Shares of Boeing (BA – Free Boeing Stock Report) fell modestly after the aerospace/defense behemoth reported better-than-expected third-quarter financial results. For the period, revenues came in at $24.3 billion, which was higher than our $23.9 billion estimate. What's more, lower operating expenses and research & development expenditures helped widen margins, and led to share net of $3.06, compared to our $2.95 estimate. All in all, it was a solid quarter for Boeing.
Looking at the period in more detail, the company delivered 202 commercial aircraft, compared to 188 in the year-earlier quarter. Thanks to the aforementioned cost reductions, this division's operating margin widened 140 basis points, to 9.9%. During the interim, Boeing also booked 117 net orders, and its backlog remains massive at 5,700 planes valued at $412 billion.
The Defense, Space & Security segment experienced a 5% top-line decline, but produced a 40-basis-point operating margin improvement, which can be attributed to productivity improvements and lower costs. Its backlog at quarter end was $46 billion, with 35% representing orders from international customers.
Looking ahead, management maintained its full-year 2017 revenue target range of $90.5 billionÂ$92.5 billion, but raised its GAAP share-earnings guidance from $11.10Â$11.30 to $11.20Â$11.40. The September-quarter outperformance was the main factor behind the modest guidance increase. As for our figures, we are keeping our $11.30-a-share estimate intact. We also continue to expect 2018 share earnings of $11.75.
All told, we remain quite bullish in regard to Boeing's operations. Its commercial aircraft backlog should support full production for many years. In addition, we anticipate more bookings, as fuel costs are relatively low and demand for flights remains high. This environment will continue to improve the financial positions of many airlines and their desire to replace their aging fleets with new aircraft.
As for the stock, it has performed incredibly well of late. In fact, so far in 2017, it has easily been the best-performing Dow component, having increased in price by about 70%. The equity now appears quite expensive. Nonetheless, there is a lot of wind at the issue's back, which may push the price higher over the near term, especially if the current multiyear bull rally continues. That said, the equity is trading at a lofty valuation, so less nimble investors may want to remain on the sidelines. We also wouldn't blame current shareholders for 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-6submarine 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
