Boeing (BA, Financial) released its first quarter earnings on Wednesday that topped Street expectations, thanks to the solid deliveries during the quarter. However, the company’s shares dropped 1.5% during the day as investors were disappointed on account of negative free cash flow and growing Dreamliner deferred cost. However, so far this year, the aerospace stock has gained more than 15%. Let’s scan the quarter results and look deeper to get a few insights.
The quarter numbers
Boeing recorded revenue of $22.1 billion, up 8% from $20.47 billion reported a year ago. In contrast, analysts had made a revenue forecast of $22.48 billion. The Chicago headquartered company’s net earnings increased to $1.34 billion, which translates to $1.87 a share. Wall Street estimated earnings per share of $1.81. Last year, Boeing had recorded a net income of $965 million, or $1.28 a share.
The increase in revenue is attributable to strong commercial deliveries. Commercial airplane segment makes for around 65% of Boeing’s revenue, so strong deliveries and positive outlook is good news for the company. As far as the defense segment is concerned, numbers were dull. Revenue declined 12% compared with last year, down from $7.6 billion in Q1 2014 to $6.7 billion in Q1 2015. This is a result of lower military spending, which is expected to remain weak this year. But the proposed budget signals improvement in military spending for next year, which should have a positive impact on the segment.
The company reaffirmed its annual guidance during the quarter call. It estimates revenue to come in the range of $94.5 billion to $96.5 billion and core earnings between $8.20 and $8.40 a share.
Strong deliveries and mounting backlog– the highlight of the quarter
Boeing’s commercial revenue jumped a staggering 21% in the first quarter. The company dispatched 184 commercial planes during the quarter, which is an improvement of 14% from last year same quarter. Typically the first quarter deliveries are the lowest. It gradually picks up and is the highest in the fourth quarter.
Data from Boeing
The aero major delivered 121 narrow body 737s, which is its bestselling aircraft. The 787 Dreamliner reported the second highest deliveries with 30 dispatches during the period. The company is still selling the 787 Dreamliner below cost, for which the aircraft’s deferred cost increased by $793 million to $26.94 billion. Boeing says that the 787 should break even by latter this year and deferred cost should start declining at a fast rate from next year when its production rate is increased from 10 a month to 12 planes. Obviously selling the Dreamliner below cost means a drag on the cash flows. This got reflected in the quarterly cash flows.
The company’s backlog stands at a whopping $495 billion with orders for more than 5,700 commercial aircraft. Boeing expects to have a book to bill ratio of more than 1 this year too, meaning it estimates to receive more orders than the total annual deliveries.
Cash Flow disappoints investors
Boeing’s free cash flow for the quarter came in at a negative $486 million as cash from operations was weak. The company recorded an operating cash flow of $88 million only. This disheartened investors as it’s the first time in four years that Boeing registered a negative free cash flow. The company said that it was owning to the timing of receipt and expenditure. The plane maker expects to report stronger cash flows in the second half of the year. Also, Boeing has maintained its cash from operations outlook of $9 billion and above for 2015. So this should pacify investors as the company is in track with its own expectations.
All in all, first quarter was a good show, though there were some weaknesses. Once the Dreamliner breaks even, the company’s cash flow should get a decent boost. Moreover, the company has maintained its guidance for the year, which gives confidence about its operations. Boeing’s strength can be viewed in several areas. It has seen persistent revenue growth, higher deliveries, carries a strong balance sheet, and has a heavy backlog.
