By Calvin Biesecker
Boeing [BA] yesterday posted a modest increase in fourth quarter net earnings despite flat sales driven by higher sales and earnings of commercial planes.
The increase in commercial aircraft sales, which was driven by higher aircraft deliveries, was offset by a decline in defense sales due to fewer military aircraft deliveries, the creation of the United Launch Alliance (ULA) joint venture, and less support work for aircraft upgrade programs.
Attention on Boeing of late has been focused on its 787 Dreamliner commercial aircraft program, which is struggling in the transition from development to the start of flight testing and production and is about nine months behind schedule. Boeing said it continues to address initial production challenges but remains on track with its latest schedule, which was revised in mid-January. Despite the recent woes in the program, the 787 had a record 369 orders last year.
Net income in the fourth quarter rose 4 percent to $1 billion, $1.36 earnings per share (EPS), compared to $989 million ($1.29 EPS) a year ago, topping analysts’ estimates by 3 cents EPS. Operating earnings actually grew 32 percent, but a higher tax rate more than doubled income tax expense, which weighed on the net income results. Free cash flow was $1.4 billion. Sales in the quarter were $17.5 billion, same as a year ago.
The commercial airplane division posted a 17 percent increase in sales to $8.9 billion driven by higher aircraft deliveries and more revenues from aviation services such as spare parts and supply chain management for certain airlines. Both the commercial services and defense services businesses are growing “attractively,” representing over $10 billion in annual sales, Jim McNerney, chairman, president and CEO of Boeing, said on yesterday’s earnings call.
The 787 program topped the discussion items on the earnings call and McNerney said Boeing expects to complete assessments for the upcoming flight test program by the end of March. Flight testing is currently slated to begin late in the second quarter of 2008 with deliveries commencing early next year.
Commercial operating earnings increased an impressive 46 percent to $973 million on the higher sales and a more favorable product mix while margins expanded 230 basis points to 11 percent on improved operating leverage and productivity gains. Productivity improvements more than offset higher research and development spending in the commercial airplane group.
Operating earnings at the Integrated Defense Systems division slipped 5 percent to $978 million on a 14 percent drop in sales to $8.4 billion. In addition to excluding revenues related to the ULA joint venture, Boeing recorded fewer sales of AH-64 Apache helicopters and F-15E Eagle strike fighters and no Delta IV rocket launches or satellite deliveries. Despite the drop in operating earnings, margins improved 110 basis points to 11.7 percent on contract performance and mix. Backlog at year end was $71.7 billion.
For 2007 Boeing reported record highs in net income, sales, cash flow and backlog. Net income increased a whopping 84 percent to $4.1 billion ($5.28 EPS) compared to $2.2 billion ($2.85 EPS) in 2006. Operating earnings increased at both the commercial and defense segments.
Sales for the year increased 8 percent to $66.4 billion and marked the first time since 2002 that commercial airplanes outpaced defense revenues. Commercial sales were $33.4 billion and defense sales $32.1 billion. Free cash flow for the year was $7.9 billion and backlog stood at $327 billion at year end.
That backlog, which stands at about five times current annual sales, gives Boeing plenty of visibility into its outlook. Boeing raised its EPS guidance for 2008 to between $5.70 and $5.85, up from earlier expectations of between $5.55 and $5.75. Earnings guidance was raised due to the improved margin performance at both the commercial and defense segments. Boeing will provide guidance for 2009 when it releases its first quarter results in April but it expects earnings to grow again next year.
Delays in the 787 program led Boeing to trim its sales outlook for this year by $500 million to between $67 billion and $68 billion. Defense revenues are expected to be relatively flat to up slightly at $32 billion to $33 billion while commercial airplane revenues are expected to be up over $1 billion to around $35 billion.
Boeing is coming off consecutive record years for commercial airplane orders in 2006 and 2007, which is a big reason why the company believes it has sound growth prospects early into the next decade. As for orders this year, McNerney said they are “unclear” but he doesn’t expect them to be as robust as last year.