Boeing announced its third quarter earnings today. Here is the press release. The initial analyst take:
Bernstein Research (Buy)
Boeing reported Q3:2014 core EPS of $2.14, well above our estimate of $1.89 and consensus of $1.98. Revenues of $23.8bn were above consensus of $23.0bnand our estimate of $22.9bn, and Commercial Airplanes margins remained strong at 11.2%.
Fully-reported Q2:2014EPS was$1.86, compared to our estimate of $1.78and consensus of $1.77.
The company raised2014guidanceforcore EPS to $8.10-$8.30from$7.90-$8.10, i.e., by
$0.20/share, and reiterated revenue guidance of$87.5-90.5 bn. Guidance for operating cash flow was raised to greater than$6.25 bn from ~$6.25 bn previously. Margin guidance at BCA is raised to ~10.5% from>10%, while BDS margin guidance remains steady at ~9.5%.
787 deferred production level of $25.2 billion is consistent with our model, but slightly high compared to Boeing’s target of a peak at roughly $25 billion in Q4. Deferred production costs for the 787 increased by $0.95bn in the quarter, compared to $1.1 bn in Q2. We estimate that continued progress at this rate should lead to deferred production peaking at $25.5-26.0billion. While this is slightly above Boeing’s original estimate of ~$25bn, we see it as consistent with our expectations and consensus. 787 cost reduction is central to the longer term cash flow story for Boeing.
Buckingham Research (Underperform)
We reiterate our UNDERPERFORM rating, $101 target and recommend investors sell shares following BA’s 3Q14 earnings, where (1) BCA margins had a slight beat, (2) 787 deferred costs of $25.2B exceeded our expectations, and (3) BA’s “new” CFO guidance of >$6.25B was not as high as we thought. A key element of our bearish BA thesis is that BA will lower 777 production rates due to weak widebody demand and the need to bridge the production gap with the 777X. We also see increased risk to 787 costs, as the cumulative $25.2B deferred costs were above our expectations. We see 20% upside and 27% downside from current levels under our best/worst case scenarios.
Credit Suisse (Buy)
787 Unit Deferred Production ~31.6M in Q3: Total deferred production increased to $25.189B (from $24.242B in Q2). On a unit basis, this equates to ~$31.6M per aircraft.
We think consensus had expected unit deferred to decline below $30M. However, we note that efforts such as pulling inventory forward all get counted in the quarterly deferred, which distorts the number upwards.
Sequential unit deferred improved ~$5.7M in Q3 (Q2 was ~$37.3M by our math).
That said, we believe a focus point on today’s call will be the path to peak deferred, and whether Boeing still expects to peak on deferred in early-2015
JP Morgan (Overweight)
Q3 was solid overall with a bottom line beat and higher guidance for core EPS and cash flow. However, the EPS beat was defense driven and not all of the news was encouraging, as there was a drop-off in the core commercial margin and 787 cash losses did not slow as fast as we had forecast. This could dampen the stock reaction.
Management raised core EPS guidance by 20 cents to $8.10-8.30 for higher BCA margins and higher sales at BDS.
Core EPS of $2.14 exceeded our estimate by 15 cents. BDS accounted for 10 cents with much of the remainder coming from a lower than expected tax rate.
BCA EBIT of $1.8 bn was just ahead of our estimate but higher than expected sales and lower then expected R&D drove the upside, while we estimate that the core margin (ex R&D, 747,and 747-8) dropped to ~18.3% from nearly 20% in 2Q14. Margins can be choppy quarter to quarter but the expansion here has been a key earnings driver and we will seek more info on the trajectory from here.
787 deferred production grew ~$950 mn, more than our estimate of ~$700 mn. The balance is now above the target of ~$25 bn where management has predicted it would stabilize near year-end with a quarter to go. While this is not encouraging news relative to expectations, it does represent further progress, and we will look for incremental color on the call. A key question will be how much of the Q3 increase was related to 787-8 unit costs as opposed to inventory build on the 787-9.