10-QPeriod: Q1 FY2011

BOEING CO Quarterly Report for Q1 Ended Mar 31, 2011

Filed April 27, 2011For Securities:BABA-PA

Summary

Boeing Co. reported revenues of $14.91 billion for the first quarter of 2011, a slight decrease from $15.22 billion in the same period of 2010. Net earnings from continuing operations increased to $588 million ($0.78 per diluted share) from $519 million ($0.70 per diluted share) in the prior year quarter. This improvement was driven by a lower effective tax rate, partly due to the impact of the Affordable Care Act in the prior year and the benefit of R&D tax credits in the current period. The company's robust backlog remained strong at over $310 billion, indicating significant future revenue potential. Despite a decrease in revenue, primarily from the Commercial Airplanes segment due to fewer deliveries, the company demonstrated improved profitability on a per-share basis. The Boeing Defense, Space & Security (BDS) segment saw a slight increase in revenue and earnings. A significant factor impacting operational performance was higher pension costs and other postretirement benefit expenses, which contributed to an increase in unallocated expenses. The company continues to invest in significant development programs, notably the 787 and 747-8 aircraft, which are in critical flight test and certification phases, presenting both opportunities and risks.

Financial Highlights

52 data points
Beta

Revenue

$14.91B

19.2% Gross Margin

Net Income

$586.00M

3.9% Net Margin

EPS (Diluted)

$0.78

Total Assets

$68.76B

Cash & Equivalents

$5.67B

Free Cash Flow

-$1.37B

Financial Statements
Beta
Revenue$14.91B
Cost of Revenue$12.05B
Gross Profit$2.86B
R&D Expenses$1.06B
Operating Income$1.00B
Net Income$586.00M
EPS (Basic)$0.79
EPS (Diluted)$0.78
Shares Outstanding (Basic)742.90M
Shares Outstanding (Diluted)749.00M

Key Highlights

  • 1Total revenues decreased by 2% to $14.91 billion in Q1 2011 from $15.22 billion in Q1 2010.
  • 2Net earnings from continuing operations increased by 13.3% to $588 million ($0.78 per diluted share) in Q1 2011, up from $519 million ($0.70 per diluted share) in Q1 2010.
  • 3The effective income tax rate decreased significantly to 33.4% in Q1 2011 from 50.6% in Q1 2010, primarily due to a one-time tax charge in the prior year and R&D tax credits.
  • 4Commercial Airplanes segment revenue decreased by 5% to $7.12 billion due to fewer aircraft deliveries, while Boeing Defense, Space & Security (BDS) segment revenue remained stable at $7.62 billion.
  • 5Contractual backlog remained strong, increasing to $310.73 billion as of March 31, 2011, from $303.96 billion as of December 31, 2010.
  • 6Net cash used by operating activities was $953 million in Q1 2011, a significant increase from $285 million in Q1 2010, largely due to increased inventory for the 787 and 747-8 programs.
  • 7The company was awarded a $4.4 billion contract for the KC-46A Tanker program, with potential for up to $30 billion if all options are exercised.

Frequently Asked Questions

The primary driver for the increase in net earnings from continuing operations was a significantly lower effective income tax rate in the first quarter of 2011 (33.4%) compared to the first quarter of 2010 (50.6%). This reduction in the tax rate was mainly due to a $150 million income tax charge recorded in Q1 2010 related to the Patient Protection and Affordable Care Act, and the benefit of U.S. research and development tax credits in 2011.

Total revenues decreased by 2% to $14.91 billion. This was primarily driven by a 5% decrease in the Commercial Airplanes segment's revenue, attributed to lower new airplane deliveries compared to the prior year. Boeing Defense, Space & Security (BDS) segment revenue saw a marginal increase.

Both the 787 and 747-8 programs are in demanding flight test and certification phases. The 787 program experienced further delays, with the first delivery now targeted for the third quarter of 2011. Risks include potential identification of further design changes requiring modifications to produced aircraft, challenges in managing the global supply chain, and integration issues. The company expects zero margin on initial 787 deliveries. The 747-8 Freighter and Intercontinental programs are also progressing through testing and certification, with potential schedule and cost risks. The company anticipates that these programs will have a material impact on financial position and results.

Boeing had $5.67 billion in cash and cash equivalents at the end of the quarter. Net cash used by operating activities increased significantly to $953 million, largely due to inventory buildup for the 787 and 747-8 programs. The company has substantial borrowing capacity, with $4.38 billion in unused revolving credit lines available, and expects to meet future funding needs through commercial paper or term debt issuance. Capital spending is expected to increase in 2011 due to ongoing construction of the 787 assembly line and investments to support production rate increases.