UPDATE: Textron Net Down 63%, View Cut; Plans Capital Raise

(Updates with ratings actions, fresh stock quote)

Textron Inc. (TXT) reported first-quarter net income fell 63% on a sharp drop in sales and weakness at several units as the defense contractor and aircraft maker also lowered its outlook for the year.

Shares dropped 9.1% to $10.18 in after-hours trading as the company also said it would offer 19 million shares and $300 million in convertible notes as it looks to boost liquidity by more than $500 million.

Citing lower expected demand at Cessna and higher losses at its finance unit, Textron cut its view for adjusted 2009 earnings from continuing operations to a range of 45 cents to 75 cents on revenue of about $11 billion. In January, the company projected per-share earnings of $1 to $1.50 on about $12.5 billion in revenue, which was well below analysts' then-estimates.

Textron, which makes Bell helicopters and Cessna jets, has been battling a slump in orders for business jets and canceled defense contracts. In recent months, the company said it would cut 14% of its work force and shut most of the commercial-finance business amid unstable credit markets.

After Textron reported its results, Fitch Ratings cut its credit ratings to junk territory because of the worsening operating results and concerns about the finance unit's asset quality and risks in closing the commercial-finance business.

Fitch downgraded its issuer default ratings and long-term debt ratings for Textron Inc. and Textron Financial Corp. one notch to BB+, one step below investment grade.

Meanwhile, Moody's Investors Service cut its ratings one notch to Baa3, the last step above junk, citing quality, higher-than-expected charge-offs in the finance unit and sharper-than-anticipated deterioration in the market for Cessna's business jets.

In the first quarter, Textron's net income fell to $86 million, or 35 cents a share, from $231 million, or 91 cents a share, a year earlier. The latest period included $32 million in pretax restructuring charges. Excluding items, earnings from continuing operations were 26 cents a share

Total revenue dropped 24% to $2.53 billion.

Analysts polled by Thomson Reuters projected a penny in per-share earnings on revenue of $2.78 billion.

Based on lower demand expectations, Textron said Tuesday it is expanding its restructuring program to include additional headcount reductions, facility closures and charges related to the suspension of certain development programs. The company now estimates full-year restructuring charges of about $75 million, up from $40 million.

Cessna's profit fell 57% as revenue declined 38%. Results again improved at Bell, which posted a profit jump of 30% as revenue increased 29%. Profit at its defense-and-intelligence business, now called Textron Systems, fell 19% amid a 22% drop in revenue.

As for the stock and note offering, Textron said it expects to use the proceeds to pay the cost of the bond-hedge transactions entered in connection with the deal and for general corporate purposes, including the paying back debt. Those moves come on top of its 91% dividend cut and the drawing down of the balance of its $3 billion committed credit line in February.

-By Lauren Pollock, Dow Jones Newswires; 201-938-5964; [e-mail]