Boeing: Clear To Board On Pullback

| About: The Boeing (BA)

Summary

I bought into Boeing in December 2015, only to watch shares get crushed earlier this year.

The stock has since rebounded but does performance justify the price?

Q1 earnings are out and I discuss the key metrics and where the company is heading in 2016.

I recently decided to buy The Boeing Company (NYSE:BA) and got in back in December. This was as the company raised its dividend and expanded its buyback. Both very positive for shareholders. But now that we are a quarter plus of the way through 2016, we need to consider where the stock is going. There was some temporary weakness earlier in the year here as the stock dipped to under $110. However, it has since rebounded back comfortably over $130. But is there more to be concern on the horizon?

To answer the question, we need to review the company's performance but also discuss where the company is heading. First off, the just reported first quarter was decent. The numbers beat estimates on the top line handily but missed on the bottom line. The company reported revenue of $22.63 billion in the quarter, surpassing estimates by $1.19 billion and rising 2% year over year. Core earnings per share for the quarter were down 12% year over year to $1.74, versus $1.97 last year. This was a miss of $0.09 against analyst estimates. But what went into these figures?

To address this, let's take a look at some of the sector highlights to get a feel for the performance. The Commercial Airplanes segment saw first-quarter revenue dip slightly to $14.4 billion on lower delivery volume, while operating margin was 7.2%. This is more than double Q4's margins of 3.5%. The reason is that in Q1 there was the $70 million pre-tax charge on the 747 program and a $162 million pre-tax charge on the KC-46 program. In total, the 737 program has won nearly 3,100 firm orders for the 737 MAX since launch. And during the quarter, the first flight of the 737 MAX was achieved. Commercial Airplanes booked 121 net orders during the quarter. Backlog remains strong with nearly 5,700 airplanes valued at $424 billion.

In the company's Defense, Space & Security segment, revenue was a strong $8.0 billion with an operating margin of 10.3%. Boeing Military Aircraft performed exceptionally, with first-quarter revenue increasing to $3.7 billion primarily as a result of higher volumes, particularly for F15 and C17 deliveries. The company saw some strong contracts in the quarter as well. The Network & Space Systems division saw revenue of $1.7 billion and its operating margin was 8.5%. The Global Services & Support Division saw revenue increase to $2.6 billion due to higher volume in Aircraft Modernization and Sustainment as well as training systems. Further, its operating margin increased to 13.3% on strong performance. Like with the Commercial Airplanes segment, there is a significant backlog. Backlog in this segment was $56 billion, of which 37% represents orders from international customers. Commenting on the quarter Boeing President and Chief Executive Officer Dennis Muilenburg stated:

"Higher year-over-year deliveries of military aircraft and continued solid operating performance on core production programs drove revenue growth and strong cash flow for Boeing in the first quarter. This performance enabled our ongoing investments in new product innovation and in our people, and the return of significant cash to shareholders through stock repurchases and dividends. Overall, we are pleased with our performance trends and our outlook for the year remains positive. On the tanker program, we are making the investments necessary to meet our customer commitments, deliver the initial production aircraft on schedule, and transition the program into full production. Our teams are focused intensely on delivering on our existing commitments including the production ramp-up associated with our large and diverse backlog, accelerating progress on quality, safety and productivity improvements company wide, returning greater value to shareholders through profitable growth, and investing in the future as we enter our second century in business."

I thought the performance this quarter was strong despite the bottom line miss. Further, the company reaffirmed its outlook. Revenue guidance is between $93 and $95 billion, including commercial deliveries of between 740 and 745. Operating cash flow is expected to be approximately $10 billion. Core earnings per share guidance for 2016 is seen coming in at $8.15 and $8.35, which is higher than 2015. While the revenue guidance is lower than what was brought in during 2015, I will point out that Boeing revises guidance throughout the year and this is subject to change. The outlook isn't poor, but reflects the nature of the business. What we care about is the long-term and that's where I am focused. The company is very shareholder friendly. During the quarter, the company repurchased 28.6 million shares for $3.5 billion, leaving $10.5 billion remaining under the current repurchase authorization. Further, Boeing also paid $0.7 billion in dividends in the quarter, reflecting an approximately 20% increase in dividends per share compared to last year. Should the stock pull back, do some buying.

Note from the author: Christopher F. Davis has been a leading contributor with Seeking Alpha since early 2012. If you like his material and want to see more, scroll to the top of the article and hit "follow." He also writes a lot of "breaking" articles that are time sensitive. If you would like to be among the first to be updated, be sure to check the box for "Real-time alerts on this author" under "Follow."

Disclosure: I am/we are long BA.

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.