Boeing Beats Q4 Earnings Estimates, Profit Plunges Y/Y

Aerospace giant The Boeing Company (BA - Analyst Report) delivered fourth-quarter 2015 adjusted earnings of $1.60 per share, confidently beating the Zacks Consensus Estimate of $1.25 by 28%. Earnings, however, plunged 30.7% from $2.31 per share a year ago, owing to the previously announced $569 million after-tax charge (84 cents per share) on the 747 program due to production cuts given the slow recovery in the air cargo market.

On a GAAP basis, Boeing reported a profit of $1.51 per share, down 25% from $2.02 per share in the year-ago quarter.

2015 non-GAAP earnings were $7.72 per share, surpassing the Zacks Consensus Estimate of $7.35 but decreasing 10% year over year. On a GAAP basis, earnings were $7.44 per share, up 1% year over year.

Revenues

The company's revenues dropped 4% year over year to $23.57 billion in the reported quarter. The reported figure was however ahead of the Zacks Consensus Estimate of $23.39 billion.

Revenues were $96.11 billion in 2015, up 6% year over year and ahead of the Street expectation of $95.90 billion.
 
Total Backlog

Backlog at the end of the fourth quarter declined to $489.3 billion from $502.3 billion at 2014 end. Reported backlog included $83 billion of net orders during the year.

Quarterly Segment Results

Commercial Airplane Segment: The segment saw a 4% decline in revenues to $16.09 billion on lower delivery volume. Operating margin contracted 580 basis points (bps) year over year to 3.5%. Margins reflected stepped-up R&D and the previously announced $885 million pre-tax charge on the 747 program.

In the fourth quarter, Boeing delivered 182 commercial airplanes compared with 195 a year ago. During the quarter, the Next Generation 737 model proved its popularity yet again, delivering 120 airplanes, followed by its 787 model with 34 deliveries. In the year-earlier period, the company had delivered 126 units of the 737 and 35 units of the 787 model. Boeing delivered 21 units of 777 in fourth-quarter 2015 as against 24 units in the year-ago period.

During 2015, Boeing produced a record breaking 495 single-aisle 737s, up from the 485 it produced in 2014. It delivered its 787 at a rate of nearly 11.25 per month in 2015, up from about 9.5 a month in 2014 and also higher than the company’s goal of 10 monthly deliveries. Notably, Boeing booked more 737 orders than it produced, with 563 orders booked by the end of Dec 2015.

Boeing won net orders for 321 planes in the Dec 2015 quarter and 768 in 2015 with backlog reaching 5,800 airplanes valued at $432 billion.

Boeing Defense, Space & Security (BDS): The segment witnessed approximately 3% year-over-year growth in its quarterly revenues to $7.79 billion. Two of the three sub-segments – Boeing Military Aircraft (BMA) and Global Services & Support (GS&S) – recorded year-over-year top-line growth of 7% and 9%, respectively. Network & Space Systems (N&SS) witnessed a 10% year-over-year revenue decline.

Quarterly operating margin expanded 30 bps year over year to 12.4%.

Backlog at BDS was $58 billion, 40% of which comprised orders from international clients.

Boeing’s deliveries in the defense and space business numbered 44 in the fourth quarter of 2015, compared with 43 a year ago. Total deliveries in the quarter consisted of 16 Chinook helicopters (new and renewed) and 10 AH-64 Apache helicopters (both new and remanufactured). The company also delivered 7 F/A-18 jets, 4 P-8 models, 4 F-15s and 2 Commercial and Civil Satellites, and 1 unit of AEW&C.

Boeing Capital Corporation (BCC): Boeing Capital reported quarterly revenues of $98 million compared with $153 million in the year-ago quarter. The segment’s earnings were $9 million compared with $26 million a year ago.

At the end of the fourth quarter, BCC's portfolio balance was $3.4 billion, in line with the beginning of the quarter.

Financial Condition

Boeing ended 2015 with cash and cash equivalents of $11.3 billion and short-term investments of $750 million. At year-end 2014, the company had $11.73 billion of cash and cash equivalents and $1.36 billion of short-term investments. Long-term debt was $8.73 billion in 2015, up from $8.14 billion at 2014 end.

The company generated $3.12 billion of operating cash flow in the quarter, up 38% year over year. In 2015, it went up 6% year over year to $9.36 billion. Free cash flow was $2.5 billion in the quarter and 6.9 billion in 2015, down 42.4% but up 4.4% year over year, respectively.

Guidance

Boeing expects adjusted or core earnings per share in the range of $8.15−$8.35 for 2016. GAAP earnings are expected in the range of $8.45–$8.65 per share.

The company also expects its 2016 revenues to be in the range of $93−$95 billion.

Commercial Airplanes' 2016 delivery expectations are in the band of 740−745 airplanes with revenues projected in the $64−$65 billion range. Operating margin is pegged at 9%.

The company expects 2016 defense revenues in the $28.5 billion to $29.5 billion range and operating margin of approximately 10%.

Boeing Capital Corp. expects its aircraft finance portfolio to remain stable. The company expects segment revenues to approximate $0.3 billion.

Boeing's 2016 R&D forecast is now approximately $3.6 billion. Capital expenditures for 2016 are expected to be $2.8 billion.

Zacks Rank

Boeing currently holds a Zacks Rank #3 (Hold).

There is no denying that Boeing is flying high on the back of rising demand for its fuel-efficient commercial planes. The aircraft manufacturing behemoth once again reported higher deliveries driven by strong commercial numbers.

At the Peer

Yesterday, the Pentagon’s prime contractor, Lockheed Martin Corp. (LMT - Analyst Report), posted adjusted fourth-quarter 2015 earnings of $3.01 per share, comfortably surpassing the Zacks Consensus Estimate of $2.93 by 2.7%.

Upcoming Release

Both Northrop Grumman Corp. (NOC - Analyst Report) and Raytheon Company (RTN - Analyst Report) are expected to release their fourth-quarter 2015 results on Jan 28, 2016.