The American airplane maker Boeing (BA, Financial) released its last quarter and 2014 results on January 28, thrashing analyst estimates and delighting investors. The company’s core earnings per share rose by a stunning 23% to $2.3 due to strong operational performance. Analysts had expected the metric to come around $2.11 a share. But what actually lifted investor mood was solid operating cash flow in the final quarter of the year, thanks to high deliveries. Let’s unravel the entire tale and find what’s in store for Boeing investors.
The key numbers
Boeing booked fourth quarter revenue of $24.5 billion, up 3% from 2013. For the full year, Boeing recorded revenue of $90.7 billion, a rise of 5% from last year’s $86.6 billion. Core earnings per share shot up by a good 22% to $8.60 for the entire year. Boeing’s chairman Jim McNerney cited solid performance in the fourth quarter as a reason that pushed the entire year’s result and made the company close 2014 on a solid note.
Commercial and Defense segment performance
Commercial segment:
Strong market demand for aircraft, higher deliveries, and improved operational efficiency assisted the company provide more attractive returns to its shareholders. The commercial airplane business gave a fantastic performance all through the year. In fact deliveries got stronger with each quarter. In the fourth quarter, Boeing delivered 195 planes against 172 delivered in the same period a year ago. Revenue from the commercial division came in 15% higher at $16.8 billion in the last quarter on the back of strong deliveries. However, operating margin squeezed to 9.3%, down from 10.3% owing to increased planned period charges and the effect of the 787 Dreamliner deliveries that are currently selling below cost.
The company registered net orders of 1,432 in 2014, of which 432 were won in the last quarter. Strong orders, quite obviously, showed in Boeing’s backlog that grew to a massive 5,800 aircraft, a $440 billion worth business.
Defense Space & Security:
In the fourth quarter, Defense contributed $7.6 billion towards the consolidated revenue, down 14% from 2013. But it won’t appear as bad when you realize that the segment’s operating margin expanded 130 basis points during the quarter to 12.1%, credit goes to the segment’s strong operational performance. The segment reported backlog of $62 billion - 36% of these orders are from international customers.
Investors have been worried about the Chicago-based plane maker’s defense business due to lower military defense spending. McNerney agreed that defense was a bit down as the market has been challenging. However, the positive takeaway is that the strength in Boeing’s commercial units has more than compensated for the depression in the defense unit.
Strong cash flow made investors happy
The company’s cash flow was superb during the quarter. Boeing accumulated $5 billion in operating cash in the fourth quarter compared with $1.4 billion in the fourth quarter of 2013. This is a sizable improvement, and so allayed significant portion of investor concern. Boeing had estimated the operating cash flow for 2014 to come around $6.25 billion in the third quarter of 2014. But solid 787 Dreamliner deliveries and higher than expected payment receipt helped the company record a cash flow of $8.9 billion. Operating cash flow from the business gives a truer picture of the company’s core operations.
The company’s share rose 5.6% post the earnings release. And the biggest reason behind this rise was healthy cash flow. Cash generation has drawn quite a bit of attention in the last two years, and investors have been worried about the same.
Now that 787 Dreamliner is estimated to break even in the latter half of 2015, cash flows should get a further boost, with profits also moving up. The company’s 2015 outlook appears quite bright with higher deliveries expectation, stronger cash flows, better margins, and higher earnings.
