Driven by strong operating profit in its defense business coupled with handsome sales and profit gains in its commercial aircraft segment, Boeing [BA] on Wednesday reported strong financial results in the third quarter.
Boeing’s Defense, Space & Security segment drove an overall double-digit increase in earnings at the company on the back of its Military Aircraft business, which posted an 80 percent rise in operating profit to $440 million on improved program execution and slightly higher sales.
Overall, earnings from operations at the Defense, Space & Security segment were up 27 percent to $856 million as the increase at Military Aircraft was partially offset by low single-digit declines at the Network & Space Systems and Global Services & Support businesses. Operating margins at the segment were up 240 basis points to 10.8 percent.
Sales in the defense business were off 2 percent to $7.9 billion as the increase at Military Aircraft, driven by higher deliveries of P-8 maritime surveillance aircraft, was more than offset by a 9 percent reduction at Network & Space Systems and a slight drop at Global Services & Support.
Total backlog at the defense segment stood at $60.4 billion, down 11 percent since the end of 2013. Boeing said 37 percent of orders in backlog are with international customers.
Boeing’s Commercial Aircraft segment posted record sales of $16.1 billion, up 15 percent on 186 aircraft deliveries, which were up 9 percent from a year ago. Operating income increased 11 percent to $1.8 billion while margins fell 40 basis points to 11.2 percent. Boeing attributed the lower margins to higher deliveries of 787 and 747-8 aircraft, which carry little to no profit for now.
J.P. Morgan aerospace and defense analyst Joseph Nadol said in a in a note to clients after the earnings release that cash losses on the 787 program haven’t fallen as quick as he has expected.
The commercial business also booked 501 orders for aircraft, while backlog stood at a record $430 billion.
Overall in the quarter, net income increased 18 percent to nearly $1.4 billion, $1.86 earnings per share (EPS), from nearly $1.2 billion ($1.51 EPS) a year ago. Excluding various pension puts and takes, Boeing said its core earnings increased 13 percent to $2.4 billion ($2.14 EPS), well above consensus estimates of $1.97 EPS.
Sales in the quarter increased 7 percent to $23.8 billion from $22.1 billion a year ago.
Boeing increased its earnings guidance for 2014 due to continued solid execution, Greg Smith, the company’s chief financial officer, said on an investor call. The outlook for core EPS was increased by 20 cents to between $8.10 and $8.30 while expectations for earnings per generally accepted accounting principles were raised a nickel to between $6.90 and $7.10 EPS.
Free cash flow in the quarter was light at $317 million although the company did raises its 2014 forecast for operating cash flow, including the impact of pension contributions, to greater than $6.3 billion from around $6.3 billion.