Earnings Beat at Boeing, Guidance Disappoints - Analyst Blog

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Aerospace giant The Boeing Company ( BA ) reported stellar fourth quarter 2013 results on the back of a solid performance across the company's businesses and robust deliveries. Its adjusted fourth quarter 2013 earnings came in at $1.88 per share, beating the Zacks Consensus Estimate of $1.58 by 19.0% as well as the year-ago profit of $1.46 by 28.8%.

Full year 2013 earnings came in at $7.07 per share, up 20.2% from the year-earlier level of $5.88. The company's strong numbers came from a solid operating performance fueled by higher aircraft deliveries along with customer-focused business strategies and disciplined execution. The full-year figure also surpassed the Zacks Consensus Estimate of $6.72 per share.

The company's top line grew 6.6% year over year to $23,785 million in the reported quarter, beating the Zacks Consensus Estimate of $22,316 million. In 2013, total revenue increased 6.0% year over year to $86,623 million, above our projection of $85,234 million.

Total Backlog

2013 year-end backlog also increased to a record $441 billion from $415 billion at the beginning of the quarter. Reported backlog included $48 billion of net orders during 2013. On a year-over-year basis, backlog grew by $51 billion and included $135 billion of net orders in 2013.

Segment Results

Commercial Airplane Segment

Boeing's deliveries in the Commercial Airplane segment boosted 4.2% year over year to 172. The segment saw a 4% increase in revenue to $14,680 million on higher delivery volume. Operating margin expanded 140 basis points (bps) to 10.3% on the back of higher deliveries and robust operating performances.

During the fourth quarter, the 737 model continued to be the pillar of Boeing's strength in the commercial airplane sector with deliveries of 110 airplanes, followed by its 777 and 787 models with 25 deliveries each. In the year-earlier period, the company delivered 105 units of the 737, 21 units of the 777 model and 23 units of 787.

Boeing's commercial delivery of 648 planes during 2013 accelerated 7.8% year over year thanks to robust 787 Dreamliner deliveries, which showed no slowing down even in the face of a series of technical glitches.

Boeing won net orders for 465 planes in the Dec 2013 quarter and 1,355 during the year.  Backlog at 2013 end remained strong with 5,080 airplanes valued at a record $374 billion.

Boeing Defense, Space & Security (BDS)

Boeing Defense, Space & Security segment witnessed an approximately 6% year-over-year improvement in its quarterly revenue to $8,855 million. Of the sub-segments, Boeing Military Aircraft (BMA) and Network & Space Systems (N&SS) witnessed a top-line climb of 9% and 12%, respectively. However, the Global Services & Support (GS&S) registered a decline of 4%.

Quarterly operating margin expanded 180 bps year over year to 10.8%.

Backlog at Defense, Space & Security stood at $67 billion, 37% of which comprised orders from international clients.

Meanwhile, Boeing's deliveries in the defense and space business numbered 52 in the reported quarter and 171 in 2013 compared with 35 in the fourth quarter of 2012 and 154 in 2012. In 2013, numbering among the total deliveries were 48 F/A-18E/F and EA-18G fighter jets, 44 Chinook helicopters, and 37 Apache helicopters. The company also delivered 14 units of F-15, 11 P-8, 10 C-17 and 7 Satellites.

Boeing Capital Corporation (BCC)

Boeing Capital Corporation reported quarterly revenues of $105 million compared with $129 million in the year-ago quarter. The segment witnessed earnings from operations of $9 million versus a loss of $12 million in the year-ago period.

At the end of fourth quarter 2013, BCC's portfolio balance was $3.9 billion.

Financial Condition

Boeing ended 2013 with cash and cash equivalents of $9,088 million and short-term investments of $6,170 million. At year-end 2012, the company had $10,341 million in cash and cash equivalents and $3,217 million of short-term investments. The long-term debt stood at $8,072 million in 2013 (versus $8,973 million at 2012 end) with a debt-to-capitalization ratio of 35.0%.

The company generated $1,409 million of operating cash flow before pension contributions in the fourth quarter 2013, compared with $4,204 million generated in the same period last year, showing a 66.5% decrease.

Guidance

Boeing provided full-year 2014 GAAP earnings guidance in the range of $6.10-$6.30 per share. Its adjusted earnings guidance is pegged at $7.00-$7.20 per share while the Zacks Consensus Estimate is higher at $7.49 for 2014. The lower-than-expected guidance was reflected in its share price, which fell 1.5% in premarket trade.

The company expects its top line in the range of $87.5-$90.5 billion for 2014.

Commercial Airplanes' 2014 deliveries are expected to be between 715 and 725 airplanes. This includes approximately 110 units of 787 deliveries. Commercial Airplanes' 2014 revenue is expected in a band of $57.5 billion to $59.5 billion with operating margin at about 10.0%.

Although the threat of defense cutbacks will loom over the company going forward, Boeing still remains optimistic with a 2014 defense revenue target of $30.0 billion to $31.0 billion and an operating margin of approximately 9.5%.

Boeing Capital Corporation however expects its aircraft finance portfolio to continue to shrink in 2014. Yet, the company expects segment revenue to approximate $0.3 billion.

Boeing's 2014 R&D forecast is now approximately $3.2 billion. Capital expenditures for 2014 are expected to be $2.5 billion.

Zacks Rank

Boeing currently retains a Zacks Rank #1 (Strong Buy).

The gradual recovery in the global economy is bringing in a steady improvement in passenger and freight traffic. This is amply reflected in Boeing's swelling order book. After dominating the Dubai Air Show with orders worth $101.5 billion, Boeing looks to be in an advantageous position when compared to archrival Airbus.

The aerospace major reported record jet deliveries in 2013, beating its own projection, driven by strong commercial numbers. The heightened deliveries were also a function of an increased production rate.

Besides its flourishing Commercial Airplane business, Boeing continues to win substantial defense orders. Recently, the company received a couple of contracts, worth $661 million, from the U.S. Department of Defense. The solid performance of the company over the last twelve months is also reflected in its traded price. Boeing's share price closed at $136.49 on Dec 31, reflecting a gain of 81.2% over the twelve-month period. Moreover, its share price inched up 0.3% since the start of 2014.

At the Peers

The company's peer, General Dynamics Corp 's ( GD ) fourth-quarter 2013 operating earnings were $1.76 per share, in line with the Zacks Consensus Estimate. Earnings were ahead of the year-ago figure of $1.39.

The world's largest stand-alone defense contractor, Lockheed Martin Corp. ( LMT ) posted fourth quarter 2013 adjusted earnings from continuing operations of $2.38 per share, comfortably surpassing the Zacks Consensus Estimate of $2.00 by 19.0%. Earnings in the reported quarter also surged almost 21.4% from the year-ago adjusted profit level of $1.96 per share. The upcast in earnings was mainly attributable to its strong operational performance.

Boeing's closest peer, Northrop Grumman Corp. ( NOC ) is expected to release its fourth quarter 2013 results on Jan 30. The Zacks Consensus Estimate for the quarter is $1.94.



BOEING CO (BA): Free Stock Analysis Report

GENL DYNAMICS (GD): Free Stock Analysis Report

LOCKHEED MARTIN (LMT): Free Stock Analysis Report

NORTHROP GRUMMN (NOC): Free Stock Analysis Report

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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 The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: BA , BCC , BMA , GD , LMT

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