10-QPeriod: Q2 FY2014

BOEING CO Quarterly Report for Q2 Ended Jun 30, 2014

Filed July 23, 2014For Securities:BABA-PA

Summary

The Boeing Company (BA) reported its second-quarter 2014 financial results, showing a modest increase in total revenues to $22.045 billion from $21.815 billion in the prior year's quarter. Net earnings also saw a significant rise, reaching $1.653 billion, or $2.24 per diluted share, compared to $1.088 billion, or $1.41 per diluted share, in the same period last year. This improvement was largely driven by the Commercial Airplanes segment, which experienced higher delivery volumes and improved cost performance, despite a substantial reach-forward loss recorded on the KC-46A Tanker contract. However, the Defense, Space & Security (BDS) segment faced challenges, with revenues and earnings from operations declining year-over-year due to lower volumes across its sub-segments. The BDS segment was also impacted by a reach-forward loss on the KC-46A Tanker contract. Management's discussion highlights ongoing efforts to mitigate risks in complex programs like the 747 and 787, and acknowledges uncertainties in U.S. government defense spending. The company also repurchased a significant amount of its stock and paid dividends, indicating a commitment to returning capital to shareholders.

Financial Highlights

53 data points
Beta

Revenue

$22.05B

15.3% Gross Margin

Net Income

$1.65B

7.5% Net Margin

EPS (Diluted)

$2.24

Total Assets

$92.74B

Cash & Equivalents

$7.53B

Free Cash Flow

$1.36B

Financial Statements
Beta
Revenue$22.05B
Cost of Revenue$18.67B
Gross Profit$3.38B
R&D Expenses$733.00M
Operating Income$1.79B
Net Income$1.65B
EPS (Basic)$2.26
EPS (Diluted)$2.24
Shares Outstanding (Basic)731.10M
Shares Outstanding (Diluted)738.80M

Key Highlights

  • 1Total revenues for the quarter increased slightly to $22.05 billion from $21.82 billion in Q2 2013.
  • 2Net earnings surged to $1.65 billion ($2.24/share) from $1.09 billion ($1.41/share) in Q2 2013.
  • 3Commercial Airplanes segment revenue grew 5% to $14.3 billion, driven by higher aircraft deliveries, and segment operating earnings increased to $1.55 billion.
  • 4Defense, Space & Security (BDS) segment revenues decreased 5% to $7.75 billion, and operating earnings fell to $582 million.
  • 5The company recorded a significant $425 million reach-forward loss on the KC-46A Tanker contract ($238 million in Commercial Airplanes and $187 million in BDS).
  • 6Boeing repurchased approximately $4 billion of its stock during the first six months of 2014 and paid $1.07 billion in dividends.
  • 7The company's total contractual backlog remained strong at $426 billion as of June 30, 2014.

Frequently Asked Questions

The significant increase in net earnings was primarily driven by the Commercial Airplanes segment, which saw higher delivery volumes and improved cost performance. Despite this, the company also benefited from a lower effective tax rate in the quarter due to tax benefits from adjustments and audit settlements, partially offset by the absence of the R&D tax credit.

Key challenges include the substantial reach-forward loss on the KC-46A Tanker contract, declining revenues and earnings in the Defense, Space & Security segment, uncertainty surrounding U.S. government defense spending and appropriations, and ongoing risks associated with complex commercial airplane programs like the 747 and 787, which face production challenges and market demand pressures.

Boeing demonstrated a strong commitment to capital return through significant share repurchases, totaling approximately $4 billion in the first six months of 2014. The company also paid substantial dividends, with $1.46 per share paid during the period. This indicates a strategy focused on returning capital to shareholders while continuing to invest in its business.

The Defense, Space & Security segment experienced a decrease in both revenues and earnings from operations, impacted by lower volumes across its segments and the KC-46A Tanker contract loss. The outlook is further clouded by significant uncertainty regarding U.S. government defense spending levels and appropriation processes, including the potential for future sequestration cuts.