An excellent set of 2nd Quarter and Half Year results from Boeing this afternoon confirm that the drive to extend efficiency and productivity gains that has been emphasised as the priority by Chairman, President and CEO Dennis Muilenburg over the past year really is now starting to pay off. Boeing looks set fair in my view for further gains over the next few years and the raising of both earnings and cash flow guidance for 2017 provides useful reassurance
With Q2 earnings well ahead of expectation on the back of improved efficiency gains and productivity improvements and that in turn have pushed up operating margins, the conclusion from this set of results could hardly be anything other than that they are very impressive. Guidance is not surprisingly raised for the full year. Add to this a surge in free cash flow along with a noticeable increase in share buy-back activity during the first half period, all in all these are nothing other than excellent results from the Chicago based manufacturer of commercial and military aircraft and space equipment.
Boeing has done all that could have been asked of it and more during the first half of the year and importantly, it seems that there is plenty more to come from where these excellent figures have come from. Are there any clouds on the horizon? Not as far as I can see and this view notwithstanding that the commercial aircraft sector is, following years of frenzied activity, going through a period reduced sales activity. Defense looks to me to be on the up as do activities in space and I share the view of the company that the creation of Boeing Global Services from July 1st presents superb opportunities for new growth.
Add in announced plans to bolster the pension fund, raised forecast expectations that translate to full year adjusted earnings expectation of between $9.80 and $10 per share and it is hardly surprising that markets reacted by marking the share price of Boeing up by over 8% in New York at the time of writing.
Second quarter revenues of $22.7 billion take the first half year total to $43. 7 billion which is just a touch higher than the previous year. Operating earnings for the half year totalled $4.6 billion and net earnings came out at $3.2 billion. Operating margins for the second quarter were 11.1% and for the half year period 10.4%. Overall the order backlog grew to $482 billion and included additions of $27 billion during the second quarter.
With a record commercial aircraft order backlog of 5,700 aircraft worth $424 billion at list prices to work through and 183 net aircraft orders received during the third quarter, a figure that is perhaps higher than many analysts had anticipated might occur at the start of the year particularly given that overall, commercial aircraft markets have clearly been less active than hitherto, investors should be particularly pleased to see that the commercial aircraft division also posted operating profits of $1.67 billion compared to $973 million loss recorded last year. At the half way stage last year Boeing had taken substantial KC-46 tanker aircraft costs together with other legacy commercial aircraft programme costs on the chin.
Excellent news too that the defense division recorded a 50% increase in operating profits to $890 million on revenue down primarily due to the closure of the C-17 Globemaster production line last year. The order backlog for the Defense, Space and Security division was $58 billion of which 37% is accounted for by foreign sales. Second quarter margins for the division as a whole rose to 12.9% reflecting improved productivity and efficiency all round. Military aircraft operating margins increased to 13.2% on revenue of $2.9 billion while that of Network & Space Systems rose to 9.1% on $1.7 billion revenue. Global Services and Support saw its operating margins increase to 15.4% on revenue of £2.3 billion.
Companies are judged on not just on earnings but on cash flow as well and in the case of Boeing the Q2 period $5 billion operating cash flow will be judged to have been an excellent performance. Share repurchase activity for the period comprised 13.6 million shares at a cost of $2.5 billion.
In the formal statement Boeing Chairman, President and CEO, Dennis Muilenburg said that “Our teams are delivering better performance in every segment of the business, which is reflected in our strong second-quarter results and improved 2017 outlook” adding that “Our robust cash flow enabled us to return more value to shareholders, invest in future growth and in our people, including a plan to accelerate pension funding that also reduces risk and cyclicality in our business.” Important Muilenburg noted that “In the second quarter, we added to our large and diverse order backlog with key wins in commercial airplanes, defense, space and services, while achieving important milestones such as delivering the first 737 MAX airplane, flying the second production-ready T-X trainer aircraft, and conducting a successful Ground-based Midcourse Defense intercept test.”
CHW (London – 26th July 2017)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785