Textron Jet Deliveries Up, but Pricing Dampens Profits

Latitude pricing pressures and increased development spending on the Longitude contributed to a 9 percent dip in Textron Aviation’s second quarter profits. This drop came despite an increase in business jet deliveries and more than 6 percent increase in revenues, Textron reported today.

Textron Aviation delivered 45 new Citations in the quarter, up from 36 in the same period a year ago. King Air deliveries, however, dropped to 23, down from 30 in second quarter 2015. The increased jet deliveries, including nine Latitudes, helped boost revenue for the most recent quarter to $1.196 billion, compared with $1.124 billion in second quarter 2015. But profits fell from $88 million in the in second quarter 2015 to $81 million in the most recent quarter.

Textron cited “an unfavorable impact from the mix of products sold in the period,” for the decline in profits. But Textron chairman, president and CEO Scott Donnelly also noted “launch pricing for the Latitude has been less than what we hoped for due to competitive dynamics in this segment of the market, resulting a lower per-plane contribution.”

But Donnelly believes pricing will strengthen in the second half as the new midsize jet remains a strong seller for the company. “The Latitude continues to do well in market…and customer acceptance has been strong, including sales of fractions by NetJets to its end customers,” he said, adding this has played into NetJet’s decision to up its order from 150 of the aircraft to 200 and accelerate the delivery schedule.

While a significant portion of the delivery schedule is allocated to NetJets, “we continue to see strong end-customer demand, which is translated to improved pricing for the second half and next year deliveries,” Donnelly said.

In fact, he credited Latitude sales for driving the bulk of a $122 million increase in the second quarter backlog. The backlog, which jumped to $1.1 billion, is up for the first time at Textron Aviation since the end of second quarter 2015.

Also playing into the softened profits is the ramped up research and development spending in the first half of the year as Textron Aviation preps the Longitude for first flight, anticipated later this summer. He noted “pretty high levels of spending getting ready for first flight,” but added that the company is “just about complete with the high spending load on Longitude.”

As for the slide in King Air deliveries, Donnelly cited weaknesses in the international markets.

For the first six months of the year, Textron Aviation revenues are up to $2.287 billion, compared with $2.175 billion in the same period of 2015, while profits are down just slightly from $155 in first half 2015 to $154 million this year.

Business jet deliveries have increased to 79 through the first half, up from 69 in the first six months of 2015, while King Air shipments have fallen by six units to 49.