Boeing Earnings Breeze Past Q1 Estimates - Analyst Blog

Aerospace giant The Boeing Company BA once again started the year on an impressive note, delivering strong first quarter 2014 results backed by robust deliveries. The company reported adjusted first quarter 2014 earnings of $1.76 per share, beating the Zacks Consensus Estimate as well as ahead of the year-ago adjusted profit of $1.54 by 14.3%.

The company's top line grew 8.3% year over year to $20,465 million in the reported quarter, beating the Zacks Consensus Estimate of $20,305 million.

Total Backlog

Backlog at the end of the first quarter decreased to $439.8 billion from $440.9 billion at the end of 2013. Reported backlog included $19 billion of net orders during the quarter. Although the backlog declined sequentially, it grew by $48.1 billion on a year-over-year basis.

Segment Results

Commercial Airplane Segment

The segment saw a 19% increase in revenue to $12,737 million on higher delivery volume. Operating margin expanded 40 basis points (bps) to 11.8% on the back of higher deliveries and a robust operating performance.

In its first quarter of 2014, Boeing delivered 161 airplanes, approximately 17.5% higher than the year-ago number. During the quarter, the Next Generation 737 model continued to be the pillar of Boeing's strength in the commercial airplane sector with deliveries of 115 airplanes, followed by its 777 model with 24 deliveries.

Both these models continue to perform better than competing models owing to fuel efficiency and lower operating costs. In the year-earlier period, the company had delivered 102 units of the 737 and 24 units of the 777 model.

Boeing also delivered 18 787s during the first quarter 2014, while delivering only 1 unit in the year-ago period.

Boeing won net orders for 235 planes in the March 2014 quarter with backlog reaching 5,100 airplanes valued at a record $374 billion.

Boeing Defense, Space & Security (BDS)

Boeing Defense, Space & Security segment however witnessed an approximately 6% year-over-year decrease in its quarterly revenue to $7,633 million. Of the sub-segments, Boeing Military Aircraft BMA and Network & Space Systems (N&SS) recorded a top-line plunge of 13% and 4%, respectively. However, Global Services & Support (GS&S) registered an improvement of 6%.

Quarterly operating margin contracted 10 bps year over year to 10.2%.

Backlog at Defense, Space & Security stood at $66 billion, 35% of which comprised orders from international clients.

Meanwhile, Boeing's deliveries in the defense and space business numbered 46 in the first quarter 2014 compared with 45 in the comparable period last year. In the quarter under review, numbering among the total deliveries were 17 Chinook helicopters, 11 F/A-18E/F and EA-18G fighter jets and 10 Apache helicopters. The company also delivered 4 units of F-15, 3 C-17 and 1 AEW&C.

Boeing Capital Corporation BCC

Boeing Capital Corporation reported quarterly revenues of $82 million compared with $105 million in the year-ago quarter. The segment witnessed earnings from operations of $44 million, at par with the year-ago period.

At the end of first quarter 2014, BCC's portfolio balance was $3.5 billion, down from $3.9 billion at the end of fourth quarter 2013.

Financial Condition

Boeing ended the first quarter with cash and cash equivalents of $6,942 million and short-term investments of $5,282 million. At year-end 2013, the company had $9,088 million in cash and cash equivalents and $6,170 million of short-term investments. Long-term debt stood at $7,275 million in the reported quarter (versus $8,072 million at 2013 end) with a debt-to-capitalization ratio of 33.2%.

The company generated $1,112 million of operating cash flow before pension contributions in the first quarter 2014, compared with $524 million generated in the same period last year, showing a significant 112% increase.

Guidance

Boeing reaffirmed its full-year 2014 GAAP earnings guidance in the range of $6.10–$6.30 per share. The company raised its 2014 forecast for core earnings per share to a range of $7.15 to $7.35, up 15 cents at both ends. The Zacks Consensus Estimate is higher at $7.40 for 2014. The increased guidance triggered a 2.7% gain in the share price in pre-market trade today.

The company also maintained its top-line projection 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 holds a Zacks Rank #3 (Hold).

After reporting record jet deliveries last year, this aerospace behemoth once again clocked solid first quarter results buoyed by higher aircraft deliveries.

That said, the company has certainly witnessed setbacks and technical snags at its Commercial Airplane Division. Notwithstanding, Boeing is seeing strong growth driven by rising demand for air travel from the emerging markets and replacement (of older aircraft) demand from the developed markets.

Moreover, a recovery from the financial crisis and consolidation within the industry have enabled airliners to place big orders for new airplanes with aircraft manufacturers like Boeing, Airbus, Bombardier and Embraer SA ERJ. The company expects passenger traffic in the Asia-Pacific region to rise by leaps and bounds driven by growing economies.

Besides its flourishing Commercial Airplane business, Boeing continues to win substantial defense orders. Recently, the company won a sizable $1.16 billion contract modification to supply the U.S. Army with AH-64E Apache helicopters.

Although the threat of defense cutbacks will loom over the company going forward, with 7he $1.1 trillion Omnibus spending measure, the defense majors are expected to see stability in 2014.

At the Peers

Yesterday, Pentagon's prime contractor, Lockheed Martin Corp. LMT, posted impressive first quarter 2014 earnings before the opening bell amid an uncertain budget environment. The company reported quarterly earnings of $2.87 per share, comfortably surpassing the Zacks Consensus Estimate of $2.52 by 13.9%. Earnings in the reported quarter also surged 27.6% from $2.25 in the year-ago quarter.

Boeing's closest peer, Northrop Grumman Corp. NOC reported first quarter 2014 adjusted earnings of $2.40 per share, surpassing the Zacks Consensus Estimate of $2.15 by 11.6%.

Another defense major, General Dynamics Corp. GD, posted first quarter profit of $1.71 per share, beating the bottom line consensus of $1.63 by 4.9%. The reported figure also increased 5.6% year over year.