Boeing [BA] on Wednesday reported declines in its fourth quarter sales and earnings due to fewer commercial aircraft deliveries and a previously announced charge related to its 747-8 cargo plane, more than offsetting positive results in its defense business.

The company also offered initial earnings guidance for 2016 that is well below analysts’ expectations primarily because the outlook for operating margins in the Commercial Airplanes segment is lower than expected. The weaker than expected forecast sent the company’s stock price down $11.43, or 9 percent, to close at $116.58 on Wednesday.

Sales in the quarter dipped 4 percent to $23.6 billion from $24.5 billion a year ago on a 7 percent decrease in commercial aircraft deliveries to 182. Net income tumbled 30 percent to $1 billion, $1.51 earnings per share (EPS) from $1.5 billion ($2.02 EPS) a year ago mainly due to a $569 million (84 cents EPS) after-tax charge announced last week because the company is lowering 747-8 production in light of weakness in the air cargo market.

Boeing President and CEO Dennis Muilenburg. Photo: Boeing
Boeing President and CEO Dennis Muilenburg. Photo: Boeing

Core earnings in the quarter, which exclude pension costs, were $1.60 EPS, down 31 percent from a year ago but still well above consensus estimates of $1.26 EPS.

Boeing’s defense segment performed well in the quarter with sales up 3 percent to $7.8 billion and operating income up 5 percent to $963 million on the higher revenue and a work mix tilted toward higher margin programs and deliveries. Defense margins ticked up 30 basis points to a record 12.4 percent on performance across the portfolio.

Dennis Muilenburg, Boeing president and CEO, said on an analyst call that international business accounted for 33 percent of defense sales in the quarter. The defense segment’s backlog at the end of the quarter stood at $58 billion, 40 percent of which is international orders.

At Commercial Airplanes sales fell 4 percent to $16.1 billion. The decline in aircraft deliveries is due to the company transitioning to production of a new 737 variant, the 737 MAX.

Operating income in the commercial business fell 64 percent to $566 million on the 747-8 charge and increased spending on research and development, and operating margins tumbled nearly 6 percent to 3.5 percent. Backlog in the segment was $432 billion at year-end.

“We continue to see a generally healthy commercial airplanes marketplace driven by improving airline profitability, solid passenger traffic growth, and meaningful replacement,” Muilenburg said. There is also strong growth in airline traffic in China, a market that Boeing believes is “under served by about 1,000 aircraft,” he said. Muilenburg also said that despite the slowdown last year in the global air cargo market, the company is “confident” in the long-term recovery of the market and the “upcoming replacement cycle.”

For 2016 analysts have pegged Boeing’s core EPS to be around $9.40 per share, but company guidance is between $8.15 and $8.35 EPS. In 2015 net income was down five percent to $5.2 billion ($7.47 EPS) and core EPS was $7.72.

Sales this year are forecast to range between $93 billion and $95 billion versus the record $96.1 billion reported in 2015. Sales in 2015 were up 6 percent over 2014.

Boeing said the projected revenue decline in 2016 sales is due to fewer planned aircraft deliveries in Commercial Airplanes, between 740 and 745 compared to a record 762 last year, and a drop in defense sales. The commercial segment will deliver fewer 747-8 aircraft and will be continuing the transition to 737 MAX production while the defense business will see a drop in F/A-18 fighter and C-17 transport deliveries, Greg Smith, the company’s chief financial officer, said.

Free cash flow for the quarter was $2.5 billion and for the year $6.9 billion. Total backlog at the end of the year stood at $489 billion, up $4 billion since the end of the third quarter.