Aerospace and defense behemoth and Dow-30 component The Boeing Company (BA – Free Boeing Stock Report) has reported December-period financial results. For the quarter, revenues came in at $25.4 billion, which was ahead of our estimate and represented a year-over-year increase of 9%. As for the bottom line, Boeing achieved share profits of $3.44, or 33% better than the prior-year tally. Please note that the $3.44 excludes a $1.74 per-share benefit from tax reform, which we have deemed a non-recurring item. Boeing stock, which has been on a terrific run over the past couple of years, advanced nicely on the earnings results, as well as management's 2018 guidance (discussed below).
Looking at the quarter in more detail, the company delivered 209 commercial aircraft, compared to 185 in the year-earlier period. Thanks to cost reductions, lower research & development expenditures, and the sale of more profitable planes, this division's operating margin widened 320 basis points, to 11.5%. What's more, the Commercial Airplanes segment booked a hefty 414 net orders during the quarter, and its backlog remains massive at 5,800 planes valued at $421 billion.
The Defense, Space & Security division experienced a 5% top-line increase, which mostly stemmed from greater weapons deliveries 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, 2017 was a banner year for Boeing. Full-year share earnings of $11.73 were 8% higher than the previous-year tally. What's more, the stock price advanced more than 85% during the year, making it the top performer in the Dow.
Looking ahead, management has issued 2018 revenue and GAAP share-earnings guidance of $96 billion to $98 billion and $15.90 to $16.10, respectively. We think that these figures are obtainable, and are consistent with our estimates. We are bullish in regard to Boeing's prospects. We think it will deliver more than 800 commercial aircraft this year, compared to 763 in 2017. We also anticipate additional margin improvements, and for a great deal of those benefits to flow to the bottom line. Strong booking activities are expected, as well, 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, we think it is quite expensive, and most valuation metrics bear this out. Nonetheless, as we have mentioned a few times in the recent past, there is clearly a lot of wind at the issue's back, which may push the price even higher over the near term, especially if the bull market continues. That said, the equity is trading at a lofty P/E ratio, so less nimble investors may want to remain on the sidelines. We also wouldn't blame current shareholders from taking some profits.
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 2016, foreign sales accounted for 59% of overall revenues, and R&D amounted to 4.9% of sales.
— Ian Gendler
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
