The Boeing Company (NYSE:BA) is a globally expanded company with a market capitalization of approximately $95 billion. The following report highlights the growth prospects of the company on an international level based on the industry outlook and the company's forecasted future outlook.
Boeing, headquartered in Chicago, attributes its revenue to a number of functional divisions wherein commercial aircrafts and defense space and security are two of its largest contributors. Boeing generates about 62% of its revenues from its commercial aircrafts, with defense space and security coming in second position generating about 37% revenues for the company.
In terms of geography, the company yields more than half of its revenues from international operations, whereas the US generates just 46% of the total revenues of the company as per data reported in the 2012 annual report. The pie chart below further segregates the international revenues of the company based on regional boundaries (The pie chart does not equal 100% due to rounding errors).
Source: Annual Report, 2012
The revenues pouring in from the US will decline in 2014 owing to a budget cut recently announced. Compared to 2013, the budget allocation to the defense and military segment in the present year will dip by approximately 7-10%. Considering the fact that the defense space and security segment contributes 37% to the total revenue base of the company, Boeing's top line will be significantly impacted due to the budget cut.
Looking over the historical performance, the company showed an astounding year-on-year net profit increase of 26%during the fourth quarter and revenue growth of just 6.65% YoY. The net profit margin of the fourth quarter NPM was 5.18% indicating a rise of 80 basis points compared to the NPM yielded during the fourth quarter of 2012. The growth in the bottom line was driven by the combined effect of operating cost reductions and increasing revenue base of the company. Despite a remarkable profit growth realization the stock price plummeted following the earnings release owing to a flattish outlook released by the company for the present year. The 2014 outlook given by the company fell short of analysts' estimates by more than 50 cents per share. The company projects to yield per share earnings within a range of $7-7.20 against analysts' estimates of $7.57 whereas the 2013 EPS figure stands $7.07. The reason for the flattish outlook is simple: the defense budget cut announced by the government! However, growth is expected to be realized from international regions over the next few years.
The industry reports indicate that2014 looks promising for the companies dealing in the airlines business. The International Air Transport Association (IATA) projects that the industry profits will shoot up by roughly 53% compared to 2013's profits. The estimate is underscored by the rising global GDP growth rate, increasing passenger demand for air travel, and developing emerging market industry.
The strengthening economies are apparent by the positive and rising GDP growth forecasts. In 2013, the global GDP remained low hovering around 2%. However, from here onwards GDP growth is expected to increase with 2014's rate projected at 3% and an even higher rate forecasted for the year 2015. The higher expected growth in the global GDP growth rate would be an outcome of better than expected performance (in terms of GDP growth rate) by all regions inclusive of Asia Pacific. This particular region is expected to improve slightly in 2013 following three consecutive years of decelerating profits. IATA report further indicates that North America will beat the other regions and will remain a top industry performer.
The strengthening economies and swelling disposable incomes have boosted traveling among consumers. Research indicates that consumers today are more interested in traveling than ever before as evident by a record passenger number documented in 2013. Around 3 billion passengers traveled by air in the previous year with a projected growth in the passenger number to hover around 10% this year.
The market outlook released by Boeing indicates that it expects to make the highest number of deliveries to Asia Pacific, with Europe and North America coming in second, over the next several years. The following chart indicates the expected aircraft delivery distribution by Boeing to several regions.
Source: Boeing Market Outlook
The emerging countries are projected to make up for the declining defense budget allocations in the developing countries. The growth in the Asia Pacific region will be catalyzed by their growing budget allocations to defense systems. With tightening conflicts between China and Japan coupled with increasing borderline anxieties in the Philippines, Vietnam, and India the opportunities will brighten for companies dealing in weaponry and air defense. India is expected to increase its defense budget by 14%. China's military spending was recorded at $122 billion reflecting a 10.7% increase compared to the previous years; the budget allocation by the country is expected to rise further this year. According to a rough estimate Japan, Singapore, and South Korea are expected to be ripe markets in terms of generating highest revenues for the companies dealing in the relating industry with highest percentage allocation of budget to defense systems.
Although Boeing lowered its forecast for the current year owing to defense budget cuts announced by the US and Europe the long term prospects of the company appear positive. Boeing plans to aggressively target the Asia Pacific region and extract maximum revenue through partnership contracts and aircraft deliveries. The strategy will greatly benefit the company in the long term. Based on the strengthening global industry and a focused company strategy I believe that Boeing is a long term buy. The recent dip in price is expected to end very soon.