Boeing Q2 Earnings Beat Comes on Higher Deliveries, Ups View

Aerospace giant The Boeing Company (BA) delivered upbeat second quarter 2014 results backed by robust deliveries. The company reported adjusted second quarter 2014 earnings of $2.42 per share, beating the Zacks Consensus Estimate by 19.8%. The quarterly number rose an impressive 44.9% from $1.67 per share a year ago.

Including pension-components related to market fluctuations and other items, Boeing reported a profit of $2.24 a share, up 59% from $1.41 per share in the year-ago quarter.

The company's top line rose a negligible 1.1% year over year to $22,045 million in the reported quarter, failing to meet the Zacks Consensus Estimate of $22,324 million.

Total Backlog

Backlog at the end of the second quarter increased to $440.3 billion from $439.9 billion at the end of first quarter 2014. Reported backlog included $23 billion of net orders during the quarter.

Segment Results

Commercial Airplane Segment

The segment saw a 5% increase in revenues to $14,304 million on higher delivery volume. Operating margin expanded 10 basis points (bps) to 10.8% on the back of higher deliveries and a robust operating performance. However, margins were impacted by the $238 million pre-tax charge on the KC-46A Tanker program.

In the reported quarter, Boeing delivered 181 commercial airplanes, approximately 7.1% higher than the year-ago number. During the quarter, the Next Generation 737 model proved yet again its unfailing popularity, delivering 124 airplanes, followed by its 787 model with 30 deliveries. In the year-earlier period, the company had delivered 116 units of the 737 and 16 units of the 787 model. Boeing also delivered 24 777s during the second quarter 2014, while delivering 23 units in the year-ago period.

Its 787 Dreamliner, despite setbacks and technical snags, remains a popular choice for major airlines, roughly doubling its deliveries in the second quarter of 2014.

Boeing won net orders for 264 planes in the June 2014 quarter with backlog reaching 5,200 airplanes valued at a record $377 billion.

Boeing Defense, Space & Security (BDS)

Boeing Defense, Space & Security segment however witnessed an approximately 5% year-over-year decrease in its quarterly revenues to $7,747 million. All its sub-segments – Boeing Military Aircraft (BMA), Network & Space Systems (N&SS) and Global Services & Support (GS&S) – recorded a top-line drop of 3%, 6% and 8%, respectively.

Quarterly operating margin contracted 200 bps year over year to 7.5%.

Backlog at Defense, Space & Security stood at $63 billion, 36% of which comprised orders from international clients.

Boeing’s deliveries in the defense and space business numbered 47 in the second quarter 2014 compared with 31 in the year-ago period. The breakdown includes 15 Chinook helicopters, 12 F/A-18E/F and EA-18G fighter jets and 9 Apache helicopters, as well as 4 units of F-15, 2 C-17, 2 P-8, 2 Satellites (Government & Commercial) and 1 AEW&C.

Boeing Capital Corporation (BCC)

Boeing Capital Corporation reported quarterly revenues of $90 million compared with $104 million in the year-ago quarter. The segment witnessed earnings from operations of $33 million, up 73.7% from the year-ago period.

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

Financial Condition

Boeing ended the second quarter with cash and cash equivalents of $7,533 million and short-term investments of $3,797 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 $7,292 million in the reported quarter (versus $8,072 million at 2013 end) with a debt-to-capitalization ratio of 34.1%.

The company generated $1,809 million of operating cash flow before pension contributions in the second quarter 2014, compared with $3,480 million generated in the same period last year, showing a significant 48% decrease.

Guidance

The company raised its adjusted or core earnings per share forecast for 2014 to $7.90 to $8.10 a share from its earlier view of $7.15 to $7.35. The upsurge reflects $408 million in tax benefits and strong operating performance.

Boeing expects 2014 GAAP earnings in the range of $6.85–$7.05 per share. The increased guidance triggered a 1.5% gain in the share price in pre-market trade today.

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

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 10.0%.

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 $2.5 billion.

Zacks Rank

Boeing currently holds a Zacks Rank #3 (Hold).

This aerospace behemoth once again clocked solid second quarter results buoyed by higher commercial aircraft deliveries. Boeing made two strategic acquisitions during the quarter, namely, Ventura Solutions Inc., a hardware and software engineering company and AerData Group B.V., a provider of technical services for aircraft and engine operators. These acquisitions will further enhance Boeing’s product offering.

In spite of setbacks and technical snags at its Commercial Airplane Division, 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.

The gradual economic recovery and consolidation within the industry have enabled airlines to place big orders for new airplanes. The aircraft manufacturing market is limited to a few players, namely, Boeing, Airbus, Bombardier and Embraer SA (ERJ). The company expects passenger traffic in the Asia-Pacific region, specifically China, to rise by leaps and bounds driven by growing economies.

At the Peers

Yesterday, Pentagon’s prime contractor, Lockheed Martin Corp. (LMT), posted impressive second quarter 2014 earnings before the opening bell in spite of the uncertain budget environment. The company reported quarterly earnings of $2.76 per share, comfortably surpassing the Zacks Consensus Estimate of $2.66 by 3.8%.

Boeing's closest peer, Northrop Grumman Corp. (NOC) reported second-quarter 2014 adjusted earnings of $2.04 per share, lagging the Zacks Consensus Estimate of $2.20 by 7.3%. However, earnings were 3.6% higher year over year.