(Reuters) - Textron Inc (TXT.N) reported a higher-than-expected quarterly profit and raised its 2018 forecast on Wednesday, but its shares fell 5 percent as investors focused on the relative strength of its aviation business order book.
Order books of business jet makers such as Textron are widely expected to get a bump from a stronger U.S. economy, tax cuts by the Trump administration and higher oil prices.
However, the company’s book-to-bill ratio that measures orders against deliveries dropped to 1x in the second quarter from 1.4x in the preceding quarter, indicating a relative tightening of its backlog.
Backlog in the business, which makes Cessna business jets and is the largest contributor to total revenue, was flat at $1.6 billion in the quarter compared with the preceding quarter.
“We think aviation book-to-bill of 1x in face of expected improving end market is the reason for weakness,” Stephens Inc analyst Drew Lipke said.
The company’s shares, which were up in premarket trade, reversed course as investors absorbed that the raise in the profit forecast was really in part due to tax cuts and not a bump in demand.
Textron, which also makes Bell helicopters, said it now expects a full-year effective tax rate of about 19.5 percent, down from 22.5 percent.
The Providence, Rhode Island-based company raised its 2018 earnings per share forecast to a range of $3.15 to $3.35, from $2.95 to $3.15.
“The increased guidance reflects about 10 cents of a benefit due to a lower effective tax rate during the second quarter,” Lipke said.
Textron sold 48 jets and 47 turboprops in the quarter, compared with 46 jets and 33 turboprops a year earlier, while Bell commercial helicopter deliveries nearly tripled to 57 units.
Income from continuing operations jumped 46.4 percent to $224 million, or 87 cents per share.
Total revenue rose 3.4 percent to $3.73 billion.
Analysts on average had expected earnings of 70 cents per share, and revenue of $3.53 billion, according to Thomson Reuters I/B/E/S.
Reporting by Ankit Ajmera in Bengaluru; Editing by Maju Samuel and Sweta Singh