Boeing's Q3 Financial Performance

Oct.26.12 | About: The Boeing (BA)

Boeing (NYSE:BA) reported third-quarter profits on Wednesday that were better than analysts expected because of sharp increases in aircraft deliveries. Boeing also raised its earnings forecast for 2012 for the third time.

The company increased deliveries of both commercial and military airplanes, with the biggest revenue gains coming from the growing demand for new passenger planes.

Airlines and leasing companies are moving to replace old planes more quickly than normal to gain fuel savings from new engines and parts made from lightweight composite materials. Boeing's military business also remained steady.

Third-quarter sales increased by 13 percent to $20 billion. Net income dropped because of higher pension expenses. Third-quarter net income totaled $1.03 billion. That is 6 percent less than the $1.1 billion reported a year earlier.

Boeing remains on track to deliver 585 to 600 commercial planes this year, which would enable it to reclaim its top spot in worldwide aircraft sales.

Boeing may deliver its new version of the 777 by the early 2020's.

In terms of military business, Boeing increased overseas sales to offset Pentagon spending reductions.

The Dreamliner 787 is already the world's best-selling commercial airliner. The 787 order backlog is 838 planes. The commercial division reported a total backlog of 4,100 aircraft orders worth $307 billion, with 369 of those orders added in the third quarter. Commercial-aircraft sales account for 61 percent of Boeing's revenue.

Boeing raised its full-year revenue guidance to between $80.5 billion and $82 billion.

Segment Data

Commercial airline deliveries increased from 127 in the year-ago quarter to 149, a 17 percent increase. Commercial airline revenues increased 28 percent to $12.2 billion.

Boeing military aircraft revenue declined 4 percent to $3.8 billion compared to the year-ago quarter. Network & space systems revenue declined 12 percent to $2 billion. Global service & support revenue increased 5 percent to $2.1 billion.

In the third quarter, the commercial airline segment, the largest segment, increased revenue substantially compared to the year-ago quarter. The defense, space and security segment's revenue declined 4 percent. Through the first nine months of the year compared to the first nine months of last year, both segments performed well.


Based on the short-term multiplier model valuations, Boeing is fairly valued. That said, based on the absolute values of the multiplier model valuations, Boeing is undervalued: the price-sales ratio is 0.71, price-earnings is 12.60, and price-book is 9.42. A high price-book ratio suggests the market likes the growth prospects of the firm.

FOMC Rate Announcement

There weren't many changes to the FOMC statement. One of the changes was the line about household spending advancing a bit more quickly. That said, business fixed investment slowed. Inflation expectations remained stable. The Fed is planning on increasing its asset-purchase program if the unemployment rate remains elevated.

Currently, the Fed is risking an asset bubble: the probability of overproduction increases with additional monetary easing. Chairman Bernanke stepped on the brakes too hard pre-financial crisis and now the gas pedal is touching the floor.

Airlines rely on low interest rates to finance operations such as purchasing new airliners. The Fed is keeping long-term and short-term interest rates low allowing airlines to purchase aircraft from Boeing with cheap money.


Boeing's financial performance is positive and its financial position is solid. That said, I wouldn't be a buyer at this level. Investors should decrease long equity positions and add to positions on a substantial decline in the share price. Traders should consider taking a short position with a stop loss at $76.

Disclosure: I am short SPY. 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.