Commercial airplane sales were up 14% from 2012Q3 and 9% year-to-date. Sales were led by the 737 Next Generation planes.
Boeing produces five different 737 Next Generation planes. The 737-900ER is Boeing’s most recent Next Generation plane and made its debut in August 2006. In 2013Q3 Boeing sold a total of 112 737 Next Generation commercial airplanes. This was an increase of 10% from 3Q12 and 6% year-to-date from 2012.
The total of 787 planes was also a top seller for Boeing in 2013Q3. Despite engine and battery issues with the 787 Dreamliner, quarterly and year-to-date sales were up. In the third quarter Boeing sold 23 787 commercial airplanes bringing the year-to-date sales total to 40. Sales for the 787 were up 92% from last year and 74% year-to-date.
Demand for Defense, Space and Security aircrafts has shown declines in 2013. Defense budget reductions beginning in March 2013 as part of the U.S. government sequestration have slowed Defense, Space and Security sales. In 3Q13 Boeing’s Defense, Space and Security deliveries declined 14%. Government and Commercial Satellites saw the greatest decline decreasing from five in 3Q12 to one in 3Q13.
Budget sequestration has also led to the end of production for the C-17. In September Boeing announced it would be discontinuing production of its C-17 shortly after the U.S. government took possession of its final C-17 aircraft. Boeing will be closing its Long Beach, California location which is responsible for final assembly of the C-17. Production will continue through 2015 and support for the existing aircrafts will continue to be provided.
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Boeing is set to report third quarter earnings on Oct. 23. Analysts have a third quarter consensus earnings per share (EPS) estimate of $1.55, $0.20 above third quarter 2012’s reported EPS of $1.35. Boeing’s commercial business appears to be experiencing consistent revenue and profitability growth while Defense, Space and Security sales could be slightly weaker than predicted in the second half of the year.
For fiscal year 2013 Boeing has a projected revenue estimate of $83 billion to $86 billion with an earnings projection of $6.20 to $6.40 per share. In the first half of 2013 the company reported sales revenue of $40.71 billion and operating earnings of $2.19 billion. In 2Q13 revenue grew 15% quarter-over-quarter while earnings decreased 2%.
Commercial airplanes accounted for 60% of revenue in the first half of the year. In 2Q13 revenue for commercial airplanes was up 27% from 1Q13 helping total revenue improve 7% from 1H12 to 1H13. The strong third quarter commercial airplane sales report means third quarter revenue growth is likely to continue at its current pace.
In 1H13 Defense, Space and Security accounted for 40% of total revenue. Defense, Space and Security revenue in 2Q13 was basically unchanged from 1Q13 at $8.19 billion, up 1%. Revenue growth from 1H12 to 1H13 was also weak, down 1% at $16.30 billion.
Third quarter 2013 economic affects and the already weak revenue growth in Defense, Space and Security signal that third quarter revenue for Defense, Space and Security could be slightly lower than previously projected. The October 2013 government shutdown is also likely to negatively affect Defense, Space and Security revenue for Boeing in the fourth quarter.
Boeing’s stock has traded evenly in the fourth quarter closing at $118.90 on October 10 and returning 1.19% since October 1. In the final months of the year investors should continue to watch for the overall effects of U.S. government spending on Boeing’s Defense, Space and Security sales. Given the currently weaker outlook on the segment’s growth the stock has a one-year price target1 of $115.90. A prolonged government shutdown would likely lead to further declines in the stock’s valuation through the end of the year.
1 The price target is derived from Bodie, Kane and Marcus’ intrinsic value formula. The intrinsic value formula discounts the stock’s projected one-year future cash flow by the risk-free rate on the one-year Treasury note and includes adjustments made for specific market assumptions including the stock’s beta and market risk premium.
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