Boeing Reaches Cruising Altitude as Earnings Take Off


Investors are showing strong support for Boeing (NYSE:BA) in the wake of its quarterly earnings report, which was released on Wednesday morning. Shares opened considerably higher and remained up about 2 percent throughout Wednesday’s intraday trading session as Boeing’s strong quarter was dissected by analysts and observers.

Boeing’s first-quarter revenue increased 8 percent to $20.5 billion, thanks to higher commercial volume. Core earnings per share on a non-GAAP basis increased 14 percent to $1.76 after excluding a benefit of 19 cents per share for the 2012 research and development tax credit recorded in the first quarter of 2013, the company said in its statement.

In its commercial sector, revenues grew 19 percent to $12.74 billion as operating profit leapt 23 percent to $1.5 billion. Operating margins edged upward slightly, reaching 11.8 percent, versus the 11.4 percent from the first quarter of last year. Deliveries amounting to 161 planes came in well above last year’s 137 planes, and Boeing booked 235 net orders, leading to a backlog of over 5,100 airplanes valued at $374 billion.

“Disciplined execution across our production and development programs produced strong first quarter results,” Boeing Chairman and Chief Executive Officer Jim McNerney said. “We measurably increased revenue, core operating earnings and cash flow, and expanded core operating margins. This financial and operational strength enabled the return of more than $3 billion to shareholders in the quarter through share repurchase and an increased dividend, even as we continued to invest in our future.”


As far as Defense was concerned, the company didn’t fare quite as well. Space and Security revenues dropped 6 percent to $7.63 billion, and operating earnings also slid, 6 percent, to $778 million. Defense’s operating margin declined slightly, to 10.2 percent from 10.3 percent. Despite the declines, it wasn’t enough to spark any real concerns at the company; McNerney still described the firm’s performance in the sector as “solid” when discussing Boeing’s outlook.

“Our outlook for the full year remains positive on the strength of demand for our fuel-efficient new commercial airplanes, our solid position in global defense, space and security markets, and our enterprise focus on meeting customer commitments, improving productivity and profitably delivering the growth in our sizable backlog,” McNerney said.

Cash flow generation for the period weighed in at $615 million, comfortably above the $545 million that analysts and investors were anticipating. There were concerns circulating that Boeing’s free cash flow might suffer due to a buildup of inventory of 787 planes after production snags hit the company’s South Carolina assembly plant.

On the contrary, the 787 program reached an output rate of 10 per month, and Boeing completed its preliminary design review on the next generation 787-10. The company chose its Everett, Washington, facility as the location for a new composite wing center for the 777X, and in April, the 737 program reached a production rate of 42 per month. All in all, it was a productive quarter for the aerospace company.

Source: Thinkstock

McNerney said the company sees no softening of demand for its commercial airplanes and explained on a conference call with investors that, “in fact, underpinning the strength of the cycle relative to past ones is a sustained high level of replacement demand.”

Boeing shares have fallen by about 6.6 percent this year through Tuesday’s trading session. European rival Airbus, the stock of which has been underperforming slightly in the wake of Boeing’s quarterly report, have similarly seen declines, at about 8.5 percent for the year, despite the strong order books for both companies.

The strong commercial business is a good sign for Boeing and airlines in general, which a few short years ago were facing monumental cuts as they enabled a sort of hibernation mode as a result of the financial downturn. Renewed demand for aircraft shows that airlines are not only regaining the means necessary to purchase new aircraft but that they are in a position to be investing in more efficient planes for their futures.

More From Wall St. Cheat Sheet: