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Boeing, the world's largest aerospace company reported better than expected third quarter earnings and raised guidance before the market open Wednesday. $BA had been benefiting more than most from the Trump Administration.

Boeing FAA Hornet

Boeing Third Quarter Earnings Review

Boeing Co NYSE: BA Reported Before Open Wednesday

$3.58 Beat EPS $3.51 Forecast AND $25.15 Revenue Beat $24.23 Billion Forecast

Earnings Preview 

Boeing Co. (NYSE: BA) reported third-quarter EPS of $3.58 on revenue of $25.15 billion beating expectations. Results also reflect charges related to planned investments in the newly awarded T-X Trainer and MQ-25 programs, totaling 93 cents per share. The analysts consensus forecast was EPS of $3.51 on $24.23 billion in revenue. Shares have had a 52-week range of $254.50 to $394.28.

Market Reaction > Boeing Co NYSE: BA Pre-market 364.20 +14.15 (+4.04%)

Highlights

  • Results also reflect charges related to planned investments in the newly awarded T-X Trainer and MQ-25 programs, totaling 93 cents per share. Operating cash flow jumped 34% to $4.56 billion.
  • Commercial revenue dipped 1% to $15.28 billion.
  • Operating margin widened to 13.2% from 9.8% reflecting higher 787 margins and strong operating performance on production programs.
  • Boeing already surprised analysts with better-than-expected 737 deliveries for September, as it resolves delays from key suppliers.
  • Overall for the quarter that ended in September, Boeing deliveries hit 190 commercial jets, down from 202 total aircraft in Q3 2017.
  • Defense revenue rose 13% to $.573 billion.
  • Boeing took $176 million in charges on the KC-46 tanker and will be be late delivering the tanker to the Air Force after deficiencies were found last month.
  • Operating margin swung to -4.3% from 9.6% due to the T-X and MQ-25 investments and KC-46 costs.
  • Global services revenue climbed 14% to $4.09 billion, primarily driven by higher parts volume.

BA Earnings Q3 18

Outlook:

  • Full-year EPS is now seen at $14.90-$15.10, above consensus estimates for $14.57 and up from a prior view of $14.30-$14.50, on revenue of $98 billion-$100 billion, about in line with consensus views for $99.12 billion and up from a prior view of $97 billion-$99 billion.
  • Operating cash flow guidance was reaffirmed at $15 billion-$15.5 billion. Boeing said the higher earnings guidance was driven by a lower-than-expected tax rate and improved performance at its commercial aircraft unit, while the higher revenue outlook was driven by defense volume and services growth. 

Boeing traditionally is a company that relies on a strong economy and as such is a strong economic indicator. However times have changed somewhat since President's Trump's election and fiscal 2018 budget details. Boeing and Lockheed were two of the first two meetings with Trump, to lower costs of the F-35 and the Air Force One programs.

What to Look For: 

  • Operating cash flow 
  • Commercial unit revenue
  • Defense unit revenue
  • Global service revenue 
  • Boeing commercial aircraft orders
  • Total backlog 

The U.S.'s decision to ramp up defense spending and to favor American made has helped Boeing. Boeing makes the Super Hornet fighter jet and  the maligned KC-46 aerial refueling tanker among others.

Change in Europe has also helped the company, firstly we had Brexit and a new President in France. This uncertainty helped $BA as British Aerospace is Boeing's main competitor. Boeing is also a player in the geopolitical game, this is a factor. We have had Russia, China, Qatar and Saudi Arabia all heat up in this space.

Negative

Note a year ago is when Boeing took $3 billion in pretax charges for it's 787, 747 and KC-46 tanker aircraft programs. Those costs are still an issue, the commercial unit suffered additional costs of $256 million on the Air Force's KC-46 tanker program, which also cost Boeing's defense unit another $73 million during the quarter. Boeing has already booked more than $2.9 billion in cost overruns on the program.

Positive

Demand for its F/A-18 Super Hornet fighter jet is looking up as the Pentagon increases spending and foreign governments look to upgrade their fighter fleets.

Boeing's results followed a Q1 earnings and revenue beat from Lockheed Martin $LMT Tuesday but the stock sold off after analysts voiced concerned that Lockheed didn't raise its cash flow guidance after raising the outlook on its EPS, revenue and other key financial metrics

Northrop Grumman $NOC and General Dynamics $GD also reported results Wednesday. Raytheon $RTN reports Thursday.

Boeing Highlights Contracts in Place 

Military and Space

Boeing Military Contracts in 2017 Include;

  • Awarded a contract with U.S. Army for 268 Apache helicopters in 1Q17 (Image Above)
  • Awarded contract from U.S. Air Force for an additional 15 KC-46 Tanker aircraft in 1Q17
  • First tanker delivery expected to occur in late 2017 with 18 fully operational aircraft to be delivered in early 2018
  • Awarded a contract for 17 P-8 Poseidon aircraft from U.S., Australia, and U.K. in 1Q17F
  • First international delivery of EA-18G to Australia

Boeing Network and Space Contracts in 2017 include;

  • NASA extended Boeing's international space station contract
  • NASA awarded Boeing its second commercial contract for a human spaceflight mission as part of the existing Commercial Crew contract
  • Announced an order in 1Q17 for a 702 satellite with a dual payload from SKY Perfect JSAT and Kacific

Global Services & Support Contracts in 2017 include;

  • Awarded a contract for full-rate production of QF-16
  • Awarded a contract from U.S. Air Force for C-32 and C-40 aircraft maintenance and support
  • Awarded a contract for sustainment of F-15 aircraft from Republic of Korea
  • Awarded a 10-year engineering services contract by the U.S. Air Force Material Command

Commercial

Commercial Aircraft Highlights in 2017 include;

  • 737 Plan to increase to 47/mo in 3Q17, Plan to increase to 52/mo in 2018,  Plan to increase to 57/mo in 2019
  • Rolled out first 737 MAX 9 in 1Q17
  • First delivery of the 737 MAX expected in May 2017
  • 767 Plan to increase to 2.5 / mo in 3Q17
  • FedEx has placed firm orders for 100 767s (pictured above)
  • Potential market of up to 400 tanker aircraft worth $80 billion
  • First tanker delivery expected to occur in late 2017 with 18 fully operational aircraft to be delivered in early 2018
  • 777  Plan to decrease to 5 / mo in August 2017
  • Nearly 1,400 aircraft in-service
  • Over 70 customers with over 600 aircraft have been in service more than 10 years
  • 787 Plan to increase to 14/mo by end of the decade
  • Over 130 new non-stop markets planned or already connected by the 787
  • Completed first flight of the 787-10 in 1Q17
  • 787-10 first delivery is expected in 2018

Source: Boeing, TradersCommunity

Live From The Pit 

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