Surprising markets on the upside yet again, Boeing posted a fourth-quarter profit of $1.63 billion, or $2.59 a share, up from the $1.03 billion, or $1.51 a share of a year earlier. Excluding exceptional items, the company earned an adjusted profit of $2.47 a share, well above consensus analyst forecasts of $2.35 a share on $23.29 billion of revenue, the latter being 1.2% lower than the previous year. Overall, full year revenue was down 2% at $94.57 billion while earnings per share rose by 2% to $7.61.
These were excellent results and looking forward, the company anticipates FY17 adjusted core earnings being within a range of $9.10 and $9.30 per share. Boeing delivered a total of 926 commercial and defense aircraft last year and enjoyed record cash flow of $10.5 billion. Order backlog remains exceptionally robust at $473 billion, this including no fewer than 5,700 commercial aircraft on order at the end of the year and the company moves into 2017 with the additional benefit of cash and marketable securities in excess of $10 billion.
Boeing President and CEO, Dennis Muilenburg said that “we led the industry in commercial aircraft deliveries for the fifth consecutive year, achieved healthy sales in defense, space and services segments and produced record operating cash flow, which fueled investment in innovation and our people and generated significant returns to shareholders. Looking forward” he said “our team is intent of accelerating productivity and program execution to deliver increasing cash and profitability from our large and diverse order backlog of nearly $500 billion, standing up our new integrated services business and, capturing an even greater share of the growing global aerospace market to deliver superior value to customers, shareholders and employees”.
During the final quarter Boeing delivered the 500th 787 Dreamliner and the statement confirmed that the number of 737 MAX aircraft orders captured exceeds 3,600 planes. Sales of Defense, Network and Space Systems and Global Services and Support were down overall by 3% year on year to $29.5 billion. Military aircraft deliveries were lower although the company noted that approval was given by the US State Department for a number of international military aircraft sales – these including F-15, F/A-18 fighter jets together with Chinook and Apache helicopters. The backlog of Defense, Space & Security stood at $57 billion at year end, 37% of which is represented by international based orders.
While it appears that a further decline in military aircraft revenue is anticipated in the current year, sales of Network and Space Systems and Global Services and Support Sales look stable. So, where there any specific disappointments? The overall operating margin has again slipped, in part I suspect due to the intenseness of competition in the industries Boeing serves.
Clearly, the need to take an additional $243 million charge on the delayed KC-46A Pegasus air-to-air refueling tanker program is regrettable although clearly necessary. Based on the 767 passenger jet, Boeing expects to sell an initial 179 of these aircraft to the Pentagon (a deal was secured last year to build 18 planes) and the anticipated global market for the tanker aircraft has been put at over 400 planes.
Overall, analysts anticipate FY17 commercial aircraft deliveries at between 760 and 765 planes compared to the 748 delivered last year. That Boeing sold approximately 100 fewer planes last year than a year earlier is not a particular concern and, following more than a decade of spectacular sales growth, a lull in growth comes as no surprise. Given the massive size of the current order backlog and period of lower sales activity is clearly very manageable.
Am I concerned that Boeing and its big European competitor, Airbus are likely to face increased competition for sales from the likes of China, Russia and maybe even Canada’s Bombardier? No I am not. Am I concerned about Donald Trump rhetoric and how this might impact on companies such as Boeing? No I am not because I know well that Boeing and others that have fallen into the slipstream of Trump rhetoric will rise to any challenge presented. Do I believe that defense sales will rise during the Trump presidency? You bet I do!
Of course, no one can afford to be complacent in relation of competition, the need to make a company such as Boeing even more efficient or political change. But in my view and in terms of commercial aircraft sales, as long as both companies stay ahead of their competition in terms of technical developments, technology advantage, low fuel costs and low noise, the ability to meet ever changing regulatory and environment requirement and to lead from the front, the ability to further enhance efficiency, the ability to provide customers with what they want as opposed to telling them what they can have and finally, understanding the need to continually invest in more research and development, then I believe that they will continue maintain a very large gap between the new ‘up and coming also rans’. This is not complacency on my part, it is just knowing how these companies operate combined with pure business common sense.
In summary, albeit challenging and with the odd disappointment, 2016 was a superb year for Boeing and in my view, management can be very proud of what they have achieved. Strong financially and with an excellent short and medium term outlook, results presented by the company today are impressive. President and CEO, Dennis Muilenburg has done a fantastic job; this being visible not only in terms of improving performance in a great many areas of activity but, from my perspective, in what he has done in terms of laying down a visible strategy for the future.
CHW (London 25th January 2017)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785