Boeing [BA] on Wednesday reported strong third quarter earnings that benefited from favorable tax items despite a decline in sales.
Net income soared 34 percent to $2.3 billion, $3.60 earnings per share (EPS), from $1.7 billion ($2.47 EPS) a year ago, with the tax settlements contributing 98 cents EPS. Core per share earnings were $3.51, topping analysts’ predictions of $2.61, due largely to the benefits.
Sales in the quarter fell 8 percent to $23.9 billion from $25.8 billion a year ago. Dennis Muilenburg, chairman, president and CEO of Boeing, said on the earnings call that 27 percent of business in the quarter came from international customers.
The top line results fell on lower sales at both the Defense and Commercial Aircraft segments. Defense sales were down 10 percent to $7.5 billion on fewer C-17 transport deliveries and lower volume on the F-17 fighter program, lower revenue from the Network & Space Systems division, all of which was partially offset by more work on aircraft modernization and sustainment, training systems, and government services.
Sales at Commercial Aircraft dipped 4 percent to $17 billion on an expected decline in aircraft deliveries.
Operating income at the Defense segment tumbled 23 percent to $784 million, mainly due to a charge on the Commercial Crew development program for NASA that chopped $162 million from the segment’s results. The charge included a reversal of cumulative pre-tax earnings recorded in prior periods and delays in completion of engineering and supply chain activities.
The Military Aircraft division within the Defense Segment also suffered from lower operating income on lower sales.
Operating margin in the Defense segment fell nearly 2 percent to 10.4 percent. Backlog in the segment stood at $53 billion, with 38 percent of the business with international customers.
Operating income at Commercial Aircraft slid 10 percent to $1.6 billion on the fewer aircraft deliveries and contract mix. Operating margin was down 60 basis points to 9.4 percent and backlog stood at $409 billion.
Free cash flow in the quarter was a robust $2.6 billion and overall backlog stood at $462 billion, down $10 billion from the second quarter.
Boeing increased its sales and earnings guidance for 2016 with sales now forecast to be between $93.5 billion and $95.5 billion and higher than expected deliveries of 747 and 787 commercial aircraft. The increase is $500 million above the previous outlook.
Core earnings are expected to be between $6.80 and $7 EPS, up 70 cents EPS from the prior outlook due to a lower tax rate.
Boeing didn’t provide detailed guidance for 2017 but said it expects Commercial Aircraft sales to be flat to slightly down even though more aircraft will be delivered. Defense sales will also be flat to slightly down on fewer C-17 deliveries and lower F-15 volume, Greg Smith the company’s chief financial officer, said on the call.
The company continues to apply productivity improvements across the enterprise to drive margin growth, Smith said.