With demand continuing to fly high for its commercial aircraft, Boeing [BA] on Wednesday reported record sales in its fourth quarter and 2014 with more of the same projected in 2015.
Sales in the quarter rose 3 percent to $24.5 billion from $23.4 billion a year ago, driven by record deliveries of commercial aircraft. Boeing delivered 195 commercial planes in the quarter, 13 percent more than a year ago.
Net income in the quarter was $1.5 billion, $2.02 earnings per share (EPS), 19 percent higher than the $1.2 billion ($1.61 EPS) reported a year ago. Excluding pension-related impacts, core operating earnings increased 28 percent to $2.3 billion ($2.31 EPS), flying above consensus EPS estimates of $2.10, with core operating margins up nearly 2 percent to 9.6 percent.
Jim McNerney, Boeing’s chairman and CEO, said on the company’s investor call that the overall business environment remains “positive” given moderate levels of global economic growth, global airline traffic trends and airline profitability.
Despite a drop in world oil prices, he said the value proposition for the company’s commercial aircraft remains “compelling,” pointing out that Boeing launched its 787 Dreamliner passenger plane when oil prices were at $40 per barrel. Crude oil prices are currently trading in the mid to upper $40 per barrel range.
McNerney also said that historically aircraft orders are “more correlated to airline profits.” He added that based on discussions with its customers, they haven’t “substantially changed their views on fleet planning or their commitment to existing delivery schedules.”
Boeing’s Commercial Airplanes segment posted a 15 percent increase in sales to a record $16.8 billion also operating income didn’t keep pace, up just 4 percent to $1.6 billion, due to higher planned period costs and the dilutive impact of more 787 deliveries. The 787 program isn’t profitable at the moment due to significant cost overruns during development. Commercial margins dipped a percent to 9.3 percent.
Boeing’s Defense, Space & Security segment saw its sales tumble 14 percent to $7.6 billion as the top line was weighed down by few deliveries of F-15 and C-17 aircraft and lower volume in government satellites.
Despite the double-digit sales decline in defense, the division was able to soften decline in operating earnings, which were down 4 percent to $917 million, due to strong performance at the Global Services & Support division.
Boeing sees pressure continuing on defense budgets in the United States and other developed markets but said international business overall will partially offset the domestic declines.
For the year sales increased 5 percent to $90.8 billion while net income climbed 17 percent to $5.4 billion ($7.38 EPS). Core operating earnings were up 12 percent to $8.9 billion ($8.60 EPS).
The commercial business drove growth in sales and earnings on higher aircraft deliveries, offsetting revenue and profit declines at the defense segment.
In 2015, Boeing is forecasting more growth with sales pegged to reach between $94.5 billion and $96.5 billion with net income between $8.10 and $8.30 EPS with core earnings between $8.20 and $8.40 EPS. Operating margins in the commercial and defense segments are expected to be lower.
The sales growth this year is entirely on the shoulders of the commercial business, which forecasts another record year in aircraft deliveries. The defense business is expected to be off again. McNerney expects a book-to-bill ratio at least level with overall sales.
Backlog at the end of 2014 stood at a record $502 billion, up $61 billion from a year ago, led by a strong increase in the commercial business. Backlog in the defense business stood at $62 billion with 36 percent of the orders from international customers.
Free cash flow in the quarter was $4.3 billion and for the year $6.6 billion. In the quarter Boeing spent $1 billion on share repurchases and $500 million on dividends.