In a recent earnings call, the Boeing Company (NYSE:BA) announced its Q1 2013 earnings. The company's results were very impressive, beating the analyst estimates based on problems with its 787 Dreamliner.
The first quarter sales were significantly down, primarily due the Dreamliner crisis. Sales dropped almost 15.3% on a QoQ basis, and fell by approximately 2.5% on a YoY basis. The Commercial Airplanes segment, within which the 787 is reported, faced a decline in revenues of around 2.3% on a YoY basis, and a staggering 24.5% on a QoQ basis. As per my estimates, the effect of the 787 battery crisis on the Commercial Airplanes segment's revenues was from $3 to $4 billion.
Despite facing a decline in revenues, the company was able to improve on its bottom line. The diluted EPS was up to $1.44 in Q1 2013, an increase of 12.5% QoQ and 18% YoY. The company's core earnings per share, which exclude some pension charges, were reported at $1.73, comfortably beating the consensus analysts' estimate of around $1.49. The experienced increase in EPS was due to a substantial increase in margins of the company in the most recent quarter. The Commercial Airplanes segment's operating margin increased to 11.4% in Q1 2013, up from 8.9% and 9.9% in Q4 and Q1 of 2012 respectively. As per the management, this increase in margin was due to solid program execution and lower margin dilution from fewer 787 deliveries than originally planned. The Defense, Space and Security segment also improved on its operating margins in Q1 2013. The segment margins increased to 10.3%, up from 9% in both Q1 and Q4 of 2012.
Operations and Financials
The company has achieved a CAGR in revenues of around 3% over the past 5 quarters, with the largest growth in total revenues coming in Q4 2012. The Commercial Airplanes segment is the fastest-growing segment, achieving a CAGR in revenues of around 7% in the last 5 quarters, with the largest QoQ growth coming in Q4 2012. The segment slowly increased its worth and is now the largest segment of the company at 57% of total revenues, up from 48% in Q1 2011.
The above table shows the quarterly deliveries of airplanes made by the company by model. In Q1 2013, total deliveries dropped by around 17% QoQ. Analyzing the deliveries made during the quarters vis-a-vis the revenue growths, it would be quite clear that within the airplane segment the company relies heavily on its 787 Dreamliner to generate large amounts of revenue. The largest QoQ revenue growth achieved coincides with the largest growth in deliveries of the 787 airplane. This is one of the main reasons why a rapid decline in 787 sales caused the company to experience a significant decline in its total revenues.
The company's Defense, Space and Security segment has remained somewhat stagnant over the past 5 quarters. Once the largest segment of the company, contributing around 51% of the company's total revenues in Q1 2011, it has seen a decline in the recent past. The segment achieved a CAGR in revenues of approximately 0% in the past 5 quarters. The QoQ growth in revenues in Q1 2013 was -3% and YoY growth was -1%. 28% of the segment's revenues were derived from customers outside of the US, as the company is making an effort to decrease this segment's dependence on US customers.
Boeing plans to increase this ratio to 30%. This is a good move by the company, as the announced across-the-board budget cuts by Congress would adversely affect the demand for company's products, and the US government is the company's largest customer for this segment. However, as per management's statement, in the President's fiscal year '14 budget submission, there was strong support for the majority of the company's programs. This is evident, as the company recently scored contracts worth $27.4 million. However, I believe that the Defense, Space and Security segment will continue to experience only modest growth in revenues in the coming periods.
As can be seen above, the company's operating margins have been quite stable over the past few quarters. The segmental margins have also remained stable over the past, except for Commercial Airplanes segment's operating margin in Q1 2013. Similar to the operating margins, Boeing's net margins have also remained stable and achieved an average value of approximately 5.4%.
Despite facing a crisis with its most important product, the 787, the company was able to achieve great results in the first quarter of 2013. With the problem resolved, I believe that the company will experience a substantial growth in its revenues and will somewhat stable margins; the increase in revenues would directly translate into better earnings. As per my estimates, the company will be able to achieve an EPS between $1.55 and $1.60. Boeing has also planned to launch new jets in the future, that would be more fuel efficient and cost effective and are anticipated to be quite popular with airlines. Thus, based on my analysis and a positive future outlook of the company, I would give a buy recommendation for BA's stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.