October 18, 2018 / 10:46 AM / a month ago

Textron blames Arctic Cat buy for profit miss, shares fall 11 percent

(Reuters) - Textron Inc (TXT.N) posted a lower-than-expected quarterly profit on Thursday due to lingering problems at its industrial products unit that houses its recently acquired Arctic Cat all-terrain vehicle business, sending its shares down 11 percent.

Investors worried the maker of Cessna business jets was struggling to integrate the business after the company said it was undergoing a “painful learning experience” in its efforts to add more customers at the retail level and manage discounting.

Textron was one year behind schedule on booking gains from the Arctic Cat acquisition, Chief Executive Officer Scott Donnelly said on a conference call, while pointing to poor management of the unit.

“We went into this expecting to be able to generate accretion in year one. Obviously, that’s not going to happen,” he said.

“When you have something like that going on, it creates enough chaos that drives down the operating performance.”

Revenue at the aviation unit, the company’s biggest business, also fell about 2 percent, due to stagnant Cessna deliveries and a slump in turboprop sales.

But that was dwarfed by a 10.7 percent drop in sales to $930 million in the industrial products unit, pulling down overall revenue well below the average analyst estimate.

Textron said it expected to see a healthier fourth quarter for the industrial business, as the unit now has a “very good team in place” to help recover lost ground.

The company last week replaced Kevin Holleran, in charge of Arctic Cat’s parent unit, with Scott Ernest, the head of its aviation business.

Backlog in the aviation business rose to $1.8 billion in the quarter ended Sept. 29 from $1.6 billion in the prior quarter, the company said.

Business jet demand is recovering in the United States, thanks to a tax windfall handed to Corporate America by President Donald Trump in January.

“Just as Textron was poised to announce a meaningful improvement in the bizjet market, its plans get derailed by dirt buggies,” said Vertical Research Partners analyst Robert Stallard.

The company narrowed its 2018 earnings per share forecast to a range of $3.20 to $3.30, from $3.15 to $3.35.

The stock, last down 10.3 percent at $58.13, had risen about 14.5 percent this year, outperforming a 5.1 percent increase in the S&P 500 index .SPX.

Reporting by Ankit Ajmera in Bengaluru; Editing by Saumyadeb Chakrabarty and Sriraj Kalluvila

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