The Boeing Company (BA) casting away all market pessimism reported strong numbers for the first quarter of 2011. In the reported quarter the company posted quarterly earnings of 78 cents per share, beating both the Zacks Consensus Estimate of 71 cents and year-ago earnings of 70 cents. The upside in earnings came from higher military aircraft earnings which offset declines in the commercial airplanes business.
Operating Statistics
On the revenue front, lower commercial airplane deliveries took its toll and brought down the quarterly revenues year over year by 2% to $14.91 billion, below the Zacks Consensus Estimate of $15.19 billion. Overall Net income rose 13% to $586 million from $519 million in the year-ago quarter.
Segmental Results
Commercial Airplane segment
Boeing’s Commercial Airplane segment in the reported quarter saw a 3.7% fall in deliveries to 104 units. During the period lower number of 777 airplanes flew out of Boeing with marginally higher 737 and 767 deliveries.
Lower airplane deliveries volume pulled revenue 5% downwards to $7.12 billion. The segmental operating margin fell 190 basis points to 7.7% from lower deliveries and higher R&D cost.
Boeing’s Commercial Airplane segment in the reported quarter booked 153 gross orders while 47 orders were removed from its order book. These contrasts with the year-ago period when net orders were 83 airplanes.
Contractual backlog remains strong with over 3,400 airplanes valued at $263 billion.
Boeing Defense, Space & Security
Boeing Defense, Space & Security segment clocked flat revenues year-over-year of $7.61 billion. This was due to higher deliveries offset by less favorable product mix. In the reported quarter only the sub-segment, Boeing Military Aircraft (BMA) witnessed top-line expansion of 5% to $3.39 billion while Network & Space Systems (N&SS) clocked marginally higher 1% revenues of $2.35 billion. However the sub-segment Global Services & Support (GS&S) witnessed lower revenues of 8% to $1.89 billion.
Quarterly segmental margin rose marginally by 10 basis points to 8.8%. In the reported quarter BMA sub-segment registered operating margin of 10.9%, reflecting improved performance and favorable mix in Global Strike programs and lower R&D.
However, the upside in margins was lost in N&SS sub-segment which registered operating margin of 6.1%, reflecting less favorable mix and lower earnings in the satellite business. GS&S sub-segment in the quarter clocked operating margin of 8.5%, reflecting lower earnings in integrated logistics and maintenance, modifications & upgrades.
Backlog at Defense, Space & Security is $66 billion; approximately two times the segment’s expected 2011 revenues.
Boeing Capital Corporation (BCC)
Boeing Capital Corporation reported quarterly revenues of $143 million compared to $162 million in the year-ago quarter. The segment generated earnings of $52 million compared to $46 million in the year-ago period. At the end of the reported period, BCC’s portfolio balance declined to $4.5 billion, down from $4.7 billion at the beginning of the reported fiscal, on run-off, and asset sales.
Financial Condition
Boeing ended the reported quarter with cash and cash equivalents of $5.67 billion and short-term investments of $2.10 billion. At fiscal-end 2010, the company had $5.34 billion in cash and cash equivalents and $5.16 billion of short-term investments.
The company used $953 million of cash for operating activities in the reported quarter versus $285 million in the year-ago quarter. Long-term debt decreased to $10.72 billion at the end of the reported quarter from $11.47 billion at the end of fiscal 2010.
Outlook
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. Also its revenues are spread across more than 90 countries around the globe.
Boeing reaffirmed its fiscal 2011 revenue guidance in the range $68 billion – $71 billion. EPS guidance range for fiscal 2011 is also reaffirmed at $3.80 – $4.00. The guidance incorporates the tentative launch of revenue boosters like the 787 Dreamliner and 747-8 series, which would start in the third quarter and fiscal-mid of 2011, respectively.
In the defense space the company also scored a major victory with the multi-billion U.S. Air Force Tanker contract. However, higher pension expenses and the threat of defense cutbacks will make fly low in 2011.
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 like General Dynamics Corporation (GD) and Lockheed Martin Corporation (LMT).
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