A soaring commercial aircraft business coupled with a modest assist from its defense business gave Boeing [BA] a strong finish to its 2011 fiscal year, although earnings guidance for 2012 is well below analysts’ projections.
The world’s largest aerospace and defense company posted $19.6 billion in sales in the fourth quarter, up 18 percent from $16.6 billion a year ago mainly due to big sales gain at Boeing Commercial Airplanes.
Net income rose 20 percent to $1.4 billion, $1.84 earnings per share (EPS), from $1.1 billion ($1.56 EPS). Earnings crushed consensus estimates of $1.01 EPS. The results were aided by a tax benefit that was slightly higher than a similar gain a year ago and on strong operating performance, all of which more than offset higher pension expense. Free cash flow was $2.4 billion.
Boeing initiated guidance for 2012 that puts projected earnings between $4.05 and $4.25, which is well below consensus expectations of $4.89. However, J.P. Morgan aerospace and defense analyst Joseph Nadol believes Boeing is being conservative and expects it to easily beat the guidance. The company said that pension expense will be higher this year, increasing 83 cents EPS.
Jim McNerney, Boeing’s chairman, president and CEO, said on yesterday’s earnings call that the guidance for the Commercial Airplanes segment, which will be the sales and earnings driver this year, is “prudent” and will “unfold” as the year goes on. There are still some one-time issues the company is working through related to new aircraft that are being introduced, but there is “opportunity” to improve during the year, he said.
In briefing slides accompanying its earnings presentation, Boeing said that a softer defense environment and higher taxes are also contributing to the low earnings guidance.
For all of 2011, Boeing’s net income was $4 billion ($5.34 EPS), a 21 percent jump from $3.3 billion ($4.45 EPS) in 2010. Sales were up 7 percent to $68.7 billion from $64.3 billion.
At Commercial Airplanes, aircraft deliveries were up 10 percent to 128 aircraft, while sales jumped 31 percent to $10.7 billion on higher volume for both aircraft and services and product mix. Operating income spiked 56 percent to $981 million as margins expanded 150 basis points to 9.2 percent. Boeing attributed the improved margins to the product mix and lower research and development costs.
Growth in passenger air traffic is expected to be in line with historical trends this year while growth in cargo traffic is expected to lag historical trends with some improvement later in the year, McNerney said.
McNerney also expects commercial aircraft orders this year to be robust.
Boeing’s defense business posted solid results, with operating income up 6 percent to $865 million and sales up 4 percent to $8.5 billion as operating margins moved up 20 basis points to 10.2 percent.
Gains at Defense, Space & Security were driven by higher sales and income at the Boeing Military Aircraft and Global Services & Support (GS&S) segments, which more than offset double-digit declines at the Network & Space Systems (N&SS) segment.
The specifics behind the defense top line growth were product mix related to Airborne Early Warning & Control aircraft and higher KC-767 International Tanker deliveries and integrated logistics. The bottom line gained from the higher sales and better execution at Military Aircraft.
The Army’s termination of the Brigade Combat Team Modernization program drove down sales at the N&SS segment, while earnings suffered in part from higher research and development spending.
McNerney continues to see flat to declining defense spending with upside from the international markets, which he sees making up 25 to 30 percent of the defense business in the next few years.
For 2012, sales are expected to be between $78 billion and $80 billion, with Commercial Airplanes providing between $47.5 billion and $49.5 billion with defense between $30 billion and $30.5 billion. While commercial aircraft sales will be higher on more deliveries, defense sales will be lighter due to declines at the N&SS and GS&S segments.
Backlog at the end of 2011 grew to a record $356 billion, a $24 billion increase during the fourth quarter.