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March 4, 2024
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Boeing reported third-quarter earnings earlier today and raised its expectations for full-year income, buoying its stock price. The company reported that revenues rose 4% to $25 billion in the first three quarters, topping the $24 billion expected by analysts. Net income climbed 41% to $2.3 billion, and the full year profit forecast was increased by 4% to $15.10 per share.

Importantly, Boeing landed multiple defense contracts in the third quarter, totaling more than $13 billion. These included orders for $9.2 billion to replace Air Force trainers with the new T-X model and an order for four MA-25 tanker drones from the Navy for $805 million. Denis Muilenburg, Boeing CEO, indicates that “those two programs combined have a $60 billion opportunity space connected with them.”

These programs should help Boeing’s defense business, which posted an operating loss after a $691 million charge for those two programs but saw revenues grow 13% to $5.7 billion.

Revenues in commercial aviation dropped slightly to $15 billion because of slower deliveries, which were down 6% during the quarter as a result of supply chain delays. Commercial deliveries are back at full rate, and the backlog of aircraft awaiting engines has shrunk, with Boeing expecting to make up all lost ground by the end of the year. Boeing delivered 568 new aircraft through three quarters, up from 554 last year, and aims to deliver 810-815 aircraft in 2018.

The strong performance of the commercial side of the house has enabled Boeing to be more aggressive in its military pricing, potentially explaining the early write-off for the two new programs. Muilenburg indicated that the early charge for the two programs was not a precursor to a similar situation as the KC-46, which took another write off and is now over $3 billion in total cost, but an entirely different situation as “purposeful investments upfront with a commercial business case wrapped around it.

Cash flow has remained strong at Boeing, and as long as cash generation remains strong, the share price should overlook the company chasing revenue growth through price. Free cash flow of $4.1 billion was above most forecasts for the third quarter and Boeing’s earnings of $3.56 per share came in above most industry estimates.

The outlook for Boeing’s commercial operations remains positive, as the company is retaining its lead in wide-body aircraft with the successful 787 program, and producing a record number of 737 aircraft as it raises production rates. While Airbus has a lead in the narrow-body market, they have been more conservative in raising production rates, and Boeing will once again deliver more aircraft than Airbus in 2018.

The Bottom Line:

Financial performance at Boeing has taken their stock higher to record levels, and with strong forecast performance for the remainder of 2018 and 2019, the company is well positioned for continued earnings growth.

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President AirInsight Group LLC

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