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Boeing (BA) Beats on Q3 Earnings, Guidance Lifted Yet Again - Analyst Blog

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Aerospace giant The Boeing Company ( BA ) delivered upbeat third-quarter 2014 results backed by robust deliveries. The company reported adjusted third-quarter 2014 earnings of $2.14 per share, beating the Zacks Consensus Estimate by 9.2%. The quarterly number rose an impressive 18.9% from $1.80 per share a year ago.

The Boeing Company - Earnings Surprise | FindTheBest

Including pension components related to market fluctuations and other items, Boeing reported a profit of $1.86 a share, up 23.2% from $1.51 per share in the year-ago quarter.

The company's revenues rose 7.5% year over year to $23.8 billion in the reported quarter, comfortably surpassing the Zacks Consensus Estimate of $23 billion.

Total Backlog

Backlog at the end of the third quarter increased to $490 billion from $440.3 billion at the end of third quarter 2014. Reported backlog included $73 billion of net orders during the quarter.

Segment Results

Commercial Airplane Segment: The segment saw a 15% increase in revenues to $16.1 billion on higher delivery volume. However, operating margin contracted 40 basis points (bps) from the year-ago level to 11.2%. Margins reflected the dilutive impact of 787 and 747-8 deliveries and higher period costs.

In its third quarter of 2014, Boeing delivered 186 commercial airplanes, approximately 9.4% higher than the year-ago figure. During the quarter, the Next Generation 737 model proved its popularity once again, delivering 120 airplanes, followed by its 787 model with 31 deliveries. In the year-earlier period, the company had delivered 112 units of the 737 and 23 units of the 787 model. Boeing also delivered 27 units of 777 in third-quarter 2014 against 26 units in the year-ago period.

During the first nine months of the year, Boeing delivered 528 commercial jetliners, 10.9% higher than the year-ago level.

Boeing won net orders for 501 planes in the Sep 2014 quarter with backlog reaching 5,500 airplanes valued at a record $430 billion.

Boeing Defense, Space & Security (BDS): Boeing Defense, Space & Security segment however witnessed an approximately 2% year-over-year decrease in its quarterly revenues to $7.9 billion. Its sub-segments - Network & Space Systems (N&SS) and Global Services & Support (GS&S) - recorded top-line declines of 9% and 1%, respectively. Yet, its Boeing Military Aircraft (BMA) unit registered about 3% year-over-year increase.

Quarterly operating margin expanded 240 bps year over year to 10.8%.

Backlog at Defense, Space & Security stood at $60 billion, 37% of which comprised orders from international clients.

Boeing's deliveries in the defense and space business were 48 in third-quarter 2014 versus 43 in the comparable period last year. The breakdown includes 14 Chinook helicopters, 13 F/A-18E/F and EA-18G fighter jets and 11 Apache helicopters, as well as 4 units of P-8, 2 F-15, 2 C-17, 1 Satellites (Government & Commercial) and 1 AEW&C.

Boeing Capital Corporation (BCC): Boeing Capital Corporation reported quarterly revenues of $91 million compared with $94 million in the year-ago quarter. The segment incurred a loss of $11 million as compared to earnings of $35 million a year ago.

At the end of third quarter 2014, BCC's portfolio balance was $3.5 billion, up from $3.4 billion at the end of the second quarter.

Financial Condition

Boeing ended the third quarter with cash and cash equivalents of $6.7 billion and short-term investments of $3.4 billion. At year-end 2013, the company had $9.1 billion in cash and cash equivalents and $6.2 billion of short-term investments. Long-term debt stood at $7.3 billion in the reported quarter (versus $8.1 billion at 2013 end).

The company generated $1.7 billion of operating cash flow before pension contributions in the third quarter 2014, compared with $4.3 billion generated in the same period last year, showing a significant 61% decrease.

Guidance

The company raised its adjusted or core earnings per share forecast for 2014 to $8.10 to $8.30 a share from its earlier view of $7.90 to $8.10. The upward revision reflects strong operating performance.

Boeing now expects 2014 GAAP earnings in the range of $6.90-$7.10 per share, up from its earlier expectation of $6.85−$7.05 per share. The increased guidance triggered more than a 3% gain in the share price in pre-market trade today.

The company, however, maintained its top-line projection for 2014 in the range of $87.5-$90.5 billion.

Commercial Airplanes' 2014 deliveries are expected between 715 and 725 airplanes. This includes approximately 110 units of 787. Commercial Airplanes' 2014 revenues are pegged in a band of $57.5 billion to $59.5 billion with operating margin of over 10.5% (versus its earlier expectation of 10%).

Although the threat of defense cutbacks will continue to 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. The company expects segment revenues 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 $2.3 billion versus $2.5 billion expected earlier.

Zacks Rank

Boeing currently holds a Zacks Rank #2 (Buy).

This aerospace behemoth once again clocked solid third-quarter results buoyed by higher commercial aircraft deliveries. It raised its full-year core earnings forecast for the third time, thanks to booming commercial aircraft demand.

The gradual economic recovery and consolidation within the industry have enabled airlines to place big orders for new airplanes. The company expects passenger traffic in the Asia-Pacific region, specifically China, to rise by leaps and bounds driven by growing economies.

The company announced its plans to further consolidate its defense business - this is a ploy to cut costs in a declining U.S. military budget environment. The company will relocate the majority of its defense services and support work out of Washington state to Oklahoma City and St. Louis. This transition will take around three years affecting about 2,000 of its 5,200 defense jobs in the Puget Sound region. The move will not affect Boeing's P-8A spy plane or KC-46 aerial refueling tanker programs.

The objective of this program is to enhance the company's competitiveness in the market. It is also in sync with Boeing's efforts to reduce overhead costs in the defense business.

At the Peers

Yesterday, Pentagon's prime contractor, Lockheed Martin Corp. ( LMT ), reported quarterly earnings of $2.76 per share, comfortably surpassing the Zacks Consensus Estimate of $2.72 by 1.5%.

Boeing's closest peer, Northrop Grumman Corporation ( NOC ) reported third-quarter 2014 adjusted earnings of $2.32 per share, beating the Zacks Consensus Estimate of $2.16 by 7.4%. Earnings also increased 17.8% year over year.

Again, General Dynamics Corp. ( GD ) reported third-quarter 2014 earnings from continuing operations of $2.05 per share, comfortably surpassing the Zacks Consensus Estimate of $1.91 by 7.3%. Earnings also increased 11.4% from the prior-year figure of $1.84.

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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.


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

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