Buoyed by strong results in its commercial airplane and defense segments, Boeing [BA] on Wednesday posted higher sales and a double-digit increase in net income although it provided guidance for 2014 that fell short of expectations.

Net income jumped 26 percent to $1.2 billion, $1.61 earnings per share (EPS), from $978 million ($1.28 ESP), while core operating earnings were flat at $1.8 billion ($1.88 EPS), well above consensus estimates of $1.57 EPS. Free cash flow was $542 million and core operating margins fell a half-percent to 6.4 percent.

Deliveries of Boeing's F-15 aircraft helped fueld higher defense sales in the fourth quarter. Photo: Boeing
Deliveries of Boeing’s F-15 aircraft helped fueld higher defense sales in the fourth quarter. Photo: Boeing

As expected, Boeing recorded a non-cash charge in the fourth quarter that amounted to $406 million (34 cents EPS)  related to the settlement last week with the government over the Navy’s terminated A-12 stealth bomber program. Absent the charge, core operating earnings would have been $2.2 billion in the quarter.

Sales in the quarter increased 7 percent to $23.8 billion from $22.3 billion. At the operating level, the company’s defense segment drove the top line increase with a 6 percent increase in revenue to $8.9 billion on higher deliveries of F-15E strike fighters and Navy P-8 maritime surveillance aircraft at the Military Aircraft business and higher volume for space launch and ground-based missile defense systems at the Network & Space Systems business.

International business accounted for 33 percent of defense sales in the quarter, company officials said.

Boeing’s Commercial Airplanes segment posted a 4 percent increase in fourth quarter revenues to $14.7 billion, driven by a 4 percent increase in aircraft deliveries to 172.

Commercial Airplanes and the Defense, Space & Security segments both delivered strong bottom line performance. Operating income at the defense segment climbed 27 percent to $954 million on big gains in the Network & Space Systems and Military Aircraft businesses due to higher sales and strong operating performance. Segment margins rose 1.8 percent to 10.8 percent.

At Commercial Airplanes operating earnings grew 19 percent to $1.5 billion on the higher sales, a delivery mix that boosted margins, and strong operating performance. Core operating margins were up 30 basis points to 9.1 percent.

For the year, Boeing’s net income increased 18 percent to $4.6 billion ($5.96 EPS) from $3.9 billion ($5.11 EPS) while core operating earnings grew 10 percent to $7.9 billion ($7.07 EPS). Per share earnings were an annual record for the company. Free cash flow was $6.1 billion and core operating margins dipped 10 basis points to 7.6 percent.

Sales in 2013 increased to a record $86.6 billion from $81.7 billion driven primarily by increased revenue at Commercial Airplanes, which benefited from a record 648 aircraft deliveries, and a modest increase at Defense, Space & Security.

This year Boeing expects its core operating earnings to fall between $7 and $7.20 EPS while sales are expected to grow to between $87.5 billion and $90.5 billion. Both targets are below analysts’ expectations, which are for earnings of $7.57 and sales of about $92.7 billion.

Boeing expects another record of commercial aircraft deliveries, pegged at between 715 and 725 aircraft, with higher Commercial Airplane sales partially offset by a decline in defense revenue.

Backlog at the end of 2013 stood at record $441 billion, driven by a record $374 billion at Commercial Airplanes. The defense backlog stood at $67 billion, with international orders accounting for 37 percent.

Despite the stronger than expected fourth quarter results, investors reacted negatively to Boeing’s forecast, sending the company’s stock price down $7.31, or more than 5 percent, to close at $129.78 in trading on Wednesday.

Jim McNerney, Boeing’s chairman and CEO, said on the company’s earnings call that the business environment for commercial aircraft remains bright, citing high demand for passenger aircraft and gradual improvement in the market for cargo planes. The defense market remains challenging, he said, noting that while the FY ’14 Omnibus Appropriations Act provides short-term relief and stability from sequestration and averts any government shutdowns in the near-term, long-term budget uncertainty is still a concern.