Boeing Reaps Benefits of Cost Cuts and Productivity Gains

Boeing’s Q4 FY16 earnings jumped 59% to $1.63 billion, or $2.59 per share

The Boeing Company (NYSE: BA) announced its Q4 FY16 and full year FY16 financial results on January 25th, 2017.

The Chicago, Illinois-based aerospace firm operates in two main segments: Commercial Airplanes and Defense, Space & Security (BDS). Under BDS, Boeing has the Boeing Military Aircraft (BMA), Network & Space Systems (N&SS) and Global Services & Support (GS&S), and Boeing Capital (BCC) sub-segments. The Company other activities are Engineering, Operations & Technology (EO&T), which provides Boeing with technical and functional capabilities, and Shared Services Group (SSG), which provides technology strategy development, environmental remediation management, and intellectual property management. Read more about Boeing’s financial results below.

Q4 FY16 financial highlights

During Q4 FY16, Boeing’s total revenue fell 1% Y-o-Y to $23.28 billion from $23.57 billion in the year-ago same period due to cost-cutting measures and rising productivity gains. Boeing has also benefited from lower costs for parts for its 787 as the plane reaches key production milestones. It delivered its 500th 787 in December 2016. Boeing expects to deliver between 760 and 765 commercial aircraft in 2017, topping 748 deliveries in 2016.

Boeing announced its plans to cut production of its 777 by 40% in 2017, begin assembly of the successor 777X model, and start full production of the KC-46A aerial refueling tanker. Boeing’s announcement to slow down its 777 production comes after the Company notched only 17 net orders for the 777 in 2016. Moreover, Boeing’s recent order to sell 10 of the 777s to Qatar Airways has not made any impact to the production cuts.

In the meantime, Boeing is readying the 737 Max for market debut in 2017. It is also developing the first new 777X aircraft to be launched in 2020. The company also expects to begin marketing the 737 Max 10X, a stretched version of the plane, and possibly a new “7M7,” a nickname for its proposed mid-sized jet family.

Boeing’s Q4 FY16 operating earnings jumped 88% to $2.1 billion from $1.1 billion in the year ago comparable period. Operating margins rose to 9.4% from 4.9% in Q4 FY15. As a result, net earnings jumped 59% to $1.63 billion, or $2.59 per share, from $1.02 billion, or $1.51 per share, in the year ago corresponding quarter.

For the full year FY16, Boeing’s revenue fell 2% to $94.57 billion from $96.11 billion in the previous year reflecting 926 commercial and defense aircraft deliveries and services growth. As a result, net earnings jumped 59% to $1.63 billion, or $2.59 per share, from $1.02 billion, or $1.51 per share, in the year ago same period.

Segmental highlights

Commercial Airplanes: This segment’s Q4 FY16 revenue grew 1% to $16.2 billion on higher planned delivery volume and mix. Operating margin during Q4 FY16 was 9.1%, reflecting delivery mix, lower R&D and improved performance, partially offset by a $243 million pre-tax charge on the KC-46 Tanker program primarily related to additional effort to incorporate previously identified changes into initial production aircraft.

During the reporting quarter, Boeing delivered the 500th 787 Dreamliner and began final assembly of the first 787-10 aircraft. The 737 program has captured more than 3,600 orders for the 737 MAX, including recent 737 MAX 8 orders from GE Capital Aviation Services for 75 airplanes and SpiceJet for 100 airplanes. Commercial Airplanes booked 288 net orders during the quarter and 668 in 2016. Backlog remains strong with more than 5,700 airplanes valued at $416 billion with orders valued at $23 billion.

Defense, Space & Security: This segment’s Q4 FY16 revenue fell 12% to $6.86 billion versus $7.78 billion in the year-ago same period. Operating margin came in lower at 11.8%, reflecting a $69 million pre-tax charge on the KC-46 Tanker program at BMA, partially offset by solid execution.

Under this segment, Boeing Military Aircraft (BMA) Q4 FY16 revenue fell 18% to $2.6 billion, reflecting lower planned deliveries and mix, with operating margin of 11%. During the quarter, pending international sales of F-15 and F/A-18 fighter jets and Chinook and Apache helicopters were approved by the US State Department, reaching the final stage of the US foreign military sales process before contract negotiations.

Network & Space Systems (N&SS) Q4 FY16 revenue fell 8% to $1.8 billion largely reflecting lower satellite volume, with an operating margin of 8.7%. During the quarter, the eighth Wideband Global SATCOM satellite was launched with an upgraded digital payload.

Global Services & Support (GS&S) Q4 FY16 revenue fell 8% to $2.4 billion, reflecting lower volume in Aircraft Modernization & Sustainment. Operating margin was 14.9 percent largely reflecting contract mix. During the quarter, GS&S completed digital flight deck upgrades to the first of 14 NATO Airborne Warnings and Control Systems (AWACS) aircraft.

Backlog at Defense, Space & Security was $57 billion, of which 37% represents orders from international customers, with orders valued at $8 billion. At the end of Q4 FY16, Boeing Capital’s net portfolio balance was $4.1 billion.

Other highlights

Share buyback and dividends: During Q4 FY16, Boeing repurchased 3.7 million shares for $500 million and paid $672 million in dividends. For the full year FY16, Boeing repurchased 55.1 million shares for $7.0 billion and paid $2.8 billion in dividends. Based on strong cash generation and confidence in the company’s outlook, the Board of Directors in December 2016 increased the quarterly dividend per share by 30% to $1.42 a share and renewed the share repurchase program to $14 billion. Share repurchases under the new authorization are expected to be made over the next 24 to 30 months.

Cash and order backlog: Cash and investments in marketable securities totaled $10.0 billion at the end of Q4 FY16, up from $9.7 billion at the beginning of the quarter. Debt was $10.0 billion, down from the beginning of Q4 FY16, due to repayment of debt. Total Company backlog at the end of Q4 FY16 was $473 billion, up from $462 billion at the beginning of the quarter, and included net orders for Q4 FY16 of $32 billion.

Operating cash flow: Operating cash flow for Q4 FY16 fell 9% to $2.83 billion from $3.11 billion in the year ago comparable period was driven by solid operating performance, disciplined cash management, and a slight impact from timing of receipts and expenditures. For the full year FY16, operating cash flow jumped 12% to $10.49 billion from $9.36 billion in the prior year.

Guidance for FY17

Boeing forecasts between $10.25 and $10.45 for GAAP EPS and between $9.10 and $9.30 for core EPS (non-GAAP) for FY17. Revenue guidance is between $90.5 billion and $92.5 billion, including increased commercial deliveries of between 760 and 765. Operating cash flow is expected to increase by approximately $250 million to $10.75 billion and capital expenditures are expected to decline by approximately $300 million to $2.3 billion during FY17.

Stock Performance

Boeing’s stock stood at $169.12, gaining 1.05%, at the close on Thursday, January 26th, 2017, having vacillated between an intraday high of $170.00 and a low of $167.25 during the session. The stock’s trading volume was at 5,435,171 for the day. The Company’s market cap was at $107.00 billion as of Thursday’s close.

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