Aerospace and defense giant The Boeing Company (BA- Free The Boeing Company Stock Report) has reported March-period financial results. For the quarter, revenues came in at $23.4 billion, which was ahead of our estimate and represented a year-over-year increase of 6%. As for the bottom line, Boeing achieved a hefty share profit of $4.15, or 77% better than the prior-year tally. Boeing stock, which has been on a terrific run over the past several years, advanced nicely on the earnings results, as well as management's updated guidance (discussed below).
Looking at the quarter in more detail, the company delivered 184 commercial aircraft, compared with 169 in the year-earlier period. The delivery increase was, of course, good to see, but the big story here was the operating margin of this division. Thanks to cost reductions, lower research & development expenditures, and the sale of more profitable planes, this business' operating margin widened 430 basis points, to 11.0%. What's more, the Commercial Airplanes segment booked 221 net orders during the quarter, and its backlog remains massive at 5,800 planes valued at $415 billion.
The Defense, Space & Security division experienced a 13% top-line increase, which mostly stemmed from greater fighter aircraft and weapons volumes delivered to the U.S. military and its allies. Its backlog at quarter end was $50 billion, with 40% representing orders from international customers.
All told, Boeing performed quite well in the March period. Its main business lines experienced healthy sales volumes and wider margins, while the bottom line was helped by a lower tax rate. Looking ahead, management raised its full-year share-earnings guidance from $15.90Â$16.10, to $16.40Â$16.60. We think that this new range is not only obtainable, but is actually below our new earnings estimate of $16.75 a share.
We remain bullish in regard to Boeing's business prospects. We continue to expect that the company will deliver more than 800 commercial aircraft this year, compared with 763 in 2017. We also anticipate further margin improvements and for a great deal of those benefits to flow to the bottom line. Strong booking activities are expected, too, since the airline industry is doing quite well, and many carriers ought to remain eager to replace their aging fleets with new aircraft. Lower operating expenses and a reduced tax rate should also lead to greater profitability.
As for the stock, as mentioned, it has easily outperformed the broader market over the past few years. The equity did retreat a bit during the correction earlier this year, but we think it is still expensive, and most valuation metrics bear this out. For instance, Boeing is currently trading at 20 times our 2018 share-earnings estimate, which is higher than its historical average, as well as our projection to the 2021-2023 time frame. That said, there still appears to be a lot of wind at the issue's back, which may push the price higher over the near term.
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 2017, foreign sales accounted for 55% of overall revenues, and R&D amounted to 3.4% of sales.
— Ian Gendler
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
