Boeing Beats on Higher Deliveries

Zacks

In the fourth quarter of 2012, The Boeing Company (BA) soaring on higher deliveries of commercial airplanes posted strong operating EPS (excluding special items) of $1.46, beating the Zacks Consensus Estimate of $1.19. However, this came below the year-ago EPS of $1.92. The company’s strong numbers came from higher commercial planes deliveries which more than offset a tepid quarter for defense.

On a reported basis, Boeing reported quarterly EPS of $1.28 per share versus $1.84 in the year-ago quarter. The 18-cent difference between reported and operating earnings, during the reported quarter, was owing to the effects of an unallocated pension/postretirement expense.

Full year 2012 operating EPS (excluding special items) came in at $5.88, above the Zacks Consensus Estimate of $5.00 and full year 2011 earnings of $5.79. On a reported basis, earnings came in at $5.11 in 2012 versus $5.34 in 2011.

Operating Statistics

On the revenue front, higher airplane deliveries pulled up the quarterly revenue year over year by 14% to $22.3 billion, in line with the Zacks Consensus Estimate. Full-year 2012 revenue rose 19% to $81.7 billion, moderately above the Zacks Consensus Estimate of $81.6 billion.

Segment Results

Commercial Airplane segment


Boeing’s Commercial Airplane segment in the reported quarter saw a 29% rise in deliveries to 165 units. As a result, Commercial Airplanes revenue increased by 32% to $14.2 billion on higher delivery volume and mix. In the reported quarter the company delivered 10 747 series and 23 787 series airplanes versus 9 and 2 deliveries, respectively, in the year-ago period.

The company also delivered a higher number of 737 (105 versus 91 units) and 777 airplanes (21 versus 20). However, 767 deliveries were constant at 6 units in both the reported and year-ago quarters.

Operating margin fell 30 basis points to 8.9%, reflecting the dilutive impact of initial 787 and 747-8 deliveries and higher period costs. This was partially offset by higher volume and lower Research & Development expenditure.

Commercial Airplanes booked 394 net orders during the reported quarter.  Backlog at 2012 end remained strong with more than 4,400 airplanes valued at a record $319 billion.

Boeing Defense, Space & Security

Boeing Defense, Space & Security segment witnessed a 2% fall in its quarterly revenue to $8.3 billion. Of these sub-segments only Boeing Military Aircraft (BMA) witnessed a top-line climb of 5%. However both the Global Services & Support (GS&S) and Network & Space Systems (N&SS) registered fall of 11% and 2%, respectively.

Quarterly operating margin shrunk by 120 basis points to 9.0%. This was due to lower margins in its two sub-segments. BMA margin decreased due to delivery mix while N&SS margin fell due to lower earnings on Ground-based Midcourse Defense and several satellite programs. However this was partially offset by GS&S which posted higher margins owing to improved performance in integrated logistics programs.  

Backlog at Defense, Space & Security was $71.0 billion, more than two times the projected 2013 revenue.

Boeing Capital Corporation (:BCC)

Boeing Capital Corporation reported quarterly revenues of $116 million compared with $104 million in the year-ago quarter. The segment digested a loss of $20 million in both the reported and the year-ago period. At 2012 end, BCC's portfolio balance was $4.1 billion, flat versus the beginning of the year.

Financial Condition

Boeing ended 2012 with cash and cash equivalents of $10.3 billion and short-term investments of $3.2 billion. At year-end 2011, the company had $10.0 billion in cash and cash equivalents and $1.2 billion of short-term investments.

The company generated more than $7.5 billion of cash from operating activities in 2012, compared with approximately $4.0 billion generated in 2011. Long-term debt decreased to $9.0 billion at the end of the reported period from $10.0 billion at the end of 2011.

Guidance

Boeing expects its full-year 2013 GAAP earnings in the range of $5.00–$5.20 per share, and adjusted earnings of $6.10–$6.30 per share. Revenue for 2013 is expected to be between $82 billion and $85 billion.

Commercial Airplanes' 2013 deliveries are expected to be between 635 and 645 airplanes. This includes more than 60 units of 787 deliveries. Commercial Airplanes' 2013 revenue is expected to be between $51 billion and $53 billion with operating margin of approximately 9.5%.

In the defense space, the company also secured big contracts like 13 F/A-18 aircraft for U.S. Navy; Space Launch System (:SLS) for NASA; the C-17 Globemaster III Integrated Sustainment Program from the U.S. Air Force; and a contract to upgrade 68 F-15s for an international customer. However, the threat of defense cutbacks will loom over the company going forward. Overall, the company expects defense revenue for 2013 to be between $30.5 billion and $31.5 billion with operating margin greater than 9%.  

Boeing Capital Corporation expects that its aircraft finance portfolio will continue to decline in 2013, as new aircraft financing of less than $0.5 billion is expected to be lower than the normal portfolio runoff through customer payments and depreciation.  

Boeing's 2013 R&D forecast is approximately $3.4 billion.  Capital expenditures for 2013 are expected to be between $2.3 billion and $2.5 billion.  

Outlook

Boeing has a unique position as the largest aircraft manufacturer in the world in terms of revenues, orders and deliveries, and is one of the largest aerospace and defense contractors in the world. Besides, its revenues are spread across more than 90 countries around the globe.

Boeing’s presence in the two businesses of commercial airplanes and defense insulates the performance of the company from U.S. defense budget shock waves that are currently affecting all defense players across the board.

However recently on Jan 16, the Federal Aviation Administration (“FAA”) issued an airworthiness directive that resulted in all in-service 787s temporarily ceasing operations. The pile of dominos started tumbling from Japan when a 787 Dreamliner of Japanese airline All Nippon Airways (ALNPY) made an emergency landing at Takamatsu airport in Japan. The Dreamliner was forced to land after an in-flight battery incident of smoke appearing in the plane's cockpit. 

As of now, while production continues on the 787, the company is suspending deliveries until clearance is granted by the FAA following ongoing investigation. Boeing currently retains a Zacks Rank #3, which translates into a short-term Hold rating.

The fate of the Dreamliner would affect other aerospace players like Rockwell Collins Inc. (COL) and Precision Castparts Corporation (PCP) who have a considerable stake in the airplane as suppliers.

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Read the Full Research Report on ALNPY

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