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In the fourth quarter of 2011, The Boeing Company (BA - Analyst Report) soaring on higher deliveries of commercial airplanes posted strong numbers. In the reported quarter, the company posted operating EPS (excluding special items) of $1.32, beating both the Zacks Consensus Estimate of $1.02 and year-ago EPS of $1.06. The company’s strong numbers came from higher commercial planes deliveries which more than offset a tepid quarter for defense.
On a reported basis, Boeing reported quarterly EPS of $1.84 per share versus $1.56 in the year-ago quarter. The 52 cents difference between reported and operating earnings, during the reported quarter, was owing to the effects of a favorable tax settlement.
Fiscal 2011 operating EPS (excluding special items) came in at $4.81, above the Zacks Consensus Estimate of $3.81 and fiscal 2010 earnings of $4.16. On a reported basis, earnings came in at $5.34 in fiscal 2011 versus $4.45 in fiscal 2010.
On the revenue front, higher airplane deliveries pulled up the quarterly revenue year-over-year by 18% to $19.6 billion, above the Zacks Consensus Estimate of $19.3 billion. Fiscal 2011 revenue rose 7% to $68.7 billion, moderately above the Zacks Consensus Estimate of $68.5 billion.
Commercial Airplane segment
Boeing’s Commercial Airplane segment in the reported quarter saw a 10% rise in deliveries to 128 units. As a result, Commercial Airplanes revenue increased by 31% to $10.7 billion on higher delivery volume and mix. In the reported quarter the company delivered 9 747 series and 2 787 series airplanes versus zero deliveries in the year-ago period. The company also delivered a higher number of 767 and 777 series airplanes (6 & 20) versus the year-ago period (3 & 18). The upsurge was partially offset by a lower number of 737 deliveries (91 versus 95) year over year.
Operating margin rose 150 basis points to 9.2%, reflecting lower Research & Development expenditure. This was partially offset by the dilutive impact of initial 787 and 747-8 deliveries and higher period costs.
Commercial Airplanes booked 379 net orders during the reported quarter. Backlog at fiscal 2011-end remains strong with more than 3,700 airplanes valued at a record $296 billion.
Boeing Defense, Space & Security
Boeing Defense, Space & Security segment witnessed a 4% rise in its quarterly revenue to $8.5 billion. Of these sub-segments Boeing Military Aircraft (BMA) and Global Services & Support (GS&S) witnessed a top line climb of 9% and 21%, respectively. Only the sub-segment, Network & Space Systems (N&SS) recorded a 19% fall in revenues.
Quarterly operating margin rose by 20 basis points to 10.2%. This was due to strong execution across various BMA programs. However, this was partially offset by lower margins at the N&SS and GS&S units. In the N&SS sub-segment, margin fell owing to higher R&D. Similarly GS&S margins were affected by the downcast in current defense contracting environment.
Backlog at Defense, Space & Security was $60.0 billion.
Boeing Capital Corporation (BCC)
Boeing Capital Corporation reported quarterly revenues of $116 million compared with $145 million in the year-ago quarter. The segment digested a loss of $8 million compared to earnings of $6 million in the year-ago period. At fiscal 2011-end, BCC's portfolio balance declined to $4.3 billion, flat versus the beginning of the reported quarter.
Boeing ended fiscal 2011 with cash and cash equivalents of $10.0 billion and short-term investments of $1.2 billion. At fiscal-end 2010, the company had $5.4 billion in cash and cash equivalents and $5.2 billion of short-term investments. The company generated more than $4.0 billion of cash from operating activities in fiscal 2011, compared with approximately $3.0 billion generated in fiscal 2010. Long-term debt decreased to $10.0 billion at the end of the reported fiscal from $11.5 billion at the end of fiscal 2010.
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. Besides, its revenues are spread across more than 90 countries around the globe.
Boeing expects its fiscal 2012 GAAP earnings to be in the range of $4.05–$4.25 per share, and adjusted earnings of $5.06–5.26 per share. Revenue for 2012 is expected to be between $78 billion and $80 billion. Commercial Airplanes' 2012 deliveries are expected to be between 585 and 600 airplanes and are already sold out. This includes an expected 70 to 85 787 and 747-8 deliveries. Commercial Airplanes' 2012 revenue is expected to be between $47.5 billion and $49.5 billion with operating margins between 8.5% and 9%.
In the defense space, the company also secured big contracts like the sale of 84 new F-15SA aircraft and upgrades to an additional 70 F-15Ss to Saudi Arabia; P-8A low rate initial production lot II production award from the U.S. Navy; development and sustainment contract for Ground-based Midcourse Defense from the U.S. Missile Defense Agency; and the C-17 Globemaster III Integrated Sustainment Program from the U.S. Air Force. However, the threat of defense cutbacks will loom over the company going forward. Overall, the company expects defense revenue for 2012 to be between $30.0 billion and $30.5 billion with operating margin greater than 9%.
Boeing Capital Corporation expects that its aircraft finance portfolio will continue to decline in 2012, as new aircraft financing of less than $0.5 billion is expected to be lower than the normal portfolio runoff through customer payments and depreciation. BCC's debt-to-equity ratio is expected to return to 5.0-to-1 in the first quarter of 2012 due to the repayment of maturing debt.
Boeing's 2012 R&D forecast is between $3.3 billion and $3.5 billion. Capital expenditures for 2012 are expected to be approximately $2.0 billion.
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. A clearer picture will emerge tomorrow when the big daddy of defense Lockheed Martin Corporation (LMT - Analyst Report) along with Raytheon Company (RTN - Analyst Report) come out with their versions of 2011.
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