PROVIDENCE – Textron Inc. (NYSE: TXT) today announced cost-cutting measures that will include a downsizing of its ailing Textron Financial Corp. The news came as the company posted a third-quarter profit of $206 million, a 19.21-percent decrease from the year-ago period’s $255 million, on revenue that rose 13.60 percent to $3.53 billion.

The company’s earnings per diluted share amounted to 84 cents in the fiscal third quarter ended Sept. 27, down from the year-ago period’s $1 per share. (READ MORE) Income from continuing operations fell to 85 cents per share from the year-ago quarter’s 88 cents per share – but results for the year-ago period included a one-time gain of about 5 cents per share related to an insurance settlement, Textron said.

The company’s results lagged expectations for the first time in at least 14 calendar quarters, according to Bloomberg News, whose survey of industry analysts had projected third-quarter earnings of 87 cents per share.

“Strength in our aircraft and defense businesses offset weaker-than-expected performance in the finance business arising from the challenging economic environment,” said Lewis B. Campbell, Textron’s chairman, president and CEO. The company posted a record $23.5 billion backlog in aircraft orders at quarter’s end: $15.6 billion at Cessna, up $3 billion since the end of 2007; $5.3 billion at Bell, up $1.5 billion; and $2.6 billion at Defense & Intelligence, up $0.2 billion this year.

Going forward, Campbell said, “Given the sustained turmoil in world credit markets we are taking a number of strong and measured steps, including a downsizing of Textron Financial Corp. (TFC); a strengthening of our already strong capital and liquidity positions; and an accelerated cost reduction program across the company.”

Textron also has suspended its share buyback program, “to maximize funding predictability in the current environment,” and is exploring options for reducing its outstanding commercial paper, as part of “accelerated overhead-cost-reduction and productivity improvement program across the enterprise,” the company said.

The austerity drive will include an unspecified number of job cuts. Textron predicted total restructuring charges of about $25 million – most of them in the fourth quarter – to achieve “annual benefits associated with the charges” of about $40 million.

But, Campbell stressed, “we remain committed to achieving strong performance results at our aircraft and defense businesses as we work through the issues facing us in our other segments.”

Among manufacturing divisions:

• Cessna Aircraft posted a segment profit of $238 million, a 7.21-percent increase from the 2007 second quarter, on revenue that rose 11.83 percent to $1.42 billion.

• Bell Helicopter posted a segment profit of $63 million, an increase of 8.62 percent, on revenue that rose 8 percent to $702 million.

• Textron Defense & Intelligence posted a segment profit of $74 million, up 72.09 percent from a year ago, on revenue that rose 54.29 percent to $503 million.

• But Textron Industrial (including E-Z-Go, Greenlee, Jacobsen and Kautex) saw its segment profit fall to $6 million from the year-ago $23 million on revenue that rose 11.35 percent to $726 million. (The Fluid & Power Group, formerly part of Textron Industrial, “was reclassified … into discontinued operations” for the current and year-ago quarter, the company said, citing its Sept. 10 agreement to sell the business unit to U.K.-based Clyde Blowers Ltd. in a cash-and-debt deal worth up to $645 million. (READ MORE) That sale is still expected to close by year’s end, Textron said today.)

Meanwhile, Textron Financial Corp. saw its segment profit fall to $18 million, a 66.67-percent decline from the 2007 third quarter’s $54 million, as the segment’s quarterly revenue fell 14.02 percent year-over-year to $184 million. “The benefits of higher volume and interest-rate floors” partly offset the effect of lower market interest rates, higher borrowing costs and an increase in loan-loss provisions, the company said. Delinquent loans, 60 days or more past due, increased to 1.06 percent of receivables from the second quarter’s 0.61 percent, while nonperforming assets increased to 2.67 percent of the total from the preceding quarter’s 2.31 percent, Textron added.

As part of the downsizing of the commercial finance segment, Textron Financial “will be exiting its Asset Based Lending and Structured Capital segments – and several additional product lines – through an orderly liquidation as market conditions allow,” the parent company said. “TFC will also limit new originations in its Distribution Finance, Golf, and Resort portfolios, consistent with maintaining franchise value and our commitment to service existing credit-worthy customers.”

In the fourth quarter, the segment’s downsizing is expected to result in non-cash impairment charge “of up to $169 million, which represents the current goodwill balance at TFC,” Textron added. “The company will also incur restructuring charges for headcount reductions and consolidations” and “will make capital contributions to TFC, as appropriate, to strengthen TFC’s capital structure” the company added.

“Going forward,” Campbell said, “we will continue to carefully evaluate the appropriate range of remaining lending activities at TFC in light of strategic fit and continuing developments in the capital markets, all in a manner that maximizes value for shareholders in any current or future financial market scenarios.”

The companywide belt-tightening and finance-segment downsizing “will better position the company in 2009 and beyond,” wrote Nicole Parent, an analyst with Credit Suisse in New York, in comments cited by Bloomberg News. Parent – who noted that “Finance missed our revised forecast by only $1 million” – assigns a “neutral” rating to Textron shares.

Companywide, Textron now predicts fourth-quarter earnings per share from continuing operations in the range of 80 to 90 cents per diluted share, excluding goodwill-impairment and restructuring charges. For all of 2008, the company now predicts earnings per share of $2.80 to $2.90 – down from the $3.40 to $3.50 Textron forecast in its second-quarter report this July (READ MORE) – on full-year free cash flow of $700 million to $750 million.

“The economic environment will continue to be uncertain over at least the next several quarters,” Campbell said. “However, we believe the actions we are taking – combined with our government programs and aircraft backlog – position us to perform well through these difficult times.”

Textron Inc. (NYSE: TXT) is a $13.2 billion company employing 44,000 people in 34 countries. Its brands include Bell Helicopter, Cessna Aircraft Co., Jacobsen, Kautex, Lycoming, E-Z-GO, Fluid & Power and Greenlee, among others. Additional information is available at www.textron.com.