bell helicopters fell 4.5 percent to $949 million, primarily due to lower sales to the military and weak commercial aftermarket sales. Textron competes with United Technologies Corp’s (UTX.N) Sikorsky unit in helicopters.

    “Given the defense headwinds for Bell … on the horizon, Textron could really do with a recovery at Cessna if it is to maintain a decent earnings-per-share growth trajectory,” said RBC Capital Markets analyst Robert Stallard.

    But, in a note entitled ‘Oh Cessna (again)’, Stallard wrote that a “tantalizing pick up in the Cessna lead indicators … has clearly yet to translate into actual new orders”.

    As the economic outlook remains uncertain, some business users are choosing to hire aircraft instead of buying their own jets. NetJets, Warren Buffett’s fractional jet leasing business, has been expanding in recent years as a result of this trend.

    After a series of cost cuts and rate increases, NetJets is in the process of adding 670 new jets — including some Cessnas.

    But Hennig of the General Aviation Manufacturers Association said lower demand for business jets was affecting both purchases and leases.

    “A common driver when it comes to sales is the overall strength of the global economy,” said Hennig. “What’s probably impacted us most is the continuing degree of economic uncertainty.”

    Textron’s net income from continuing operations fell 4 percent to $115 million, or 40 cents per share, in the first quarter. Revenue was flat at $2.86 billion.

    Analysts on average expected earnings of 45 cents per share, excluding items, on revenue of $2.89 billion, according to Thomson Reuters I/B/E/S.

    Textron’s stock was trading at $25.54 on Wednesday morning.