Textron Q3 2026: EPS up 19% to $1.56, but pretax profit rose 1.9% as the tax rate fell to 16.1%

Textron's third quarter of 2026 (the 13 weeks to October 3, 2026) looks better at the bottom line than in the businesses. Revenue rose 4.1% to $3.75 billion and diluted earnings per share (EPS) rose 19% to $1.56, but income before tax rose only 1.9%, to $322 million, and total segment profit (the operating profit Textron reports for its business units) slipped 1.4% to $355 million. The gap is mostly tax: the effective tax rate fell to 16.1% from an unusually high 25.6% a year ago. Underneath, the mix shifted sharply: Cessna and Beechcraft maker Textron Aviation and the defense unit Textron Systems grew revenue 14% and 16%, while Bell's revenue fell 9% as it slowed spending on the Army's MV-75 tiltrotor program while waiting for funding. That funding arrived before quarter-end, and management raised its full-year profit and cash outlook.

Results vs. a year ago

Segment profit margin is segment profit divided by total revenue. Adjusted EPS excludes the LIFO inventory provision (an accounting charge that values inventory at the most recent, higher costs), amortization of acquired intangible assets and special charges. Backlog is compared with the fiscal year-end because that is the comparison the 10-Q gives.

Segment performance

Textron Aviation (Cessna, Beechcraft, Pipistrel) had the strongest top line. Aircraft revenue rose $152 million to $1,139 million: Textron delivered 51 Citation business jets, up from 42, though commercial turboprop deliveries fell to 32 from 39. Aftermarket parts and service revenue rose 10% to $541 million on "higher volume and pricing." Profit rose only $7 million, because the 10-Q says higher volume was "partially offset by an unfavorable impact from manufacturing inefficiencies," and selling and administrative costs rose 12% on higher compensation. So margin fell 0.9 points to 10.7%: the unit is selling more jets but keeping less of each sale. Its backlog was $8.0 billion, up from $7.7 billion at year-end.

Bell shrank. Military revenue fell $59 million to $622 million, "largely due to lower volume on the MV-75 program," and commercial helicopter revenue fell 10% to $311 million on lower volume and mix (29 helicopters delivered, versus 30). Profit fell 17% to $76 million. Bell's backlog dipped to $7.56 billion from $7.80 billion at year-end.

Textron Systems grew revenue 16% to $360 million on higher volume in armored land vehicles and in military training services from its ATAC unit (which flies aircraft that play the adversary in pilot training). Profit rose 21% to $57 million even though last year's quarter benefited from a larger gain on ending a vendor contract early. Backlog reached $3.49 billion, up from $3.30 billion at year-end.

Industrial (E-Z-GO and other specialized vehicles, plus Kautex fuel systems) was flat on revenue: Specialized Vehicles rose $26 million (9%) while Kautex fell $22 million (5%). Profit rose 23% to $38 million. Textron announced in April that it intends to separate this segment, by sale or spin-off, within 12–18 months of the announcement.

Finance profit fell to $5 million from $18 million, mostly because Q3 2025 included $11 million of gains from selling non-captive assets (loans and other finance assets not tied to Textron's own product sales).

The MV-75 funding resolved, but the next charge got bigger

Bell ran out of fiscal-2026 MV-75 money in mid-July and kept working "at its own risk" during the quarter "while maintaining reduced spending levels on the program." Before the quarter ended, Congress approved the Army's request to move more money to the program, and contract changes obligated "approximately $300 million in additional funds" (the request had been $350 million). The 10-Q says that as a result "there was no related cumulative catch-up adjustment required during the third quarter." A cumulative catch-up adjustment is a one-time correction to profit already booked on a long contract when its cost or price estimate changes.

A separate charge is still coming, and it grew. When the Army awards the program's next phase, low-rate initial production (LRIP, which is largely fixed-price), Textron expects to book an unfavorable catch-up "reflecting higher costs than originally anticipated from when the program was bid." If the award comes in 2027, Textron now expects that charge to be $110 million to $150 million, up from the $60 million to $110 million it previously disclosed for an award in late 2026 or early 2027. Management says it still expects the program as a whole to earn a positive margin after the charge.

What the headline numbers hide

• Most of the EPS growth came from tax and buybacks. Pretax income rose $6 million (1.9%). The effective tax rate fell to 16.1% from 25.6%; the 10-Q attributes last year's high rate to provisions of the One Big Beautiful Bill Act affecting export-income deductions and research credits, and this year's low rate to research credits and a new export-income deduction, partly offset by tax on bringing cash home from abroad. At last year's tax rate, Q3 net income would have been about $240 million and EPS about $1.39 (+6%). Holding the share count at last year's level as well, EPS would have been about $1.34 (+2%). In other words, roughly 4 points of growth came from the 3.7% lower share count and about 13 points from tax.
• Buybacks continued at a steady pace. Textron repurchased 2.86 million shares for $239 million in the quarter (nine-month total: $616 million for 7.0 million shares), against $3 million of dividends paid. Shares outstanding fell to 169.4 million from 174.3 million at year-end.
• One-offs cut the other way at the segment level. Q3 2025 included $11 million of Finance gains and a vendor-contract gain at Systems that was $10 million larger than any this year. Leaving out those roughly $21 million, segment profit would have risen about 5% rather than falling 1.4%. Cumulative catch-up adjustments on long contracts were neutral: +$19 million this year versus +$18 million.
• GAAP vs. adjusted gap is $0.20 a share, mostly the $36 million LIFO inventory provision ($0.21 before tax). That charge reflects inflation in inventory costs and recurs every quarter (Textron expects $180 million for the full year), so the adjusted figure removes a real, ongoing cost, not a one-off.
• Cash conversion was strong in the quarter but weak for the year to date. Manufacturing operating cash flow was $512 million in Q3, nearly double net income, versus $348 million a year ago. Over nine months, however, consolidated operating cash flow was $613 million against $738 million of net income (about 83%). Inventories have grown 14% since year-end, to $4.86 billion, while nine-month revenue grew 6%. Capital spending also rose to $330 million from $210 million. Manufacturing cash flow before pension contributions is $344 million for nine months, versus $459 million last year.

On balance the quarter is flattered: a tax rate 9.5 points lower and a 3.7% smaller share count explain about 17 of the 19 points of EPS growth, while pretax income grew less than 2%, even though prior-year gains make the segment comparison look somewhat worse than the business.

Takeaway: Textron's 19% EPS gain is mostly a tax-rate and buyback story; pretax profit grew 1.9%. The real operating news is that jet deliveries are recovering (51 Citations, up from 42) and the MV-75 funding gap closed without a charge. The bigger MV-75 hit, now $110–150 million, has moved into 2027.

Did last time's read hold up?

Our Q2 2026 analysis flagged three things to watch. MV-75 funding: resolved favorably. Congress approved the reprogramming, about $300 million was obligated, and Textron avoided the charge of up to roughly $120 million it had warned of. Citation deliveries: they recovered to 51 from 40 in Q2 (and 42 a year ago), lifting Aviation revenue 14%. Industrial without the $21 million tariff refund that helped Q2: profit was $38 million, up 23% year on year, with no refund mentioned this quarter. All three broke Textron's way. However, the LRIP charge we said was "expected in any case" is now larger, and it is now expected in 2027.

Outlook

Management raised full-year 2026 guidance: GAAP EPS of $5.64–$5.74 (from $5.39–$5.59), adjusted EPS of $6.55–$6.65 (from $6.40–$6.60), and manufacturing cash flow before pension contributions of $800–$900 million (from $700–$800 million). The company says the update "reflects the U.S. Army's receipt of Congressional approval for the ATR request related to the MV-75 Cheyenne program."

Our read: After $4.23 of GAAP EPS and $4.82 adjusted through nine months, the guidance implies Q4 GAAP EPS of $1.41–$1.51 and adjusted EPS of $1.73–$1.83, roughly in line with Q3's pace. The cash target is more demanding: it requires $456–$556 million of manufacturing cash flow in Q4, which depends on drawing down the inventory built up this year as Q4 aircraft deliveries, usually the year's heaviest, are completed. For 2027, three things matter most: when the MV-75 LRIP award lands and the $110–$150 million charge that comes with it; whether Aviation's margin recovers from 10.7% as manufacturing inefficiencies are worked out; and what form the Industrial separation takes, since it will change what "Textron" reports. The tax rate is also a watch item: this quarter's 16.1% rate is not a reliable baseline for future EPS.

Source: Textron Form 10-Q for the quarter ended October 3, 2026 (filed October 29, 2026); adjusted EPS, manufacturing cash flow and guidance from the Q3 2026 earnings release (Form 8-K Exhibit 99.1, same date).