Al Root

President Donald Trump's drive for military might is good for defense contractors, as long as growth brings higher cash flow and earnings. The latest results from Textron show it doesn't always work out that way.

On Wednesday, the industrial conglomerate and defense supplier reported fourth-quarter earnings per share of $1.73 from sales of $4.2 billion. Wall Street was looking for $1.72 and $4.1 billion, respectively. Sales grew 16% year over year.

Those numbers look solid, but the shares were down 6.8% in early trading at $87.83, while the S&P 500 and Dow Jones Industrial Average were up about 0.2%.

One problem was guidance. For 2026, management expects earnings per share to be between $6.40 and $6.60 from sales of about $15.5 billion. Wall Street is currently projecting earnings per share of $6.83 from sales of $15.5 billion.

What is more, manufacturing free cash flow will be between $700 million and $800 million, below the $1 billion forecast by analysts. Investment in the company's MV-25, a helicopter for the army, will consume more cash.

"We are well-positioned to continue investing in our products and capabilities to drive growth and long-term value for our shareholders," said CEO Lisa Atherton in a news release.

Investing for growth is good. And it's what the president wants. He recently signed an executive order that potentially restricts dividends, share repurchases, and executive compensation if defense contractors fail to deliver innovative military technologies on time and on budget.

So far, the executive order hasn't hurt defense stocks. The iShares Aerospace & Defense ETF is up about 3% since news broke in early January about Trump's plans, outperforming the S&P 500 by more than two percentage points. Shares of most large defense contractors have done better than that.

More growth seems to outweigh fears of mandated dividend cuts. But more growth needs to come with more earnings.

"Textron is the latest company to disclose additional capex headwinds in its defense business, but unlike some other names we're not sure if Textron will get a pass on this news," wrote Vertical Research Partners analyst Rob Stallard on Wednesday. "The MV-75 is not up there with the [Northrop] B-21 [stealth bomber] in the DoD's priority, and we imagine there will be some concern that Textron is taking on too much risk."

Northrop Grumman and RTX shares both gained on Tuesday after reporting fourth-quarter results.

General Dynamics reported fourth-quarter earnings per share of $4.17 from sales of $14.4 billion on Wednesday. Wall Street was looking for $4.11 from sales of $13.8 billion.

It is also planning to invest more. "We had a solid fourth quarter, capping off a year that saw growth in revenue and earnings in all four segments," said CEO Phebe Novakovic in a news release. "As we focus on execution of programs for our customers, we are also preparing aggressively for future growth, investing nearly $1.2 billion in capital expenditures in 2025--with even more investments planned in the year ahead."

Wall Street projects about $1.1 billion in 2026 capital spending. That might be low.

General Dynamics stock, however, was down just 0.2% after the quarterly report at $366.

Profit margins in the company's combat and marine divisions were better than expected, wrote Jefferies analyst Sheila Kahyaoglu on Wednesday. The company's business-jet orders were also strong, with the backlog up 11% year over year.

General Dynamics should provide full-year financial guidance when management speaks later on Wednesday. Investors will be paying attention to executives' comments about margins and cash flow. They want to know that the added investment is being well spent.

Write to Al Root at allen.root@dowjones.com

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January 28, 2026 09:40 ET (14:40 GMT)

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