Boeing: The Good, The Bad And The Ugly...

| About: The Boeing (BA)
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Summary

Revenues beat estimates.

Commercial Airplanes performance disappointing, BDS performance strong.

Cash flow was satisfactory.

On the 27th of April, Boeing (NYSE:BA) has reported Q1 2016 earnings, and although my estimates were lower than the analysts' estimates, Boeing still managed to somewhat disappoint.

Revenue

Table 1: Comparison estimated revenue and reported revenue

Table 1 shows how the reported revenues differed from my expectations. The Commercial Airplanes department reported lower-than-expected revenue, resulting in a 5% YoY decline.

The Boeing Defense & Space unit exceeded my expectations. Where I expected an average revenue of $6.64 billion with a high estimate of $6.8 billion, Boeing reported revenues that are 20% higher. Higher revenue was primarily driven by the Military Aircraft unit (+34% YoY) and Global Services & Support (+14% YoY). Boeing Capital revenue was $300 million, whereas I expected it to be 0.

Boeing's revenue can be seen as a positive surprise, primarily carried by strong Defense & Space revenues. Year-over-year revenue grew 2%, whereas a 3% decline was expected.

Earnings per Share

With revenues coming in higher than expected, Boeing's reported earnings per share can be seen as slightly disappointing. I expected core operating margins of 8%, while Boeing reported 7.5%.

This 0.5% difference is caused by the lower efficiency of the Commercial Airplanes department, which reported an operating margin of 7.2% - nowhere close to the 10% that I assumed. The lower margins are caused by charges on the tanker program and the Boeing 747 program. This was somewhat compensated for by operating margin for BDS, which I estimated a few percentage points too high.

Boeing reported earnings per share of $1.74, whereas I expected per share earnings of $1.79.

Cash Flow

Last year, Boeing disappointed with its Q1 cash control performance, generating an OCF of $88 million. This year, Boeing reported a solid $1.2 billion in operating cash flow and $483 million in free cash flow, up almost $1 billion year over year.

Conclusion

Performance of the Commercial Airplanes unit was disappointing in terms of revenue as well as operating margin. This, however, was partly offset by strong revenue in the BDS segment.

Back to the title of this article:

The good:

  • Total revenue
  • BDS revenue
  • Cash flow

The bad:

  • Boeing Commercial Airplanes revenue
  • Earnings per share (reflecting charges)

The ugly:

  • Boeing Commercial Airplanes operating margin (reflecting charges)

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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.