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Deliveries Drive Boeing Q3 Earnings, View Up

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Aerospace giant The Boeing Company (BA - Free Report) reported stellar third quarter 2013 results on the back of a solid performance across the company's businesses. Its adjusted third quarter 2013 earnings came in at $1.80 per share, beating the Zacks Consensus Estimate of $1.54 by 16.9% as well as the year-ago profit of $1.55 by 16.1%.

The company’s strong numbers came from solid operating performance fueled by higher aircraft deliveries along with customer-focused business strategies and disciplined execution.

Total revenue was $22,130 million, up 10.6% from $20,008 million in the third quarter 2012 and ahead of the Zacks Consensus Estimate of $21,612 million.

Backlog also increased to a record $415.1 billion from $410.3 billion in the preceding quarter. Reported backlog included $27 billion of net orders during the quarter.

Segment Results

Commercial Airplane Segment

Boeing’s deliveries in the Commercial Airplane segment boosted 14.1% year over year to 170. The segment saw a 14.8% increase in revenue to $13,987 million on higher delivery volume.

During the third quarter, the 737 model continued to be the pillar of Boeing’s strength in the commercial airplane sector with deliveries of 112 airplanes, followed by its 777 model with 26 deliveries. Both these models continue to perform better than competing models owing to their fuel efficiency and lower operating costs.

In the year-earlier period, the company delivered 102 units of the 737 and 20 units of the 777 model. Its 787 deliveries advanced 91.6% on an annualized basis, delivering 23 units in the latest quarter.

Operating margin expanded 210 basis points (bps) to 11.6% on the back of higher deliveries and robust operating performances.

Boeing won net orders for 500 planes in the Sep 2013 quarter.  Backlog at third quarter 2013 end remained strong with more than 4,800 airplanes valued at a record $345 billion.

Boeing Defense, Space & Security (BDS)

Boeing Defense, Space & Security segment witnessed approximately 3% year over year improvement in its quarterly revenue to $8,046 million. Of the sub-segments, Network & Space Systems (N&SS) and the Global Services & Support (GS&S) witnessed a top-line climb of 9% and 10%, respectively. However, Boeing Military Aircraft (BMA) registered a decline of 5%.

Quarterly operating margin plunged 210 bps year over year to 8.4%.

Backlog at Defense, Space & Security stood at $70 billion, 38% of which comprised orders from international clients.

Meanwhile, Boeing’s deliveries in the defense and space business numbered 43 in the third quarter of 2013 compared with 50 in the third quarter of 2012 and 31 in the second quarter 2013.

Boeing Capital Corporation (BCC)

Boeing Capital Corporation reported quarterly revenues of $94 million compared with $101 million in the year-ago quarter. The segment witnessed a 25% increase in its earnings from operations valued at $35 million in the reported quarter.

At the end of third quarter 2013, BCC's portfolio balance was $4.1 billion.

Financial Condition

Boeing ended the third quarter with cash and cash equivalents of $10,041 million and short-term investments of $5,870 million. At year-end 2012, the company had $10,341 million in cash and cash equivalents and $3,217 million of short-term investments. Long-term debt stood at $8,677 million in the reported quarter (versus $8,973 million at 2012 end) with a debt-to-capitalization ratio of 48.9%.

The company generated $4,308 million of operating cash flow before pension contributions in the third quarter, compared with $2,346 million generated in the same period last year, showing an upsurge of 84%.


Boeing boosted its full-year 2013 GAAP earnings guidance to the range of $5.40–$5.55 from its previous expectation of $5.10–$5.30. The adjusted earnings guidance was raised to $6.50-$6.65 per share from $6.20–$6.40 earlier. However, the company maintained its top-line expectation in the range of $83–$86 billion.

Commercial Airplanes' 2013 deliveries are expected to be between 635 and 645 airplanes. This includes more than 60 units of 787 deliveries. Commercial Airplanes' 2013 revenue is expected in a band of $51 billion to $53 billion with operating margin greater than 10.0%.

Although the threat of defense cutbacks will loom over the company going forward, Boeing still remains optimistic with a 2013 defense revenue target of $31.5 billion to $32.5 billion and an operating margin l of more than 9.25%.

Boeing Capital Corporation however expects its aircraft finance portfolio to continue to shrink in 2013. Yet, the company boosted its revenue expectation to approximately $0.4 billion, up from about $0.3 billion.

Boeing's 2013 R&D forecast is now approximately $3.2 billion, which is down from the earlier guidance of $3.3 billion. Capital expenditures for 2013 are expected to be $2.3 billion.

Zacks Rank

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

Despite the many technical glitches plaguing the much-hyped Dreamliner, the company remains well on track with its robust backlog and deliveries. During the quarter, its commercial unit completed the first flight of the 787-9 and delivered 170 airplanes. Sequestration and budget cut notwithstanding, its defense segment maintained a solid performance and fetched $7 billion in fresh new orders.

At the same time, we are cautious of the headwinds in the global airline industry and cutbacks in the U.S. defense budget that have certainly shaken the confidence of many investors. The threat of sequestration has created significant planning difficulties for the customers and the entire aerospace industry.

At the Peers

Boeing’s closest peer, Northrop Grumman Corp. (NOC - Free Report) reported third quarter 2013 results before the opening bell today. Adjusted earnings per share of $1.97 comfortably surpassed the Zacks Consensus Estimate of $1.81. Also, earnings were above the year-ago figure by 13.9%.

Another peer, General Dynamics Corp’s (GD - Free Report) third quarter 2013 operating earnings of $1.84 per share surpassed the Zacks Consensus Estimate of $1.68 by 9.5%. Earnings were also ahead of the year-ago figure of $1.70, backed by robust aerospace activity.

The world’s largest stand-alone defense contractor, Lockheed Martin Corp. (LMT - Free Report) posted third quarter 2013 earnings of $2.57 per share, comfortably surpassing the Zacks Consensus Estimate of $2.26 by 13.7%. Earnings in the reported quarter also surged almost 16.3% from the year-ago profit level of $2.21 per share. The upcast in earnings was mainly attributable to strong operational performance.

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