Boeing: Do Not Fear

| About: The Boeing (BA)


Boeing is has been hit with recent negative pieces.

I examine the performance of the company.

It is about the long-term, not the short-term.

The Boeing Company (NYSE:BA) is a premier blue chip name and I got in back in December. This was as the company raised its dividend and expanded its buyback but now where do we stand? After news of issues with being able to sell to middle-Eastern partners and questions regarding future cash flows, just what do we do now? Should we eject our shares, or push forward? Well the stock is up and just a few points off a 52 week high, which is good, but we need to consider where the stock is going. To have an understanding of where it is going, we have to review the company's performance but also discuss where the company is heading, independent of any news items.

Boeing just reported its Q3. Do not fear, the company delivered a beat and issued strong guidance. It was not the best quarter on all metrics, but it was a good quarter overall. Boeing crushed analysts' consensus estimates. The numbers beat estimates on the top line handily destroyed estimates on the bottom line. The company reported revenue of $23.9 billion in the quarter, surpassing estimates by $260 million but these did fall 7.5% year-over-year. Core earnings per share for the quarter were strong and came in at $3.51. This was a very clear beat of $0.89 against analyst estimates.

To understand where the company is doing well versus poorly let's take a look at some of the sector highlights to get a feel for the performance. The Commercial Airplanes segment saw third quarter revenue drop 3% to $17 billion on lower delivery volume, while operating margin was 9.6%. The company also started producing its 500th Dreamliner and began producing the 737 MAX 9. The 737 program has done well with over 3,300 orders for the 737 MAX since it launched. Commercial Airplanes booked another 107 orders this quarter. Backlog remains strong with nearly 5,600 airplanes valued at $409 billion.

In the company's Defense, Space & Security segment, revenue was a strong $7.5 billion with an operating margin of 10.4%. This was up from over 8.3% last quarter reflecting the Commercial Crew program. Boeing Military Aircraft revenues were up quarter-over-quarter to $3.3 billion. The company saw some strong contracts in the quarter as well. The Network & Space Systems division saw revenue of $1.7 billion (a small decline versus Q2) and its operating margin was 2.1%, reflecting higher costs and the charges related to the Commercial Crew program. The Global Services & Support Division saw revenue increase to $2.5 billion due to higher volume in Aircraft Modernization and Sustainment. Further, its operating margin increased to 12.4% on strong performance. Like with the Commercial Airplanes segment, there is a significant backlog. Backlog in this segment was $53 billion, of which 38% represents orders from international customers. Commenting on the quarter Boeing President and Chief Executive Officer Dennis Muilenburg stated:

"Solid operating performance across our commercial and defense and space businesses in the third quarter again generated strong cash flow for Boeing, which continues to fuel investments in our future and enable us to deliver compelling returns to our shareholders. We also captured key orders, reinforcing the strength of our large and diverse order backlog. We achieved key milestones on the 737 MAX, 787-10 and other development programs, including the first KC-46 production contracts. Our teams remain focused on completing these development efforts and delivering better capabilities and economics to customers around the world. We remain on track to deliver on our full-year commitments. At the same time, we are positioning Boeing for further growth through our intense focus on productivity, quality and safety across the company."

I thought the performance this quarter was operationally very strong despite the charges taken in the quarter to get the Commercial Crew program going. Looking ahead Revenue guidance was raised to be between $93.5 and $95.5 billion. Core earnings per share guidance for 2016 is seen coming in at $6.89 to $7.00, up from $6.10 to $6.30. I will point out that Boeing revises guidance throughout the year and this is subject to change again. 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. At current price levels I am holding.

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.