.

Boeing Reports Strong Third-Quarter Earnings

CEO Jim McNerney: Boeing remains well positioned for long-term growth with a clear focus on quality, productivity and disciplined program execution.

The Boeing Company announced better-than-expected third-quarter revenues Wednesday. Highlighst include:

  • Earnings per share of $1.35 reported on revenue of $20.0 billion
  • Operating earnings rose at Commercial Airplanes and Defense, Space & Security
  • Backlog grew to $378 billion driven by $24 billion of new orders
  • Operating cash flow before pension contributions* totaled $2.3 billion
  • Cash and marketable securities of $11.2 billion provide strong liquidity
  • Guidance increased for revenue, EPS and operating cash flow

The aerospace giant reported a third-quarter net income of $1.0 billion, or $1.35 per share.  The Boeing Company credits its continued strong core performance and revenue of $20.0 billion for the quarter’s positive report.

Despite, higher pension expenses ($194 million, or $0.18 per share) Boeing continues to increased earnings at Commercial Airplanes and Defense, Space & Security.

"Strong core operating performance drove increased earnings in both our major businesses, along with higher overall revenues, improved cash flow, and solid earnings per share even as pension headwinds rose," said Boeing Chairman, President and Chief Executive Officer Jim McNerney.  

Boeing raised earnings per share guidance for 2012 to between $4.80 and $4.95. The company also raised its revenue guidance to between $80.5 and $82 billion on higher Defense, Space & Security revenue, and increased its 2012 operating cash flow outlook to greater than $5.5 billion.

"Our Defense, Space & Security business maintained double-digit margins in a challenging environment while Commercial Airplanes continued to build momentum with 787 deliveries and 737 MAX orders. Underpinned by our solid performance to date and positive outlook, we are raising our year-end guidance for revenue, earnings and operating cash flow.  We remain well positioned for long-term growth with a clear focus on quality, productivity and disciplined program execution," McNerney said.

 

Table 1.  Summary Financial Results

 

 

 

 

 

 

Third Quarter

Change

Nine Months

Change

(Dollars in Millions, except per share data)

2012

2011

2012

2011

 

 

 

 

 

 

 

Revenues

$20,008

$17,727

13%

$59,396

$49,180

21%

Earnings From Operations

$1,564

$1,714

(9%)

$4,682

$4,247

10%

Operating Margin 

7.8%

9.7%

 (1.9) Pts 

7.9%

8.6%

 (0.7)Pts

Net Income

$1,032

$1,098

(6%)

$2,922

$2,625

11%

Earnings per Share

$1.35

$1.46

(8%)

$3.84

$3.49

10%

Operating Cash Flow Before Pension Contributions* 

$2,346

$949

NM  

$4,854

$1,592

NM  

Operating Cash Flow

$1,596

$449

NM  

$3,341

$1,092

NM  

 

 

 

 

 

 

 

* Non-GAAP measure.  Complete definitions of Boeing's use of non-GAAP measures, identified by an asterisk (*), are found on page 7, "Non-GAAP Measure Disclosures."  

 

 

 

 

 

 

 

Boeing's quarterly operating cash flow before pension contributions* was $2.3 billion.  Operating cash flow was $1.6 billion, with higher commercial airplane deliveries and strong operating performance more than offsetting continued investment in the 787 program and discretionary pension funding.  Free cash flow* was $1.2 billion in the quarter (Table 2). 

 

 

 

 

 

Table 2.  Cash Flow

 

 

 

 

 

Third Quarter

Nine Months

(Millions)

2012

2011

2012

2011

 

 

 

 

 

Operating Cash Flow Before Pension Contributions*

$2,346

$949

$4,854

$1,592

   Pension Contributions

($750)

($500)

($1,513)

($500)

Operating Cash Flow

$1,596

$449

$3,341

$1,092

   Less Additions to Property, Plant & Equipment

($428)

($380)

($1,208)

($1,142)

Free Cash Flow* 

$1,168

$69

$2,133

($50)

 

Cash and investments in marketable securities totaled $11.2 billion at quarter-end (Table 3), up from $10.3 billion at the beginning of the quarter.  Debt was $11.2 billion, unchanged from the prior quarter.

Total company backlog at quarter-end was $378 billion, up from $374 billion at the beginning of the quarter, and included net orders for the quarter of $24 billion. 

 

Table 3.  Cash, Marketable Securities and Debt Balances

 

 

 

 

Quarter-End

(Billions)

3Q12

2Q12

 

 

 

Cash

$6.6

$6.3

Marketable Securities1

$4.6

$4.0

   Total

$11.2

$10.3

 

 

 

Debt Balances:

 

 

The Boeing Company

$8.6

$8.6

Boeing Capital Corporation

$2.6

$2.6

   Total Consolidated Debt

$11.2

$11.2

1Marketable securities consists primarily of time deposits due within one year classified as "short-term investments." 

 

 

 

Segment Results 

Boeing Commercial Airplanes third-quarter revenue increased by 28 percent to $12.2 billion on higher delivery volume.  Operating margin was 9.5 percent, reflecting the dilutive impact of 787 and 747-8 deliveries and higher period costs partially offset by lower R&D (Table 4). 

During the quarter, Commercial Airplanes began major assembly on the 787-9, and, in October, delivered the first 787 built in South Carolina.

Commercial Airplanes booked 369 net orders during the quarter.  Backlog remains strong with approximately 4,100 airplanes valued at $307 billion.

 

Commercial Airplanes

Table 4. Commercial Airplanes Operating Results 

 

 

 

 

 

Third Quarter

Change

Nine Months


Change

(Dollars in Millions)

2012

2011

2012

2011

 

 

 

 

 

 

 

Commercial Airplanes Deliveries

149

127

17%

436

349

25%

 

 

 

 

 

 

 

Revenues

$12,186

$9,515

28%

$34,966

$25,476

37%

Earnings from Operations

$1,153

$1,085

6%

$3,445

$2,514

37%

 

 

 

 

 

 

 

Operating Margins

9.5%

11.4%

(1.9) Pts

9.9%

9.9%

0.0 Pts

 

 Boeing Defense, Space & Security

Boeing Defense, Space & Security's (BDS) third-quarter revenue was $7.8 billion, while operating margin was 10.5 percent (Table 5).

Boeing Military Aircraft (BMA) third-quarter revenue decreased to $3.8 billion, driven by delivery mix.  Operating margin increased to 11.7 percent, on strong performance across various programs.  During the quarter, BMA was awarded the P-8A low rate initial production contract III with the U.S. Navy, while the first P-8I aircraft for the Indian Navy began its official flight test program.

Network & Space Systems (N&SS) third-quarter revenue decreased to $2.0 billion, driven by lower volume on Brigade Combat Team Modernization. Operating margin was 8.1 percent.  During the quarter, N&SS was awarded a contract to build and launch the tenth Wideband Global Communications satellite, while the second Intelsat 702 medium power satellite was launched and is on orbit.

Global Services & Support (GS&S) third-quarter revenue increased to $2.1 billion, primarily due to higher volume in training systems.  Operating margin decreased to 10.7 percent, reflecting lower earnings in integrated logistics.  During the quarter, GS&S was awarded a follow-on upgrade contract from the U.S. Air Force for the B-1 bomber.

Backlog at BDS was $71 billion, more than two times the unit's projected 2012 revenue. 

 

Table 5.  Defense, Space & Security Operating Results

 

 

 

 

 

Third Quarter

Change

Nine Months


Change

 

(Dollars in Millions)

2012

2011

2012

2011

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

   Boeing Military Aircraft

$3,789

$3,964

(4%)

$12,227

$10,998

11%

 

   Network & Space Systems

$1,990

$2,269

(12%)

$5,672

$6,693

(15%)

 

   Global Services & Support 

$2,060

$1,967

5%

$6,365

$5,814

9%

 

Total BDS Revenues

$7,839

$8,200

(4%)

$24,264

$23,505

3%

 

 

 

 

 

 

 

 

 

Earnings from Operations

 

 

 

 

 

 

 

   Boeing Military Aircraft

$445

$397

12%

$1,245

$1,152

8%

 

   Network & Space Systems

$161

$178

(10%)

$360

$511

(30%)

 

   Global Services & Support 

$221

$249

(11%)

$712

$630

13%

 

Total BDS Earnings from Operations

$827

$824

0%

$2,317

$2,293

1%

 

 

 

 

 

 

 

 

 

Operating Margins

10.5%

10.0%

     0.5 Pts

9.5%

9.8%

   (0.3)Pts

 

 

 

 

 

 

 

 

 

 

 

Additional Financial Information

At quarter-end, Boeing Capital Corporation's (BCC) portfolio balance was $4.1 billion, unchanged from the beginning of the quarter.  BCC's debt-to-equity ratio was 5.0-to-1.

The "Other" segment includes unallocated activities of Engineering, Operations and Technology, Shared Services Group as well as certain intercompany guarantees provided to BCC.  Other segment expense was $74 million in the quarter compared with Other segment income of $92 million in 2011 due to a $141 million gain in the third quarter of 2011 from an upgraded credit rating assigned to certain financing receivables.

The loss in unallocated items and eliminations increased due to higher pension expense.  The third quarter of 2011 included a $161 million charge for post-retirement medical.  Total pension expense for the third quarter was $583 million, as compared to $389 million in the same period last year. 

 

 

 

Table 6.  Additional Financial Information

 

 

 

 

 

 

 

Third Quarter

Change

Nine Months


Change

 

(Dollars in Millions)

2012

2011

2012

2011

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

    Boeing Capital Corporation

$101

$126

(20%)

$325

$416

(22%)

 

    Other segment

$27

$33

 

$93

$107

 

 

    Unallocated items and eliminations

($145)

($147)

 

($252)

($324)

 

 

 

 

 

 

 

 

 

 

Earnings from Operations

 

 

 

 

 

 

 

    Boeing Capital Corporation

$33

$19

74%

$102

$133

(23%)

 

    Other segment expense

($74)

$92

 

($203)

$11

 

 

    Unallocated items and eliminations

($375)

($306)

 

($979)

($704)

 

 

 

 

 

 

 

 

 

 

Other income, net

$17

$49

 

$39

$76

 

 

Interest and debt expense

($115)

($121)

 

($346)

($374)

 

 

Effective tax rate

29.5%

33.4%

 

33.1%

33.6%

 

 

 

 

 

 

 

 

 

 

Outlook

The company's 2012 financial guidance (Table 7) has been updated to reflect the strong core performance in both businesses. 

Table 7.  Financial Outlook 
(Dollars in Billions, except per-share data)

 

2012

 

 

 

 

 

 

 

The Boeing Company

 

 

 

 

  Revenue

 

$80.5 - 82.0

 

 

  Earnings Per Share (GAAP)

 

$4.80 - 4.95

 

 

  Operating Cash Flow1

 

> $5.5

 

 

 

 

 

 

 

Boeing Commercial Airplanes 

 

 

 

 

  Deliveries 2

 

585 - 600

 

 

  Revenue

 

$47.5 - 49.5

 

 

  Operating Margin

 

~ 9.0%

 

 

 

 

 

 

 

Boeing Defense, Space & Security

 

 

 

 

  Revenue

 

 

 

 

    Boeing Military Aircraft

 

~ $16.3

 

 

    Network & Space Systems

 

~ $7.7

 

 

    Global Services & Support

 

~ $8.7

 

 

  Total BDS Revenue

 

$32.5 - 33.0

 

 

 

 

 

 

 

  Operating Margin

 

 

 

 

    Boeing Military Aircraft

 

~ 9.75%

 

 

    Network & Space Systems

 

~ 6.5%

 

 

    Global Services & Support

 

~ 11.25%

 

 

  Total BDS Operating Margin

 

> 9.25%

 

 

 

 

 

 

 

Boeing Capital Corporation

 

 

 

 

  Portfolio Size

 

Lower

 

 

  Revenue

 

~ $0.4

 

 

  Return on Assets

 

~ 1.0%

 

 

 

 

 

 

 

Research & Development

 

$3.3 - 3.5

 

 

Capital Expenditures

 

~ $1.8

 

 

Pension Expense 3

 

$2.5

 

 

 After discretionary cash pension contributions of $1.5 billion and assuming new aircraft financings under $0.5 billion.

 

 2012 is sold out and includes an expected 70 to 85 787 and 747-8 deliveries, of which approximately half are 787 aircraft.  

 

3 Approximately $0.8 billion is expected to be recorded in unallocated items and eliminations.  

 

 

 

 

 

 

Earnings per share guidance for 2012 increased to between $4.80 and $4.95, up from between $4.40 and $4.60, reflecting the strong core operating performance.   Total company 2012 revenue increased to between $80.5 and $82 billion, from between $79.5 and $81.5 billion, on higher Defense, Space & Security revenues.  Operating cash flow guidance for 2012 is now expected to be greater than $5.5 billion, up from greater than $5 billion.

BDS's revenue guidance increased to between $32.5 and $33 billion, from between $31.5 and $32 billion, reflecting increased volume. BDS's operating margin is now greater than 9.25 percent, up from greater than 9 percent.

BCC's return on assets is now expected to be approximately 1.0 percent, up from approximately 0.5 percent.

Capital expenditures for 2012 have been reduced to approximately $1.8 billion, down from approximately $2.0 billion.

Based on current interest rates and market conditions, pension expense in 2013 is estimated to be approximately $3.5 billion, of which approximately $1.8 billion is expected to be recorded in unallocated items and eliminations.  2013 pension expense will be determined at year end based on market conditions at that time.

Non-GAAP Measure Disclosures

Management believes that the non-GAAP (Generally Accepted Accounting Principles) measures (indicated by an asterisk *) used in this report provide investors with important perspectives into the company's ongoing business performance.  The company does not intend for the information to be considered in isolation or as a substitute for the related GAAP measures.  Other companies may define the measures differently.  The following definitions are provided:

Operating Cash Flow Before Pension Contributions

Operating cash flow before pension contributions is defined as GAAP operating cash flow lesspension contributions.  Management believes operating cash flow before pension contributions provides additional insights into underlying business performance.  Table 2 provides a reconciliation between GAAP operating cash flow and operating cash flow before pension contributions.

Free Cash Flow

Free cash flow is defined as GAAP operating cash flow less capital expenditures for property, plant and equipment additions.  Management believes free cash flow provides investors with an important perspective on the cash available for shareholders, debt repayment, and acquisitions after making the capital investments required to support ongoing business operations and long term value creation.  Free cash flow does not represent the residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures such as repayment of maturing debt. Management uses free cash flow internally to assess both business performance and overall liquidity.  Table 2 provides a reconciliation between GAAP operating cash flow and free cash flow.

Caution Concerning Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Words such as "may," "should," "expects," "intends," "projects," "plans," "believes," "estimates," "targets," "anticipates," and similar expressions are used to identify these forward-looking statements.  Examples of forward-looking statements include statements relating to our future financial condition and operating results, as well as any other statement that does not directly relate to any historical or current fact.  Forward-looking statements are based on our current expectations and assumptions, which may not prove to be accurate.  These statements are not guarantees and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict. Many factors could cause actual results to differ materially and adversely from these forward-looking statements.  Among these factors are risks related to: (1) general conditions in the economy and our industry, including those due to regulatory changes; (2) our reliance on our commercial airline customers; (3) our commercial development programs, planned production rate increases across multiple commercial airline programs and the overall health of our aircraft production system; (4) changing acquisition priorities of the U.S. government; (5) our dependence on U.S. government contracts; (6) our reliance on fixed-price contracts; (7) our reliance on cost-type contracts; (8) uncertainties concerning contracts that include in-orbit incentive payments; (9) our dependence on our subcontractors and suppliers, as well as the availability of raw materials, (10) changes in accounting estimates; (11) changes in the competitive landscape in our markets; (12) our non-U.S. operations, including sales to non-U.S. customers; (13) potential adverse developments in new or pending litigation and/or government investigations; (14) customer and aircraft concentration in Boeing Capital's  customer financing portfolio; (15) changes in our ability to obtain debt on commercially reasonable terms and at competitive rates in order to fund our operations and contractual commitments; (16) realizing the anticipated benefits of mergers, acquisitions, joint ventures/strategic alliances or divestitures; (17) the adequacy of our insurance coverage to cover significant risk exposures; (18) potential business disruptions, including those related to physical security threats, information technology or cyber-attacks or natural disasters; (19) work stoppages or other labor disruptions; (20) significant changes in discount rates and actual investment return on pension assets; (21) potential environmental liabilities; and (22) threats to the security of our or our customers' information.

Additional information concerning these and other factors can be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.  Any forward-looking statement speaks only as of the date on which it is made, and we assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

Contact:

Investor Relations:     Stephanie Pope or Matt Welch (312) 544-2140
Communications:       Chaz Bickers (312) 544-2002

 

 

 

 

 

The Boeing Company and Subsidiaries

Consolidated Statements of Operations

 (Unaudited)

 

Nine months ended

Three months ended

 

September 30

September 30

(Dollars in millions, except per share data)

2012

2011

2012

2011

Sales of products

$51,441

$40,441

$17,415

$14,907

Sales of services

7,955

8,739

2,593

2,820

Total revenues

59,396

49,180

20,008

17,727

 

 

 

 

 

Cost of products  

(43,103)

(32,335)

(14,683)

(12,006)

Cost of services

(6,431)

(7,177)

(2,089)

(2,319)

Boeing Capital interest expense

(69)

(94)

(22)

(32)

Total costs and expenses

(49,603)

(39,606)

(16,794)

(14,357)

 

9,793

9,574

3,214

3,370

Income from operating investments, net

211

202

120

52

General and administrative expense 

(2,774)

(2,544)

(916)

(807)

Research and development expense, net

(2,545)

(3,005)

(853)

(901)

(Loss)/gain on dispositions, net

(3)

20

(1)

 

Earnings from operations

4,682

4,247

1,564

1,714

Other income, net

39

76

17

49

Interest and debt expense

(346)

(374)

(115)

(121)

Earnings before income taxes

4,375

3,949

1,466

1,642

Income tax expense

(1,450)

(1,325)

(432)

(548)

Net earnings from continuing operations

2,925

2,624

1,034

1,094

Net (loss)/gain on disposal of discontinued operations, net of taxes of $2, $0, $1 and ($2)

(3)

1

(2)

4

Net earnings

$2,922

$2,625

$1,032

$1,098

 

 

 

 

 

Basic earnings per share from continuing operations

$3.86

$3.52

$1.36

$1.47

Net (loss)/gain on disposal of discontinued operations, net of taxes

 

 

 

 

Basic earnings per share

$3.86

$3.52

$1.36

$1.47

 

 

 

 

 

Diluted earnings per share from continuing operations

$3.84

$3.49

$1.35

$1.46

Net (loss)/gain on disposal of discontinued operations, net of taxes

 

 

 

 

Diluted earnings per share

$3.84

$3.49

$1.35

$1.46

Cash dividends paid per share

$1.32

$1.26

$0.44

$0.42

Weighted average diluted shares (millions)

762.3

751.8

765.2

753.9

 

 

 

 

 

 

 

 

 

The Boeing Company and Subsidiaries

Consolidated Statements of Financial Position

(Unaudited)

 

 

 

 

September 30

December 31

(Dollars in millions, except per share data)

2012

2011

Assets

 

 

Cash and cash equivalents

$  6,582

$  10,049

Short-term and other investments

4,590

1,223

Accounts receivable, net

5,437

5,793

Current portion of customer financing, net

318

476

Deferred income taxes

34

29

Inventories, net of advances and progress billings

36,817

32,240

Total current assets

53,778

49,810

Customer financing, net

4,028

4,296

Property, plant and equipment, net of accumulated depreciation of $14,554 and $13,993

 

 

9,496

9,313

Goodwill

4,961

4,945

Acquired intangible assets, net

2,930

3,044

Deferred income taxes

5,520

5,892

Investments

1,195

1,043

Other assets, net of accumulated amortization of $471 and $717

1,746

1,643

Total assets

$ 83,654

$ 79,986

Liabilities and equity

 

 

Accounts payable

$ 9,152

$ 8,406

Accrued liabilities

11,773

12,239

Advances and billings in excess of related costs

15,619

15,496

Deferred income taxes and income taxes payable

4,136

2,780

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