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Dow-30 Earnings: Boeing - Fourth Quarter 2012
Aerospace and defense giant Boeing (BA - Free Boeing Stock Report) has released better-than-expected December-period results. For the quarter, revenues were $22.3 billion, slightly ahead of our estimate. However, share net came in at $1.28, $0.12 higher than our call. Increased aircraft deliveries and healthy margins at some of its major business units helped fuel the bottom line. After the announcement, Boeing stock was up modestly.
Despite some ongoing challenges in regard to the new 787 Dreamliner (discussed below), the Commercial Aircraft division continued to perform well. During the fourth quarter, it delivered 165 planes, compared with 128 a year earlier. Revenues at the division advanced 32%, to $14.2 billion. During the quarter, Boeing booked 394 net orders and its commercial backlog now exceeds 4,400 airplanes valued at more than $319 billion.
The Defense, Space & Security division put in a decent showing. Although revenues declined by 2% and the operating margin narrowed by 102 basis points, Boeing booked a good deal of new business during the quarter. In particular, the U.S. Navy ordered 13 more F/A-18 fighter aircraft and the company was awarded some additional contracts from NASA. All told, this division's backlog stands at more than $71 billion, or better than two times management's revenue forecast for 2013.
For the full-year, Boeing achieved revenues of more than $81.6 billion, almost 19% higher, year over year. Earnings of $5.12 a share topped 2011's tally by about 6%. Earlier in the year, it raised the quarterly dividend by almost 5%, to $0.44 a share.
Despite the good quarterly and annual showing, Boeing has been making less flattering headlines of late. Its new and widely-anticipated new aircraft, the 787 Dreamliner, has experienced fuel leaks and problems with its batteries. Although the company will have to spend some time and money fixing these design and/or production flaws, we consider them minor in nature. Aircraft are extremely complex machines with hundreds of suppliers and countless components, so some initial problems are to be expected. Thus, we do not think that Boeing will incur any sizable charges or experience material production delays.
Looking ahead, we continue to like Boeing's near- and long-term prospects. Although the U.S. economic recovery is uneven, recession is taking hold in the euro zone, and growth is slowing in China, we expect that passenger air travel for business and leisure will continue to increase at a decent rate over the next several years. As a result, we believe that a number of domestic carriers will possess the financial flexibility and eagerness to replace their aging fleets with new, more fuel-efficient and technologically-advanced aircraft. In anticipation, Boeing continues to ramp up production schedules for some of its most popular models, including the 737 and 777. In our view, Boeing will also receive orders from a number of foreign airlines. All told, its huge backlog and future orders should support full production for many years.
For 2013, at this time, we are reiterating our share-earnings estimate of $5.60, which is a bit higher than management's guidance and would represent a 9% gain over 2012's results. Looking further out, we continue to project that Boeing's bottom line will reach $7.25 a share by the 2015-2017 timeframe.
As for the stock, over the past 12 months, it has underperformed the Dow. In fact, while the Dow has gained approximately 10% over the past year, Boeing, for the most part, has traded sideways. In our view, this blue chip is most suited for conservative investors. Boeing offers a well-covered dividend and worthwhile risk-adjusted total-return potential.
That said, some risks are present. A good percentage of the company's revenues and earnings are derived from sales to the U.S. military. The Defense Budget will continue to be a hot-button issue for Congress and the White House, as many members of the federal government are focused on reducing spending and keeping the nation's debt from climbing ever higher. Although it is too early to tell which programs will be reduced or eliminated, we assume that military spending will be pared, at least modestly so, over the near term and, in turn, Boeing will lose some business. On the bright side, the company has expanded its military sales internationally, a trend that will likely persist for some time. Thus, we think that the aerospace and defense behemoth is in a good position to offset most of the probable domestic weakness, though we continue to recommend that current shareholders, as well as prospective investors, monitor government actions in regard to the Defense Budget.
About The Company:The Boeing Company is a leading manufacturer of commercial jet aircraft. It also produces fighters (F-15, F/A-18), C-17 cargo carrier, V-22 helicopter, E-3 AWACS, E-4 command post, E-6 submarine communicator, ground transportation systems, develops the space station, and does work on the F-22 (ATF). In 2011, foreign sales accounted for 50% of overall revenues, and R&D amounted to 5.7% of sales.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.