Tuesday, April 26, 2011

Boeing Co. (NYSE: BA): Q1 Earnings Preview 2011

Boeing Co. (NYSE: BA) is scheduled to release its first-quarter earnings before the opening bell on Wednesday, April 27, 2011. Analysts, on average, expect the company to report earnings of 72 cents per share on revenue of $15.13 billion. In the year ago quarter, the company reported earnings of 70 cents per share on revenue of $15.22 billion.

The Boeing Company designs, develops, manufactures, sells, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services worldwide.

In the preceding fourth-quarter, the Chicago, Illinois-based company's net income was  $1.16 billion, or $1.56 a share, from $1.27 billion, or $1.75 a share, in they year-ago period. Revenue decreased 8% to $16.55 billion from $17.94 billion. Analysts, on average, expected the company to report earnings of $1.12 a sharee on revenue of $16.97 billion. 

At its last earnings call in January, the company forecast fiscal 2011, earnings between $3.80 and $4.00 per share, and revenue between $68 billion and $71 billion. Boeing noted that the earnings forecast reflects solid core performance, pension expense of $1.58 per share, the revised 787 schedule and the current defense contracting environment, while revenue outlook reflects the initial 787 and 747-8 deliveries. Among divisions, Commercial Airplanes' 2011 revenue is expected to be between $36 billion and $38 billion, and deliveries between 485 and 500 airplanes and is sold out. Defense, Space & Security's revenue is projected to be $31.5 billion to $33 billion.

CFO James Bell said last month that the quarter will account for just 15% of 2011 per-share earnings, a result of lower commercial aircraft deliveries and defense volume. Looking further ahead, Bell said initial deliveries of three new aircraft -- the 787 and both cargo and passenger versions of the 747 -- are scheduled for this year. That will lead to cash flow and earnings growth. Looking into 2012, prospects are even brighter. Deliveries of the new airplanes will increase. R&D spending will decline even if Boeing commits to developing a new version of the 737, for which it currently has a seven-year order backlog. Three to five years down the road, Bell said, Boeing will likely be looking at niche acquisitions on the defense side, which will account for nearly half of the company's projected 2011 revenues of $68 billion to $71 billion. Bell noted that after years of seeking double digit margin growth in defense, the "new reality" this year is margins of 8.8% to 9.5%, reflecting various pressures on the defense budget. However, Boeing is looking for growth in intelligence gathering, protection against cyber threats and international markets to offset margin pressures.

Boeing has a unique position as the largest aircraft manufacturer in the world in terms of revenues, orders and deliveries, and one of the largest aerospace and defense contractors in the world. Also its revenues are spread across more than 90 countries around the globe. 

Airlines flew more often with fewer aircraft in the first quarter, benefiting companies that provide aerospace parts and services and likely giving a boost to Boeing Co.'s  results. Airlines are trying to meet growing consumer demand or update maturing fleets.

However, declining US defence spending as well as the troubled 787 program have weighed upon Boeing's shares. The 787 program Dreamliner, which has seen first deliveries delayed by almost three years, is scheduled to launch later this year. Also delayed numerous times are the 747-8 passenger and freighter jets. The freighter is now scheduled to be delivered midyear, while the passenger plane is slated for the fourth quarter. Moreover, Boeing faces stiff competition in the international commercial airlines market space from France-based Airbus.

During the earnings call, the company might face questions over how a Boeing-manufactured Southwest Airlines (NYSE: LUV) jet recently had to make an emergency landing after a large hole appeared in the fuselage midflight. While Boeing no longer manufactures the 737--the aircraft model in question--with the same design as in the one used in the flight, the incident has led to some cloud over its reputation.

Investors might also have questions on profitability regarding the U.S. Air Force tanker mega deal, which Boeing bagged in February, beating out rival European Aeronautic Defence and Space (EADSY).

The company's stock currently trades at a forward P/E (fye Dec 31, 2012) of 14.50 and PEG ratio (5 yr expected) of 1.95. In terms of stock performance, Boeing shares have gained nearly 15 percent since the beginning of the year.

Full Disclosure: None.

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