Despite modest growth in sales, Boeing [BA] yesterday posted strong third quarter earnings driven by improved performance in its defense business and to a lesser extent its commercial aircraft operations.
Net income jumped 31 percent to $1.1 billion, $1.46 earnings per share (EPS), versus $837 million ($1.12 EPS) a year ago, smashing analysts’ expectations of $1.10 EPS. Sales increased 4 percent to $17.7 billion from $17 billion.
The strong earnings performance led Boeing to increase its EPS guidance for 2011 to between $4.30 and $4.40 from the prior outlook of between $3.90 and $4.10. Sales guidance was narrowed $1 billion on the top end to between $68 billion and $70 billion to reflect fewer planned 787 and 747-8 commercial aircraft deliveries.
Operating earnings in the defense segment increased 20 percent to $824 million, with double-digit gains in each group. Boeing attributed the increase in earnings at its Defense, Space & Security segment to strong operating performance and changes in delivery mix favoring higher margin products at Boeing Military Aircraft, improved performance on a commercial satellite program at Network & Space Systems and improved performance in integrated logistics at Global Services & Support.
Sales at the defense segment were flat at $8.2 billion, as an increase at Boeing Military Aircraft was wiped out by declines at the other two groups.
Boeing’s defense results were similar to the other major defense firms that reported yesterday, with sales generally flat or down and earnings up on better margins. Lockheed Martin [LMT] was the exception, boosting both sales and earnings.
Defense spending in the United States has “entered a period of significant fiscal constraints,” Jim McNerney, Boeing’s chairman, president and CEO, said on an earnings call. He added that growth opportunities in the Middle East and South Asia are “working to offset flat to potentially lower defense outlays here at home.”
McNerney believes that a Saudi Arabia order for Boeing F-15 fighters is likely to be resolved in the company’s favor in the near-term despite pending presidential elections in the United States and the death earlier this month of Saudi Crown Prince Abdul-Aziz al Saud, who was also the Minister of Defense.
McNerney also noted that the company’s KC-46 aerial refueling tanker it is developing for the Air Force successfully completed its integrated baseline review, validating the program’s technical scope and finalized key milestones for the design development phase. The preliminary design review for the aircraft is set for the first quarter of 2012, he said.
The commercial aircraft environment also faces uncertainty, McNerney said. On the one hand, the worldwide expansion in air traffic continues but on the other air cargo traffic has declined in recent months, he said. The International Air Transport Association yesterday said that future indicators “point to further weakness” ahead.
Backlog stood at $329 billion at the end of the quarter, up from $320.9 billion a year ago. Free cash flow in the quarter was $69 million.