Boeing Earnings Catch A Lift On Higher Commercial Airplane Deliveries

By Trefis Team,

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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,

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Stocks: BA , EAD , LMT , NOC

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