Boeing [BA] on Wednesday reported higher net income in the first quarter due a lower tax rate and improved operating margin in its commercial aircraft segment while sales fell on declines in its defense segment.
Net income in the quarter was $1.5 billion $2.34 earnings per share (EPS), up 19 percent from $1.2 billion ($1.83 EPS) a year ago. Excluding pension expenses, core per share earnings were $2.01 EPS, six cents better than consensus estimates.
The better than expected per share earnings were the result of the lower taxes, Seth Seifman, an aerospace and defense analyst with J.P. Morgan, said in a client note on Wednesday.
Sales in the quarter were $21 billion, down 7 percent from $22.6 billion a year ago, driven lower by a big drop in revenue at Defense, Space & Security segment and to a lesser extent a slight decline at Commercial Airplanes.
Operating income at Defense, Space & Security was down 10 percent to $737 million on an 18 percent drop in sales to $6.5 billion. Operating margin improved a percent to 11.3 percent due to improved performance on military aircraft programs and improved performance in its support and services division.
Sales were down in the defense segment due to the wind down of the C-17 transport plane, the Commercial Crew spacecraft program for NASA, and contract timing.
Commercial Airplanes profit increased 18 percent to $1.2 billion from $1 billion a year ago despite a drop in aircraft deliveries and cost growth in the initial production lot of the Air Force KC-46 tanker program. Boeing said the improved operating margin, up 130 basis points to 8.5 percent, is due to improved performance on production and services programs.
Dennis Muilenburg, Boeing’s chairman, president and CEO, said the cost growth on the tanker program was due to incorporating changes on the initial production aircraft, adding that the company continues to reduce the technical risk on the KC-46. So far the test aircraft have flown 1,600 hours and delivery of the first 18 aircraft is on track for early 2018, he said.
Sales at the commercial segment were down a percent to $14.3 billion on a 4 percent decline in aircraft deliveries to 169 planes. The lower aircraft deliveries were partially offset by growth in the services business.
Free cash flow in the quarter was a robust $1.6 billion. Defense backlog stood at $63 billion at the end of the quarter, 34 percent of which is with international customers. Commercial backlog stood at $417 billion.
Boeing increased its earnings guidance for the year by a dime to between $10.35 and $10.55 EPS on lower than expected tax rate.