Oct. 26, 2016: Boeing Co. beat analyst estimates on one-time gains but also reported that it raised earnings guidance for the full year.
The press release with full details is here.
Revenues were down 2% year-over-year to $72.1bn. Operating earnings fell 42% to $3.65bn but net earnings fell only 21% due to gains related to taxes. Commercial deliveries were down by 17 airplanes as Boeing transitions from the 737NG to the 737 MAX.
Revenue guidance increased
“Revenue guidance has been increased $500m to between $93.5bn and $95.5bn on higher commercial deliveries,” Boeing said in its press release. “GAAP earnings per share guidance for 2016 has been increased to between $7.10 and $7.30 from $6.40 and $6.60 and core earnings per share (non-GAAP) guidance has been increased to between $6.80 and $7.00 from $6.10 and $6.30 to reflect a favorable $0.70 per share tax basis adjustment. The third quarter favorable tax adjustment for a 2011-2012 tax settlement of $0.28 per share was previously announced in the second quarter of 2016 and was reflected in prior guidance.”
Operating cash for the nine months increase 12% YOY to $3.2bn. Boeing raised guidance on airplane deliveries slightly to 745-750 from 740-745.
Dennis Muilenburg, CEO
Quotes are paraphrased.
- Our view of the general business environment remains positive. We’re seeing strong demand for 737 MAX. We see some near-term hesitation for wide-body, but long-term, we remain positive. We see a return for demand early in the next decade.
- There is more work to do to finalize Iran Air sales.
- Pending campaigns will dictate 777 Classic production rates; decision should come in a few months.
- Customer demand remains strong for 737, with more than 4,300 in backlog for NG and MAX. Even at 57/mo rate in 2019, we remain oversold. 777 Classic backlog >160 airplanes. On track to transition to 7/mo in 2017. Slots now about 85% sold out. In 2018 about 60% sold out at planned delivery rate of 5.5/mo. At this time we don’t see a situation where we need to lower rates more than 1-2 month. If this occurs, it will be late 2017. If campaigns are successful, we may not have to lower rates at all. 787 program backlog 700 orders. Still hope to win orders for potential rate 14/mo by end of decade. 747-8F campaigns underway to fill production skyline.
Greg Smith, CFO
- Boeing Commercial operating margins 9.6%.
- 787 deferred production declined by $115m during the quarter. Supplier “step-down” pricing contributed.
- Initial insight into 2017 will be another year of solid financial performance. Cash flow growth in 17, 18 and beyond.
- Expect higher delivery rates next year but revenues will be flat as 737NG/MAX, 777 Classic/X mix begins.
- Any adjustment rate reductions could impact forecast, but sales campaigns will be the deciding factors.
- We have a strong foundation to grow the cash flow for the remainder of the decade and we continue to de-risk the business.
- More than 130 new city pairs have been introduced by 787.
- We have a couple of years near-term to work through the transition to the 777X. The replacement cycle will have strong demand in the next decade.
- We think one-half a month production for the 747 is sustainable. Very Large Aircraft is a niche market that we think is sustainable. More growth in wide-body is 787 and 777. We will assess 787 rate to 14/mo over the next six months.
- Mid-teens margin for BCA is a realistic target but a challenging target. Key items is increasing profits on 787 program, burning down deferred production. Additional work on Partnering for Success. We are relentless on our broader lean-plus activities. We’re making sure we’re executing on development programs.
- 787 deferred will continue to decline in 2017 (but Smith did not give a forecast figure). It’s all about cash flow focus on that program. Great progress, but a long way to go to meet our expectation.
- Continue to return roughly 100% of free cash flow to shareholders.
- If 777 Classic production rate were reduced to a delivery rate of 3.5/mo, then we’re 95% sold out in 2018. Right now at 5.5/mo, 60% sold out. (This figure equals 40 deliveries in 2018.–Editor.) A reduced production rate would have negative impact on margins, but off-setting actions would be taken.
- We’re continuing discussions on Middle of the Market airplane. If we were to go forward it would be about the 2024/25 time frame. A 737-10 would be toward the end of this decade. We could do both.