The Boeing Company (BA), riding on higher delivery of commercial airplanes and stable all round core performance, reported strong numbers for the second quarter of 2011. In the reported quarter, the company posted quarterly earnings of $1.25 per share, beating the Zacks Consensus Estimate of 97 cents a share as well as the year-ago earnings of $1.06. The robust performance was albeit partially affected by higher pension expense.
Operating Statistics
On the revenue front, quarterly revenues increased 6.2% year over year to $16.54 billion, primarily attributable to higher commercial airplane deliveries. Reported revenues, however, failed to beat the Zacks Consensus Estimate of $16.57 billion. Operating margin rose 90 basis points (bps) year over year to 9.3%. Overall Net income rose 19.6% to $941 million from $787 million in the year-ago quarter.
Segmental Results
Commercial Airplane segment
Boeing’s Commercial Airplane segment in the reported quarter witnessed a 3.5% rise in deliveries to 118 units. During the period, higher number of 777 and 767 airplanes was delivered while 737 deliveries remained low. Higher airplane deliveries volume drove revenues by 19% to $8.84 billion.
The segmental operating margin expanded 120 bps to 10.4% due to higher deliveries and strong operating performance. This was partially offset by higher R&D cost. Boeing’s Commercial Airplane segment in the reported quarter booked 65 net orders. Contractual backlog remains strong with over 3,300 airplanes valued at $262 billion.
Boeing Defense, Space & Security
Boeing Defense, Space & Security segment revenue declined 4% year-over-year to $7.69 billion. In the reported quarter, only the sub-segment, Boeing Military Aircraft (BMA) witnessed growth of 2% to $3.64 billion. However, Network & Space Systems (N&SS) revenues fell 12% to $2.08 billion and Global Services & Support (GS&S) revenues plunged 4% to $1.97 billion.
Quarterly segmental margin increased 150 bps to 10.4%. In the reported quarter, BMA sub-segment registered operating margin of 10.6%, reflecting improved operating performance. N&SS sub-segment registered operating margin of 9.5%, reflecting a gain on the sale of property. GS&S sub-segment in the quarter reported operating margin of 10.9%, reflecting strong performance in integrated logistics.
Defense, Space & Security backlog is $61 billion; approximately double the segment’s expected 2011 revenues.
Boeing Capital Corporation (BCC)
Boeing Capital Corporation reported quarterly revenues of $147 million compared with $162 million in the year-ago quarter. The segment generated earnings of $62 million compared with $55 million in the year-ago period. At the end of the reported period, BCC's portfolio balance declined to $4.4 billion from $4.5 billion at the beginning of the reported quarter due to run-off and asset sales.
Financial Condition
Boeing ended the reported quarter with cash and cash equivalents of $5.05 billion and short-term investments of $3.75 billion. At the end of fiscal 2010, the company had $5.36 billion in cash and cash equivalents and $5.16 billion of short-term investments.
The company generated $643 million of cash from operating activities in the first six months of 2011 versus $19 million in the first six months of 2010. Long-term debt decreased to $10.32 billion at the end of the reported quarter from $11.47 billion at the end of fiscal 2010.
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. Moreover, the company’s revenue streams span more than 90 countries around the globe.
Boeing reaffirmed its fiscal 2011 revenue guidance in the range $68 billion – $71 billion. However, the company raised its earnings per share guidance range for fiscal 2011 to $3.90 – $4.10 from the earlier guidance range of $3.80 – $4.00 buoyed by strong core performance across its businesses.
Total company backlog at quarter end was $323 billion, down from $329 billion at the beginning of the reported quarter. Net orders for the quarter were $12 billion, including a significant mix of wide-body commercial airplanes. Backlog is up $2.7 billion from fiscal 2010, reflecting $35 billion of net orders in the first half of 2011.
The guidance incorporates the tentative launch of revenue boosters like the 787 Dreamliner and 747-8 series, which would start later in the ongoing quarter. However, the company revised the upper range of the Commercial Airplanes' deliveries guidance for fiscal 2011.Deliveries for fiscal 2011 are now expected in the range of 485 – 495, down from earlier range of 485 – 500. The reduction was due to lower planned deliveries on development programs (especially 787 and 747-8 units).
In the defense space, the company also secured big contracts like C-17s for India; modernization and upgrade contracts from the U.S. Air Force; and U.S. Navy's study contract for the Unmanned Carrier-Launched Airborne Surveillance and Strike Program.
However, higher pension expenses and the threat of defense cutbacks will remain headwinds for the company going forward.
Boeing currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock. This is in sync with other aerospace and defense behemoths like General Dynamics Corporation (GD) and Lockheed Martin Corporation (LMT).
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