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Higher commercial aircraft volumes propel Boeing to strong first quarter growth

Driven by a 23 percent increase in operations earning in its commercial aircraft segment, the Boeing Company (NYSE: BA) reported first-quarter revenue increased eight percent to $20.5 billion (Table 1).

Highlights of the results are

  • Core EPS (non-GAAP)* of $1.76 on continued strong operating performance; GAAP EPS of $1.28
  • Revenue increased 8 percent to $20.5 billion reflecting higher commercial deliveries
  • Operating cash flow increased significantly to $1.1 billion
  • Repurchased 19.4 million shares for $2.5 billion
  • Backlog of $440 billion includes $19 billion of net orders during the quarter
  • 2014 core EPS guidance increased to between $7.15 and $7.35 to reflect a tax settlement

Core earnings per share (non-GAAP) increased to $1.76 when excluding a benefit of $0.19 per share for the 2012 research and development tax credit recorded in the first quarter of 2013. First-quarter 2014 core operating earnings (non-GAAP) increased 12 percent to $2.1 billion and core operating margin (non-GAAP) increased to 10.2 percent reflecting continued strong operating performance. GAAP earnings from operations included previously announced non-cash charges totalling $334 million ($0.29 per share) for retirement plan changes.

Core earnings per share guidance for 2014 increased to between $7.15 and $7.35, from $7.00 to $7.20, to reflect the benefit of a tax settlement to be recognized in the second quarter of 2014. GAAP earnings per share guidance for 2014 is reaffirmed at between $6.10 to $6.30 as the tax settlement benefit was offset by the retirement plan charges. GAAP pension expense guidance for 2014 is now at approximately $3.2 billion, up from $3.1 billion, to reflect the retirement plan charges. The company reaffirmed its 2014 revenue, operating cash flow and deliveries guidance.

Table 1. Summary Financial Results First Quarter
(Dollars in Millions, except per share data) 2014 2013 Change
Revenues $20,465 $18,893 8%
Non-GAAP*
Core Operating Earnings $2,095 $1,867 12%
Core Operating Margin 10.2% 9.9% 0.3 Pts
Core Earnings Per Share $1.76 $1.73 2%
Operating Cash Flow Before Pension Contributions $1,112 $524 112%
GAAP
Earnings From Operations $1,542 $1,528 1%
Operating Margin 7.5% 8.1% (0.6) Pts
Net Earnings $965 $1,106 (13)%
Earnings Per Share $1.28 $1.44 (11)%
Operating Cash Flow $1,112 $524 112%
* Non-GAAP measures (core operating earnings, core operating margin and core earnings per share) exclude certain components of pension and post retirement benefit expense that management believes are not reflective of underlying business performance. Complete definitions of Boeing’s non-GAAP measures are on page 7, “Non-GAAP Measures Disclosures.”

 

Table 2. Cash Flow First Quarter
(Millions) 2014 2013
Operating Cash Flow Before Pension Contributions* $1,112 $524
       Pension Contributions
Operating Cash Flow $1,112 $524
  Less Additions to Property, Plant & Equipment ($497) ($521)
Free Cash Flow* $615 $3

Operating cash flow in the quarter was $1.1 billion, reflecting commercial airplane production rates, strong core operating performance and timing of receipts and expenditures (Table 2). During the quarter, the company repurchased 19.4 million shares for $2.5 billion, leaving $8.3 billion remaining under the current repurchase authorization expected to be completed over the next 2-3 years. The company also paid $0.5 billion in dividends in the quarter, reflecting an approximately 50 percent increase in dividends per share compared to the same period of the prior year.

Table 3. Cash, Marketable Securities and Debt Balances Quarter-End
(Billions) Q1 14 Q4 13
Cash $6.9 $9.1
Marketable Securities1 $5.3 $6.2
Total $12.2 $15.3
Debt Balances:
The Boeing Company, net of intercompany loans to BCC $6.3 $7.0
Boeing Capital Corporation, including intercompany loans $2.6 $2.6
Total Consolidated Debt $8.9 $9.6
1 Marketable securities consists primarily of time deposits due within one year classified as “short-term investments.”

Cash and investments in marketable securities totaled $12.2 billion at quarter-end (Table 3), down from $15.3 billion at the beginning of the year, primarily due to the share repurchases and the pay-down of maturing debt. Debt was $8.9 billion, down from $9.6 billion at the beginning of the year, primarily due to maturities.

Total company backlog at quarter-end was a $440 billion, down slightly from the beginning of the year, and included net orders for the quarter of $19 billion.

Segment Results

Boeing Commercial Airplanes

Table 4. Boeing Commercial Airplanes First Quarter
(Dollars in Millions) 2014 2013 Change
Commercial Airplanes Deliveries 161 137 18%
Revenues $12,737 $10,690 19%
Earnings from Operations $1,502 $1,219 23%
Operating Margin 11.8% 11.4% 0.4 Pts

Boeing Commercial Airplanes first-quarter revenue increased to $12.7 billion on higher 787 and 737 deliveries. First-quarter operating margin improved to 11.8 percent reflecting the delivery volume and mix and lower period costs partially offset by higher R&D (Table 4).

During the quarter, the 787 program reached a 10 per month production rate and completed preliminary design review on the 787-10. The company selected the Everett, Washington site as the location for a new composite wing center for the 777X. In April, the 737 program reached a production rate of 42 per month.

Commercial Airplanes booked 235 net orders during the quarter. Backlog remains strong with over 5,100 airplanes valued at $374 billion.

Boeing Defense, Space & Security

Table 5. Defense, Space & Security First Quarter
(Dollars in Millions) 2014 2013 Change
Revenues1
Boeing Military Aircraft $3,458 $3,980 (13)%
Network & Space Systems $1,876 $1,960 (4)%
Global Services & Support $2,299 $2,170 6%
Total BDS Revenues $7,633 $8,110 (6)%
Earnings from Operations1
Boeing Military Aircraft $332 $427 (22)%
Network & Space Systems $168 $156 8%
Global Services & Support $278 $249 12%
Total BDS Earnings from Operations $778 $832 (6)%
Operating Margin 10.2% 10.3% (0.1) Pts
1 During the first quarter of 2014, certain programs were realigned between Boeing Military Aircraft and Global Services & Support. See page 15 of this release for additional information.

Boeing Defense, Space & Security’s first-quarter revenue was $7.6 billion with an operating margin of 10.2 percent (Table 5).

Boeing Military Aircraft (BMA) first-quarter revenue declined to $3.5 billion, as the first quarter of 2013 included revenue associated with F-15 development milestones and due to fewer P-8 deliveries in the first quarter of 2014. Operating margin was 9.6 percent, reflecting strong performance offset by a previously announced C-17 inventory-related charge. During the quarter, BMA was awarded a contract for 16 P-8A Poseidon aircraft from the U.S. Navy and a contract for 82 Apache Block III helicopters from the U.S. Army.

Network & Space Systems (N&SS) first-quarter revenue was $1.9 billion, reflecting lower satellites volume, and operating margin increased to 9.0 percent on strong performance. During the quarter, N&SS completed on-orbit testing of the first Inmarsat-5 satellite.

Global Services & Support (GS&S) first-quarter revenue increased to $2.3 billion, reflecting higher volume in maintenance, modifications and upgrades. Operating margin increased to 12.1 percent on improved performance in integrated logistics. During the quarter, GS&S was awarded a contract to provide maintenance training devices for the U.S. Navy’s P-8A Poseidon aircraft.

Backlog at Defense, Space & Security was $66 billion, of which 35 percent represents orders with international customers.

Additional Financial Information

 

Table 6. Additional Financial Information

First Quarter
(Dollars in Millions) 2014 2013
Revenues
Boeing Capital Corporation $82 $105
Other segment $20 $27
Unallocated items and eliminations ($7) ($39)
Earnings from Operations
Boeing Capital Corporation $44 $44
Other segment income/(expense) ($62) ($58)
Unallocated items and eliminations excluding unallocated pension/postretirement expense ($167) ($170)
Unallocated pension/postretirement expense ($553) ($339)
Other income, net $9 $9
Interest and debt expense ($92) ($99)
Effective tax rate 33.9% 23.1%

At quarter-end, Boeing Capital Corporation’s (BCC) net portfolio balance was $3.5 billion down from $3.9 billion at the beginning of the year. BCC’s debt-to-equity ratio was 5.0-to-1.

Unallocated items and eliminations increased in the first quarter of 2014 primarily due to previously announced non-cash charges totaling $334 million for retirement plan changes. Total pension expense for the first quarter was $1,035 million, up from $791 million in the same period last year. The company’s income tax expense was $494 million in the quarter, compared to $332 million in the same period of the prior year, as a $145 million benefit for the 2012 research and development credit was reflected in the first quarter of 2013.

Outlook

The company’s 2014 financial guidance (Table 7) reflects continued strong performance in both businesses.

Table 7. Financial Outlook
(Dollars in Billions, except per share data) 2014
The Boeing Company
        Revenue $87.5 – 90.5
        Core Earnings Per Share* $7.15 – 7.35
        GAAP Earnings Per Share $6.10 – 6.30
        Operating Cash Flow Before Pension Contributions* ~ $7
        Operating Cash Flow 1 ~ $6.25
Boeing Commercial Airplanes
        Deliveries 2 715 – 725
        Revenue $57.5 – 59.5
        Operating Margin ~ 10%
Boeing Defense, Space & Security (revised for business realignment)
        Revenue
               Boeing Military Aircraft ~ $14.2
               Network & Space Systems ~ $7.7
               Global Services & Support ~ $8.6
        Total BDS Revenue $30 – 31
        Operating Margin
               Boeing Military Aircraft ~ 9.5%
               Network & Space Systems ~ 8.5%
               Global Services & Support ~ 10.5%
        Total BDS Operating Margin ~ 9.5%
Boeing Capital Corporation
        Portfolio Size Lower
        Revenue ~ $0.3
        Pre-Tax Earnings ~ $0.05
Research & Development ~ $3.2
Capital Expenditures ~ $2.5
Pension Expense 3 ~ $3.2
Effective Tax Rate 4 ~ 29%
1 After discretionary cash pension contributions of $0.75 billion and assuming new aircraft financings under $0.5 billion
2 Assumes approximately 110 787 deliveries
3 Approximately $1.3 billion is expected to be recorded in unallocated items and eliminations
4 Assumes the extension of the research and development tax credit
* Non-GAAP measures. Complete definitions of Boeing’s non-GAAP measures are on page 7, “Non-GAAP Measures Disclosures.”

Boeing’s core earnings per share guidance for 2014 increased to between $7.15 and $7.35, from $7.00 to $7.20, to reflect the benefit of a tax settlement to be recognized in the second quarter of 2014. GAAP earnings per share guidance for 2014 is reaffirmed at between $6.10 and $6.30 as the tax settlement benefit was offset by the retirement plan charges. Total GAAP pension expense guidance for 2014 is now at approximately $3.2 billion, up from $3.1 billion to reflect the retirement plan charges. The pension expense expected to be included in unallocated items and eliminations is approximately $1.3 billion, up from $1.1 billion.

Boeing Military Aircraft revenue for 2014 is now expected to be approximately $14.2 billion, down from $15.0 billion, and Global Support & Services revenue is now expected to be approximately $8.6 billion, up from $7.8 billion, both reflecting a business realignment completed during the quarter.

Boeing’s effective tax rate is now expected to be approximately 29 percent in 2014, down from approximately 31 percent, to reflect the benefit of the tax settlement and continues to assume the extension of the research and development tax credit.

The Boeing Company and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

Three months ended
March 31
(Dollars in millions, except per share data) 2014 2013
Sales of products $18,015 $16,318
Sales of services 2,450 2,575
Total revenues 20,465 18,893
Cost of products (15,258) (13,728)
Cost of services (2,020) (2,009)
Boeing Capital interest expense (18) (19)
Total costs and expenses (17,296) (15,756)
3,169 3,137
Income from operating investments, net 59 45
General and administrative expense (877) (971)
Research and development expense, net (809) (705)
Gain on dispositions, net 22
Earnings from operations 1,542 1,528
Other income, net 9 9
Interest and debt expense (92) (99)
Earnings before income taxes 1,459 1,438
Income tax expense (494) (332)
Net earnings from continuing operations 965 1,106
Net gain on disposal of discontinued operations, net of taxes
Net earnings $965 $1,106
Basic earnings per share from continuing operations $1.30 $1.45
Net gain on disposal of discontinued operations, net of taxes
Basic earnings per share $1.30 $1.45
Diluted earnings per share from continuing operations $1.28 $1.44
Net gain on disposal of discontinued operations, net of taxes
Diluted earnings per share $1.28 $1.44
Cash dividends paid per share $0.73 $0.49
Weighted average diluted shares (millions)  

754.1

768.7

 

The Boeing Company and Subsidiaries

Consolidated Statements of Financial Position

(Unaudited)

(Dollars in millions, except per share data) March 31
2014
December 31
2013
Assets
Cash and cash equivalents $6,942 $9,088
Short-term and other investments 5,282 6,170
Accounts receivable, net 7,341 6,546
Current portion of customer financing, net 256 344
Deferred income taxes 15 14
Inventories, net of advances and progress billings 44,941 42,912
Total current assets 64,777 65,074
Customer financing, net 3,280 3,627
Property, plant and equipment, net of accumulated depreciation of $15,281 and $15,070 10,263 10,224
Goodwill 5,046 5,043
Acquired intangible assets, net 2,996 3,052
Deferred income taxes 2,463 2,939
Investments 1,208 1,204
Other assets, net of accumulated amortization of $478 and $448 1,542 1,500
Total assets $91,575 $92,663
Liabilities and equity
Accounts payable $10,779 $9,498
Accrued liabilities 12,219 14,131
Advances and billings in excess of related costs 21,112 20,027
Deferred income taxes and income taxes payable 6,732 6,267
Short-term debt and current portion of long-term debt 1,660 1,563
Total current liabilities 52,502 51,486
Accrued retiree health care 6,515 6,528
Accrued pension plan liability, net 9,676 10,474
Non-current income taxes payable 166 156
Other long-term liabilities 808 950
Long-term debt 7,275 8,072
Shareholders’ equity:
Common stock, par value $5.00 – 1,200,000,000 shares authorized;
1,012,261,159 shares issued
5,061 5,061
Additional paid-in capital 4,441 4,415
Treasury stock, at cost – 281,510,590 and 264,882,461 shares (20,028) (17,671)
Retained earnings 33,929 32,964
Accumulated other comprehensive loss (8,883) (9,894)
Total shareholders’ equity 14,520 14,875
Noncontrolling interest 113 122
Total equity 14,633 14,997
Total liabilities and equity $91,575 $92,663

 

The Boeing Company and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

Three months ended
March 31
(Dollars in millions) 2014 2013
Cash flows – operating activities:
Net earnings $965 $1,106
Adjustments to reconcile net earnings to net cash provided by operating activities:
Non-cash items –
Share-based plans expense 52 58
Depreciation and amortization 448 429
Investment/asset impairment charges, net 29 26
Customer financing valuation benefit (23) (3)
Gain on disposal of discontinued operations (1)
Gain on dispositions, net (22)
Other charges and credits, net 47 53
Excess tax benefits from share-based payment arrangements (68) (23)
Changes in assets and liabilities –
Accounts receivable (792) (437)
Inventories, net of advances and progress billings (2,049) (3,000)
Accounts payable 1,350 654
Accrued liabilities (1,385) (1,133)
Advances and billings in excess of related costs 1,085 1,833
Income taxes receivable, payable and deferred 455 214
Other long-term liabilities (124) (73)
Pension and other postretirement plans 733 821
Customer financing, net 408 24
Other (18) (3)
   Net cash provided by operating activities 1,112 524
Cash flows – investing activities:
  Property, plant and equipment additions (497) (521)
  Property, plant and equipment reductions 15 33
  Acquisitions, net of cash acquired (26)
  Contributions to investments (2,737) (2,955)
  Proceeds from investments 3,625 2,655
   Net cash provided/(used) by investing activities 406 (814)
Cash flows – financing activities:
  New borrowings 51 15
  Debt repayments (757) (1,262)
  Payments to noncontrolling interests (12)
  Repayments of distribution rights and other asset financing (3) (138)
  Stock options exercised, other 109 76
  Excess tax benefits from share-based payment arrangements 68 23
  Employee taxes on certain share-based payment arrangements (84) (52)
  Common shares repurchased (2,500)
  Dividends paid (540) (367)
   Net cash used by financing activities (3,668) (1,705)
Effect of exchange rate changes on cash and cash equivalents 4 (11)
Net decrease in cash and cash equivalents (2,146) (2,006)
Cash and cash equivalents at beginning of year 9,088 10,341
Cash and cash equivalents at end of period $6,942 $8,335

 

The Boeing Company and Subsidiaries

Summary of Business Segment Data

(Unaudited)

Three months ended
March 31
(Dollars in millions) 2014 2013
Revenues:
  Commercial Airplanes $12,737 $10,690
  Defense, Space & Security:
  Boeing Military Aircraft 3,458 3,980
  Network & Space Systems 1,876 1,960
  Global Services & Support 2,299 2,170
  Total Defense, Space & Security 7,633 8,110
  Boeing Capital 82 105
  Other segment 20 27
  Unallocated items and eliminations (7) (39)
Total revenues $20,465 $18,893
Earnings from operations:
  Commercial Airplanes $1,502 $1,219
  Defense, Space & Security:
   Boeing Military Aircraft 332 427
   Network & Space Systems 168 156
   Global Services & Support 278 249
  Total Defense, Space & Security 778 832
  Boeing Capital 44 44
  Other segment (62) (58)
  Unallocated items and eliminations (720) (509)
Earnings from operations 1,542 1,528
Other income, net 9 9
Interest and debt expense (92) (99)
Earnings before income taxes 1,459 1,438
Income tax expense (494) (332)
Net earnings from continuing operations 965 1,106
Net gain on disposal of discontinued operations, net of taxes
Net earnings $965 $1,106
Research and development expense, net:
  Commercial Airplanes $529 $419
  Defense, Space & Security 280 272
  Other 14
Total research and development expense, net $809 $705
Unallocated items and eliminations:
  Share-based plans ($24) ($31)
  Deferred compensation 7 (56)
  Capitalized interest (18) (17)
  Eliminations and other (132) (66)
   Sub-total (included in core operating earnings) (167) (170)
  Pension (576) (358)
  Postretirement 23 19
Total unallocated items and eliminations ($720) ($509)

 

The Boeing Company and Subsidiaries

Operating and Financial Data

(Unaudited)

Deliveries Three months ended
March 31
Commercial Airplanes 2014 2013
737 115 102
747 4 6
767 4
777 24 24
787 18 1
Total 161 137
Defense, Space & Security
Boeing Military Aircraft
F/A-18 Models 11 12
F-15E Eagle 4 3
C-17 Globemaster III 3 3
CH-47 Chinook 17 9
AH-64 Apache 10 15
P-8 Models 2
Global Services & Support
AEW&C 1
Network & Space Systems
Commercial and Civil Satellites 1
Contractual backlog (Dollars in billions) March 31
2014
December 31
2013
   Commercial Airplanes $374.0 $373.0
   Defense, Space & Security:
      Boeing Military Aircraft 23.2 23.6
      Network & Space Systems 9.4 9.8
      Global Services & Support 16.1 16.2
   Total Defense, Space & Security 48.7 49.6
Total contractual backlog $422.7 $422.6
Unobligated backlog $17.1 $18.3
Total backlog $439.8 $440.9
Workforce 169,000 168,400

 

The Boeing Company and Subsidiaries
Reconciliation of Non-GAAP Measures
Core Operating Earnings, Core Operating Margin and Core Earnings Per Share
Increase in Core EPS Excluding First Quarter 2013 Benefit for 2012 Research and Development Tax Credit
(Unaudited)
The tables provided below reconcile the non-GAAP financial measures core operating earnings, core operating margin and core earnings per share as well as the increase in Core EPS Excluding First Quarter 2013 Benefit for 2012 Research and Development Tax Credit with the most directly comparable GAAP financial measures, earnings from operations, operating margin and diluted earnings per share. See page 7 of this release for additional information on the use of these non-GAAP financial measures.
First Quarter Guidance
2014 2013 2014
Revenues $20,465 $18,893
GAAP Earnings From Operations $1,542 $1,528
GAAP Operating Margin 7.5% 8.1%
Unallocated Pension/Postretirement Expense $553 $339 ~ $1,215
Core Operating Earnings (non-GAAP) $2,095 $1,867
Core Operating Margin (non-GAAP) 10.2% 9.9%
Increase/(Decrease) in GAAP Earnings From Operations 1%
GAAP Diluted Earnings Per Share $1.28 $1.44 $6.10 – 6.30
Unallocated Pension/Postretirement Expense1 $0.48 $0.29 $1.05
Core Earnings Per Share (non-GAAP) $1.76 $1.73 $7.15 – 7.35
First Quarter 2013 Benefit for 2012 Research and Development Tax Credit2 $0.19
Core Earnings Per Share Excluding First Quarter 2013 Benefit for 2012 Research and Development Tax Credit $1.76 $1.54
Weighted Average Diluted Shares (millions) 754.1 768.7 750 – 755
Increase in GAAP Earnings Per Share -11%
Increase in Core Earnings Per Share 2%
Increase in Core Earnings Per Share Excluding First Quarter 2013 Benefit for 2012 Research and Development Tax Credit 14%
1 Earnings per share impact is presented net of the federal statutory tax rate of 35.0 percent.
2 Earnings per share impact of $145 million tax benefit in the first quarter of 2013 due to the retroactive reinstatement of the 2012 research and development tax credit under the American Taxpayer Relief Act of 2012.

 

The Boeing Company and Subsidiaries
Defense, Space & Security Realignment
(Unaudited)
Effective during the first quarter of 2014, certain programs were realigned among Defense, Space & Security segments. The Airborne Warning and Control Systems and Airborne Early Warning and Control aircraft programs and the F-22 Modernization program were realigned from Boeing Military Aircraft to Global Services & Support. Business segment data for 2013 has been adjusted as follows to reflect the realignment.
As Reported in 2013 As Reported in 2014
(Dollars in millions) Revenue Earnings Revenue Earnings
First Quarter 2013
Boeing Military Aircraft $4,109 $430 $3,980 $427
Global Services & Support 2,041 246 2,170 249
Second Quarter 2013
Boeing Military Aircraft 3,889 373 3,641 386
Global Services & Support 2,248 266 2,496 253
Third Quarter 2013
Boeing Military Aircraft 3,543 221 3,438 220
Global Services & Support 2,272 259 2,377 260
Fourth Quarter 2013
Boeing Military Aircraft 4,395 441 4,226 491
Global Services & Support 2,188 280 2,357 230
Full Year 2013
Boeing Military Aircraft $15,936 $1,465 $15,285 $1,524
Global Services & Support 8,749 1,051 9,400 992

 

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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