Boeing Earnings Look Good, Margin Guidance Not So Much

Print Email

Boeing Co. (NYSE: BA) reported third-quarter 2017 results before markets opened Wednesday morning. The aerospace company posted adjusted diluted earnings per share (EPS) of $2.72 on revenues of $24.31 billion. In the same period a year ago, the company reported EPS of $3.51 per share on revenues of $23.9 billion. Third-quarter results also compare to consensus estimates for EPS of $2.66 and $23.92 billion in revenues.

The number that matters most to Boeing — and to its shareholders — is operating cash flow, and third-quarter cash flow totaled $3.4 billion, up 6% compared to the prior year quarter. For the year to date, cash flow rings in at $10.44 billion, compared with $7.67 billion in the first half of last year. Operating cash flow guidance for the fiscal was raised from $12.25 billion to $12.5 billion.

The stock will take a hit this morning after lowering its guidance on operating margins in both the commercial and defense divisions. Boeing still expects to deliver 760 to 765 new commercial aircraft this year and now believes its operating margin in the commercial segment will range from 9.0% to 9.5%, down from the second-quarter forecast of greater than 10.0%.

Boeing also forecast operating margin in its defense and space business of greater than 10.5%, down from last quarter’s forecast of more than 11.5%. The global services and support division’s margin is now forecast in a range of 15.0% to 15.5% for the full year.

The company also raised it GAAP and adjusted EPS guidance for the full year. Boeing now expects GAAP EPS to rise from a prior range of $11.10 to $11.30 to a new range of $11.20 to $11.40. Adjusted EPS is now forecast to rise from a prior range of $9.80 to $10.00 to a new range of $9.90 to $10.10. The rise in adjusted EPS is being driven by a lower-than-expected tax rate.

Analysts are looking for third-quarter EPS of $2.86 and revenues of $24.48 billion. For the full year, current estimates call for EPS of $10.04 and revenues of $92.15 billion.

Commercial jet deliveries rose 7% compared with the second quarter of 2016, and revenues from commercial jets dipped 1%. Operating earnings totaled $1.48 billion, and operating margin rose by 1.4 points to 9.9%. Boeing delivered 202 commercial planes in the third quarter and booked new orders for 117. The value of Boeing’s backlog slipped from $4.24 billion to $4.12 billion sequentially (actual contract price, not list price).

Defense division revenue dropped 5%, from $5.75 billion to $5.47 billion, and operating earnings dipped 1% primarily due to an increase of $73 million in costs for the KC-46A tanker program. Adding in $256 million in charges assigned to the commercial division, Boeing took a total charge against the tanker program of $329 million.

The global services and support division’s revenues rose 2% to $3.57 billion.

Boeing’s deferred production costs on the 787 program fell to $25.95 billion, down by $513 million sequentially. Tooling and other nonrecurring costs for the program also declined, from $3.39 billion at the end of the third quarter to $3.33 billion.

CEO Dennis Muilenburg said:

In the third quarter we successfully launched our newest business segment, Boeing Global Services, leveraging our unique One Boeing advantages to offer complete lifecycle support across the commercial, defense and space sectors. … We remain focused on accelerating productivity, quality and safety improvements across the company, executing on our future development programs, and capturing new business to ensure our continued growth.

During the quarter, the company repurchased 11 million shares for $2.5 billion and paid $900 million in dividends. Boeing said it had $6.5 billion remaining in its current buyback program.

The stock traded down about 1% in Wednesday’s premarket, at $263.70 in a 52-week range of $136.72 to $267.21. The high was posted yesterday. The consensus price target as of last night was $278.00.