Boeing Fails to Enthuse - Analyst Blog

The Boeing Company (BA) brought a pall of gloom with numbers for the fourth quarter of 2010 belying market optimism. In the reported quarter the company posted operating EPS (excluding special items) of $1.11, missing both the Zacks Consensus Estimate of $1.13 and year-ago EPS of $1.77. The company's tepid result was due to lower deliveries of both commercial airplanes and military aircraft.

On a reported basis, Boeing reported quarterly EPS of $1.56 per share, versus $1.75 in the year-ago quarter. The 45 cent difference between reported and operating earnings, during the reported quarter, was owing to the effects of a favorable tax settlement (50 cents) which was partially offset by a special one-time contribution to Boeing's charitable trust (5 cents).

Fiscal 2010 operating EPS (excluding special items) came in at $3.99, above the Zacks Consensus Estimate of $3.85 and fiscal 2009 earnings of $1.83. However, in fiscal 2009, the company digested a charge of $3.58 per share due to reclassification to research and development of costs for the first three 787-series test airplanes and a charge from the delay in producing a new version of the 747-8 series freighter jet leading to late design changes.

Operating Statistics

On the revenue front, lower airplane deliveries took their toll, bringing down the quarterly revenue year-over-year by 8% to $16.6 billion, below the Zacks Consensus Estimate of $16.9 billion. Fiscal 2010 revenue fell 6% to $64.3 billion, below the Zacks Consensus Estimate of $65.2 billion.

Segmental Results

Commercial Airplane

Boeing's Commercial Airplane segment in the reported quarter saw a 5% fall in deliveries to 116 units. During the period a lower number of 777 airplanes flew out of Boeing without a single 747 during the quarter. Lower airplane deliveries volume pulled revenue 11% downwards to $8.2 billion. The segmental operating margin was 7.7% from lower deliveries and higher R&D and other period costs.

Boeing's Commercial Airplane segment in the reported quarter booked 180 gross orders while 22 orders were removed from its order book.  These contrasts with the year-ago period when net orders were 62 airplanes.  Contractual backlog remains strong with 3,443 airplanes valued at $256 billion. 

Defense, Space & Security

Boeing Defense, Space & Security segment witnessed a 4% drop in its quarterly revenue to $8.2 billion. This was due to fewer deliveries and less favorable product mix. Of these sub-segments Boeing Military Aircraft (BMA) and Global Services & Support (GS&S) witnessed lower topline by 5% and 11%, respectively. Only the sub-segment, Network & Space Systems (N&SS) witnessed 2% rise in revenues.

Quarterly segmental margin was 10%, due to improved performance in Space and Intelligence Systems at the N&SS sub-segment. However this was partially offset by BMA sub-segment where earnings fell due to higher costs on the Airborne Early Warning & Control program. Also GS&S's earnings fell due to lower volume in maintenance, modifications and upgrades and integrated logistics.

Backlog at Defense, Space & Security is $65.2 billion; approximately two times the segment's expected 2011 revenue.

Boeing Capital Corporation (BCC)

Boeing Capital Corporation reported quarterly revenues of $145 million compared to $164 million in the year-ago quarter. The segment generated earnings of $6 million compared to $14 million in the year-ago period. At fiscal 2010-end, BCC's portfolio balance declined to $4.7 billion, down from $5.7 billion at the beginning of the reported fiscal, on normal run-off, pre-payments and asset sales.

Financial Condition

Boeing ended fiscal 2010 with cash and cash equivalents of $5.4 billion and short term investments of $5.2 billion. At fiscal-end 2009, the company had $9.2 billion in cash and cash equivalents and $2 billion of short term investments.

The company generated close to $3 billion of cash from operating activities in fiscal 2010, compared to $5.6 billion generated in fiscal 2009. Long term debt decreased to $11.5 billion at the end of the reported fiscal from $12.2 billion at the end of fiscal 2009.

Outlook

Boeing has a unique position as the largest aircraft manufacturer in the world in terms of revenues, orders and deliveries, and 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 expects its fiscal 2011 revenue in the range of $68 billion – $71 billion. EPS guidance range for fiscal 2011 is $3.80 – $4.00. The guidance incorporates the delayed launch of 787 Dreamliner which will start only in the third quarter of 2011.

Earlier, the company envisaged starting commercial delivery of 787 series airplanes in February 2011 itself. This along with higher pension expenses and the threat of defense cutbacks does not augur well for Boeing 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.

A clearer picture will emerge tomorrow when the Big Daddy of Defense Lockheed Martin Corporation (LMT) along with Raytheon Company (RTN) and L-3 Communications Holdings Inc. (LLL) come out with their performance.

 
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LOCKHEED MARTIN (LMT): Free Stock Analysis Report
 
RAYTHEON CO (RTN): Free Stock Analysis Report
 
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