Boeing Reports Third-Quarter Results

Officials at the Boeing Company reports third-quarter net income of $1 billion, or $1.35 per share, on continued strong core performance and revenue of $20 billion.  Increased earnings at Commercial Airplanes and Defense, Space & Security were more than offset by higher pension expense of $194 million ($0.18 per share).  Earnings per share guidance for 2012 was raised to between $4.80 and $4.95.  The company also raised its revenue guidance to between $80.5 and $82 billion on higher Defense, Space & Security revenue, and increased its 2012 operating cash flow outlook to greater than $5.5 billion.

"Strong core operating performance drove increased earnings in both our major businesses, along with higher overall revenues, improved cash flow, and solid earnings per share even as pension headwinds rose," says Jim Mc Nerney, Boeing chairman, president and CEO, in a press release.  "Our Defense, Space & Security business maintained double-digit margins in a challenging environment while Commercial Airplanes continued to build momentum with 787 deliveries and 737 MAX orders.  Underpinned by our solid performance to date and positive outlook, we are raising our year-end guidance for revenue, earnings and operating cash flow.  We remain well positioned for long-term growth with a clear focus on quality, productivity and disciplined program execution," McNerney says.

Boeing's quarterly operating cash flow before pension contributions was $2.3 billion.  Operating cash flow was $1.6 billion, with higher commercial airplane deliveries and strong operating performance more than offsetting continued investment in the 787 program and discretionary pension funding.  Free cash flow* was $1.2 billion in the quarter.

Cash and investments in marketable securities totaled $11.2 billion at quarter-end, up from $10.3 billion at the beginning of the quarter.  Debt was $11.2 billion, unchanged from the prior quarter.

Total company backlog at quarter-end was $378 billion, up from $374 billion at the beginning of the quarter, and included net orders for the quarter of $24 billion. 

Boeing Commercial Airplanes third-quarter revenue increased by 28% to $12.2 billion on higher delivery volume.  Operating margin was 9.5%, reflecting the dilutive impact of 787 and 747-8 deliveries and higher period costs partially offset by lower R&D. 

During the quarter, Commercial Airplanes began major assembly on the 787-9, and, in October, delivered the first 787 built in SC.

Commercial Airplanes booked 369 net orders during the quarter.  Backlog remains strong with approximately 4,100 airplanes valued at $307 billion.

Boeing Defense, Space & Security's (BDS) third-quarter revenue was $7.8 billion, while operating margin was 10.5%.

Boeing Military Aircraft (BMA) third-quarter revenue decreased to $3.8 billion, driven by delivery mix.  Operating margin increased to 11.7%, on strong performance across various programs.  During the quarter, BMA was awarded the P-8A low rate initial production contract III with the U.S. Navy, while the first P-8I aircraft for the Indian Navy began its official flight test program.

Network & Space Systems (N&SS) third-quarter revenue decreased to $2.0 billion, driven by lower volume on Brigade Combat Team Modernization. Operating margin was 8.1%.  During the quarter, N&SS was awarded a contract to build and launch the tenth Wideband Global Communications satellite, while the second Intelsat 702 medium power satellite was launched and is on orbit.

Global Services & Support (GS&S) third-quarter revenue increased to $2.1 billion, primarily due to higher volume in training systems.  Operating margin decreased to 10.7% , reflecting lower earnings in integrated logistics.  During the quarter, GS&S was awarded a follow-on upgrade contract from the U.S. Air Force for the B-1 bomber.
Backlog at BDS was $71 billion, more than two times the unit's projected 2012 revenue. 

At quarter-end, Boeing Capital Corporation's (BCC) portfolio balance was $4.1 billion, unchanged from the beginning of the quarter.  BCC's debt-to-equity ratio was 5.0-to-1.

The "Other" segment includes unallocated activities of Engineering, Operations and Technology, Shared Services Group as well as certain intercompany guarantees provided to BCC.  Other segment expense was $74 million in the quarter compared with Other segment income of $92 million in 2011 due to a $141 million gain in the third quarter of 2011 from an upgraded credit rating assigned to certain financing receivables.

The loss in unallocated items and eliminations increased due to higher pension expense.  The third quarter of 2011 included a $161 million charge for post-retirement medical.  Total pension expense for the third quarter was $583 million, as compared to $389 million in the same period last year. 
Outlook

The company's 2012 financial guidance has been updated to reflect the strong core performance in both businesses.

Earnings per share guidance for 2012 increased to between $4.80 and $4.95, up from between $4.40 and $4.60, reflecting the strong core operating performance.   Total company 2012 revenue increased to between $80.5 and $82 billion, from between $79.5 and $81.5 billion, on higher Defense, Space & Security revenues.  Operating cash flow guidance for 2012 is now expected to be greater than $5.5 billion, up from greater than $5 billion.

BDS's revenue guidance increased to between $32.5 and $33 billion, from between $31.5 and $32 billion, reflecting increased volume. BDS's operating margin is now greater than 9.25%, up from greater than 9%.
BCC's return on assets is now expected to be approximately 1%, up from approximately 0.5%.
Capital expenditures for 2012 have been reduced to approximately $1.8 billion, down from approximately $2.0 billion.

Based on current interest rates and market conditions, pension expense in 2013 is estimated to be approximately $3.5 billion, of which approximately $1.8 billion is expected to be recorded in unallocated items and eliminations.  2013 pension expense will be determined at year end based on market conditions at that time.