Boeing (
BA
) posted strong growth in top line in the third quarter on higher
commercial airplane deliveries partially offset by lower revenues
at its defense business. Total revenues increased 13% y-o-y to $20
billion in the third quarter. Total backlog too increased
sequentially for the company rising to $378 billion driven by
$24 billion in new orders in the third quarter.
However, earnings of the company declined y-o-y as growth in
earnings from commercial aircraft deliveries was more than offset
by higher pension contributions of $194 million in the three months
that ended September 30, 2012. Also, driven by its growth in
the third quarter the company raised its revenues and earnings
outlook for full year 2012.
Higher commercial airplane deliveries drive growth in top
line
Boeing delivered 149 commercial airplanes in the third quarter
of 2012 compared to 127 in the year-ago period. Of these, there
were nearly two-third single-aisle Boeing 737s, 20 Boeing 777s, 12
Boeing 787 Dreamliners, 8 Boeing 747s and 7 Boeing 767s. The higher
commercial airplane deliveries resulted in a 28% y-o-y increase in
revenues to $12 billion at the Commercial Airplane division in the
third quarter. Contractual backlog also increased for the division
rising from $300 billion at the end of the second quarter to $305
billion at the end of the third quarter, driven by net orders for
369 airplanes during the period.
Over the long term the commercial airplane industry is poised
for growth owing to increased demand for air travel, particularly
in emerging economies. Boeing projects a $4.5 trillion
jetliner market over the next 20 years for 34,000 new commercial
jets. The largest portion of this demand comprising of 12,030
aircraft is estimated to come from Asia-Pacific region including
China and India, followed by 7,760 and 7,290 aircraft from Europe
and North America respectively. The commercial airplanes
division of the company constitutes nearly 45% of the overall
company value.
Weakness in defense businesses of Boeing
However, revenues declined in the Boeing Defense, Space and
Security division in the third quarter due to change in delivery
mix of military aircraft and lower volume on Brigade Combat Team
Modernization. Revenues for this division declined 4% y-o-y to $7.8
billion in the third quarter. Contractual backlog for the division
also declined marginally to $52 billion at the end of the third
quarter from $54 billion at the end of the second quarter.
Over the coming years revenues in this division are expected to
come under pressure from the defense spending cuts. The U.S. Budget
Controls Act of 2011 proposes $487 billion in cuts in defense
spending over the next 10 years starting in fiscal year 2012.
Pension contributions impact earnings growth
In addition, the historically low interest rates have
drastically lowered returns on pension plan assets of Boeing. As a
result, the company has been forced to make up for the shortfall by
cash contributions. In the third quarter, it contributed $583
million towards under funded pension liabilities, compared to
$389 million it contributed in the same period last year. These
contributions impacted earnings which declined 7.5% y-o-y to $1.35
per share in the third quarter. Boeing has contributed nearly $1.4
billion in cash towards pension expenses in 2012 so far, and
expects to make further contributions in the fourth quarter and in
2013.
Outlook raised on strong performance in the third
quarter
The company also raised its revenues and earnings forecast for
full year 2012 driven by its strong performance in the first three
quarters of 2012. Revenues outlook was increased to between
$80.5 and $82 billion, from between $79.5 and $81.5 billion, and
earnings outlook was increased to between $4.80 and $4.95, up
from between $4.40 and $4.60 indicated earlier. ((
Boeing Reports Third-Quarter Results and Raises 2012
Guidance
, October 24 2012, www.boeing.com))
We currently have
a stock
price estimate of $75 for the company
, approximately 5% above its current market price. We are in the
process of incorporating the third quarter earnings and shall
update our analysis shortly.
See our complete analysis of Boeing here
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