Boeing’s Earnings Jumps on Tax Benefits, Solid Deliveries

Revenue fell 8% Y-o-Y to $23.90 billion from $25.85 billion in the year-ago period

b1The Boeing Company (NYSE: BA) announced its Q3 FY16 financial results on October 26th, 2016.

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.

Q3 FY16 financial highlights

During Q3 FY16, Boeing’s total revenue fell 8% Y-o-Y to $23.90 billion from $25.85 billion in the year-ago period, as revenue from commercial airplanes declined 4% Y-o-Y to $17 billion, on lower planned delivery volume of 188 planes compared to 199 for the same period last year. Deliveries were down nearly 6% Y-o-Y, reflecting slower production of the profitable 777 and 737 models. On the other hand, costs and expenses fell 7.8%, to $19.9 billion.

Source: Boeing
Source: Boeing

During Q3 FY16, deferred production cost balance for Boeing’s 787 Dreamliner, a tally of the manufacturing costs not yet recouped by sales, declined about $150 million to $27.5 billion, reflecting the fact that the high-tech plane is now profitable by some accounting measures. The balance peaked to $28.7 billion in Q1 FY16 and has declined since then.

Boeing’s Q3 FY16 earnings jumped 34% Y-o-Y to $2.28 billion, or $3.60 per share, from $1.70 billion, or $2.47 per share, a year earlier. Core earnings, which exclude some pension and other costs, rose to $3.51 per share from $2.52 in the year-ago period. Both figures included a special gain of $0.70 per share, reflecting a tax benefit that Boeing received by claiming more depreciation on plants and equipment than it had previously. Factoring that out, core earnings stood at $2.81 a share compared to the average analyst estimate of $2.62.

Segmental highlights

Commercial Airplanes: This segment’s Q3 FY16 revenue fell 4% to $17.0 billion on 6% lower planned delivery volume of aircraft. Operating margins came in lower at 9.4% during Q3 FY16 versus 10% in the year-ago period, reflecting delivery volume and mix, partially offset by lower period costs.

During Q3 FY16, Boeing began production of the 500th 787 Dreamliner, completed service ready validation of the 737 MAX 8, and began production of the 737 MAX 9. The 737 program has captured more than 3,300 orders for the 737 MAX since launch and the company remains on track to raise the production rate to 47 per month in Q3 FY17. During the reporting quarter, Boeing continued to grow its services business through an agreement with Japan Airlines to provide spare parts solutions. The segment booked 107 net orders during the reporting quarter, with a strong backlog of 5,612 airplanes valued at $409 billion.

Source: Boeing
Source: Boeing

Defense, Space & Security: This segment’s Q3 FY16 revenue fell 10% to $7.5 billion versus $8.35 billion in the year-ago period.

Source: Boeing
Source: Boeing

Operating margins came in lower at 10.4% during Q3 FY16 versus 12.2% in the year-ago period, reflecting the impact of the Commercial Crew program. Backlog was at $53 billion, of which 38% represents orders from international customers.

Under this segment, Boeing Military Aircraft (BMA) Q3 FY16 revenue fell 19% to $3.26 billion, reflecting fewer C-17 deliveries and volume on F-15. Operating margin increased to 13.3%, reflecting better program mix. During the quarter, BMA was awarded a contract from the U.S. Air Force for low-rate initial production of 19 KC-46 Tanker aircraft and received an agreement from the U.K. Ministry of Defense to purchase 50 Apache attack helicopters and 9 P-8 Poseidon aircraft.

Network & Space Systems (N&SS) Q3 FY16 revenue fell 20% to $1.7 billion with an operating margin of 2.1%, primarily reflecting the charge on the Commercial Crew development program. The charge includes a $124 million reversal of cumulative pre-tax earnings recorded in prior periods and a $38 million pre-tax reach forward loss, and was driven by delays in completion of engineering and supply chain activities. During the quarter, N&SS announced an award for a 702MP satellite with a new digital payload offering twice the capacity of previous designs.

Global Services & Support (GS&S) Q3 FY16 revenue jumped 17% to $2.5 billion, reflecting higher volume in Aircraft Modernization & Sustainment and Training Systems & Government Services. Operating margin of 12.4% largely reflected better contract mix. During the quarter, GS&S was awarded contracts from the Defense Logistics Agency for F/A-18 spare parts.

At the end of Q3 FY16, Boeing Capital’s net portfolio balance came in higher at $3.7 billion versus the beginning of the quarter.

b5

Other highlights

b6Share buyback and dividends: During Q3 FY16, Boeing repurchased 7.6 million shares for $1.0 billion, leaving $7.5 billion remaining under the current repurchase authorization. Boeing also paid $0.7 billion in dividends in Q3 FY16, reflecting about 20% increase in dividends per share compared to the same period last year.

Cash and order backlog: During Q3 FY16, Boeing’s cash and investments in marketable securities totaled $9.7 billion, up from $9.3 billion at the beginning of the quarter. Debt was $10.5 billion, down from the beginning of the quarter. Total company backlog at quarter-end was $462 billion, down from $472 billion at the beginning of the quarter, and included net orders for the quarter of $15 billion. Boeing booked 107 net orders during Q3 FY16, with a robust backlog of $462 billion and more than 5,600 commercial airplane orders valued at $409 billion.

Solid order book: Boeing has been garnering solid orders for its more successful 737 jets. In May 2016, Boeing won an order for 100 jets from VietJet Aviation valued at $11.3 billion at list price. VietJet is Vietnam’s only private airline and a leading low-cost carrier. Boeing will deliver the 737 Max 200 planes from 2019 to 2023. Boeing has also bagged orders from many low-cost airlines in the Asia/Pacific region for smaller jets. The Company recently bagged an order from Iran for about 100 aircraft that includes 737s, 777s, and 787s.

On October 10th, 2016, Qatar Air committed to buy 30 of the 787-9 Dreamliner and 10 of the 777-300ER, which would have a total value of $11.7 billion at list prices. In addition, the airline signed a letter of intent for 60 narrow-body 737-8 MAX aircraft valued at $6.9 billion.

On November 4th, 2016, Boeing announced that it has been awarded a $478.79 million U.S. defense contract for engineering manufacturing and development of a Passive/Active Warning and Survivability System for the F-15 Eagle fighter jet.

Operating cash flow for Q3 FY16 rose 12% to $3.2 billion, reflecting solid operating performance, as the company achieved key milestones on the 737 MAX, 787-10 and other development programs, including the first KC-46 production contracts.

Source: Boeing
Source: Boeing

Guidance for full year FY16

Based on the 2016 market outlook, Boeing raised its target for jetliner deliveries for the year to between 745 and 750 from 740 to 745, and kept its operating cash flow target of more than $10 billion unchanged. The additional planes will boost revenue by $500 million, prompting the company to raise its year-end revenue target to between $93.5 billion and $95.5 billion.

GAAP EPS guidance for FY16 has been increased to between $7.10 and $7.30 from $6.40 and $6.60 and core EPS (non-GAAP) guidance has been increased to between $6.80 and $7.00 from $6.10 and $6.30 to reflect a favorable $0.70 per share tax basis adjustment.

Stock Performance

b9Boeing’s stock stood at $149.99, marginally gaining 0.99%, at the close on Monday, November 14th, 2016, having vacillated between an intraday high of $150.09 and a low of $148.21 during the session. The stock’s trading volume was at 4,449,026 for the day. The Company’s market cap was at $94.90 billion as of Monday’s close.

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