Boeing [BA] yesterday followed up its strong first quarter financial results with a solid performance in the second quarter with sales up on strength in both the commercial aircraft and defense businesses, although higher pension expense softened income gains.
Net income was up 3 percent to $967 million, $1.27 earnings per share (EPS), from $941 million ($1.25 EPS) a year ago, topping analysts’ expectations by 14 cents. Unallocated expenses climbed $200 million in the quarter due to higher pension expenses.
Sales increased 21 percent to $20 billion from $16.5 billion a year ago, with the Commercial Airplanes segment driving most of the growth due to more aircraft deliveries although the Defense, Space & Security contributed with strong revenue performance given ongoing constraints in United States defense spending.
Boeing’s defense business posted a 6 percent decline in operating profits to $748 million driven by an inventory adjustment on the A160 unmanned aerial vehicle program and lower earnings from the United Launch Alliance joint venture with Lockheed Martin [LMT].
Defense sales on the other hand increased 7 percent to $8.2 billion driven by higher volume on Airborne Early Warning and Control aircraft, AH-64 Apache attack helicopters, international aerial refueling tankers and integrated logistics support.
Commercial Airplanes sales increased 34 percent to $11.8 billion on 27 more aircraft deliveries of all models while operating profits jumped 32 percent to $1.2 billion on the volume gains.
On the strength of the gains in commercial aircraft and international business in the defense segment, Boeing raised its sales and earnings guidance for the year. Per share earnings are now forecast to be between $4.40 to $4.60 versus the prior outlook of $4.15 to $4.35.
The sales guidance was raised by $1.5 billion to between $79.5 billion and $81.5 billion due to the company’s win earlier this year to supply F-15 fighters to Saudi Arabia. International business represents 37 percent of Boeing’s backlog and the company expects to generate 30 percent of its defense sales from international markets in the near future, company officials said.
Boeing generated $552 million in free cash flow for the year. While Boeing’s share repurchase activity and dividend increases have been stagnant of late, Greg Smith, the company’s chief financial officer, said as commercial aircraft production ramps up and more cash flows in, the internal discussions are picking up about capital deployment.
Investing in the business and proactively managing the pension fund are part of the cash deployment but discussions about share repurchases and dividends are also on the table, Smith said. In particular, share repurchases are expected to restart in the 2013 timeframe, he said.
Small, tactical acquisitions of other businesses are also in play but major acquisitions are not on the “radar screen,” Jim McNerney, Boeing’s chairman, president and CEO, said.
Backlog at the end of the quarter stood at $374 billion, down $6 billion from the end of the first quarter but still up about $18 billion since the end of 2011.