Aerospace and defense giant The Boeing Company (BA - Free Boeing Stock Report) has reported June-period financial results. For the quarter, revenues came in at $24.3 billion, which was slightly ahead of our estimate of $24.0 billion and represented a year-over-year increase of 7%. As for the bottom line, Boeing achieved a share profit of $3.73, or 29% better than the prior-year tally. That said, share net was below our estimate. Boeing stock, which has been on a terrific run over the past several years, declined modestly on the news (discussed below).
Looking at the quarter in more detail, the company delivered 194 commercial aircraft, compared to 183 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 240 basis points, to 11.4%. What's more, the Commercial Airplanes segment booked 239 net orders during the quarter, and its backlog has expanded to 5,900 planes valued at $416 billion.
The Defense, Space & Security division experienced a 9% top-line increase, which mostly stemmed from greater fighter aircraft deliveries to the U.S. military and its allies. Its backlog at quarter end was $52 billion, with 35% representing orders from international customers.
All told, Boeing performed quite well in the June quarter. Its main business lines experienced healthy sales volumes and wider margins, while the bottom line was helped by lower taxes. On that note, Boeing's tax rate for the period was just 15.1%, compared to 29.0% a year earlier. Looking ahead, management raised its full-year revenue guidance from $96 billion-$98 billion, to $97 billion-$99 billion. We think this new range is obtainable, and we have raised our top-line estimate to $98.0 billion (was $97.5 billion). That said, although we remain bullish in regard to Boeing's business prospects, we do think that margins will narrow in the second half, which can be attributed to higher costs in its defense division. This concern appears to be the reason the stock price fell upon the financial release. All told, we are lowering our 2018 share-net estimate from $16.75, to $16.60, which is at the high end of management's guidance (16.40-16.60).
As for the stock, as mentioned, it has easily outperformed the broader market over the past few years, and it now appears quite expensive. For example, it is trading at about 21 times our new full-year 2018 share-net estimate, which is materially higher than its historical average, as well as the multiple we project to the 2021Â2023 time frame. In sum, we wouldn't blame current shareholders for periodically taking profits and, perhaps, buying back the stock at a better entry point.
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
