10-QPeriod: Q3 FY2014

BOEING CO Quarterly Report for Q3 Ended Sep 30, 2014

Filed October 22, 2014For Securities:BABA-PA

Summary

Boeing Company's third-quarter 2014 report indicates a strong performance driven by the Commercial Airplanes segment, which saw a significant increase in revenue and earnings. This growth was primarily attributed to higher airplane deliveries. Despite a slight decrease in revenue for the Defense, Space & Security (BDS) segment, overall earnings from operations saw an increase, bolstered by favorable adjustments in contract accounting and improved performance in certain sub-segments. The company's backlog remains robust, providing a strong outlook for future revenues. Financially, Boeing demonstrated solid operational efficiency, with cost of sales increasing at a slightly lower rate than revenue, leading to improved operating margins. The company also actively managed its capital, with substantial share repurchases and dividend payments, while maintaining significant liquidity. However, potential headwinds exist, including the ongoing uncertainty in U.S. government defense spending and specific program-related risks such as the KC-46A Tanker contract, which incurred a significant loss in the quarter. Investors should monitor the progress of these large, complex programs and the broader defense spending environment.

Financial Highlights

53 data points
Beta

Revenue

$23.78B

15.6% Gross Margin

Net Income

$1.36B

5.7% Net Margin

EPS (Diluted)

$1.86

Total Assets

$92.65B

Cash & Equivalents

$6.66B

Free Cash Flow

$317.00M

Financial Statements
Beta
Revenue$23.78B
Cost of Revenue$20.07B
Gross Profit$3.71B
R&D Expenses$750.00M
Operating Income$2.12B
Net Income$1.36B
EPS (Basic)$1.88
EPS (Diluted)$1.86
Shares Outstanding (Basic)722.80M
Shares Outstanding (Diluted)730.60M

Key Highlights

  • 1Total revenues increased by 5% year-over-year for the nine months ended September 30, 2014, reaching $66.3 billion.
  • 2Earnings from operations increased by $401 million to $5.4 billion for the nine months ended September 30, 2014, compared to the prior year.
  • 3Commercial Airplanes segment revenue grew by 13% to $43.2 billion, and its earnings from operations increased by $560 million, driven by higher aircraft deliveries.
  • 4The Defense, Space & Security (BDS) segment experienced a 4% decrease in revenue to $23.3 billion, but earnings from operations remained strong at $2.2 billion.
  • 5A significant reach-forward loss of $425 million was recorded for the KC-46A Tanker contract, impacting segment earnings.
  • 6Total contractual backlog stood at a strong $475 billion as of September 30, 2014, indicating a healthy future order book.
  • 7Boeing significantly increased share repurchases, using $5 billion for buybacks during the nine-month period, alongside dividend payments.

Frequently Asked Questions

The primary driver of revenue growth was the Commercial Airplanes segment, which saw a 13% increase in revenue for the nine months ended September 30, 2014, due to a higher volume of airplane deliveries. The overall revenue for Boeing increased by 5% year-over-year for the same period.

Boeing recorded a $425 million reach-forward loss on the KC-46A Tanker contract in the second quarter of 2014 due to initial engineering and design issues requiring rework. This loss impacted the earnings from operations for both the Commercial Airplanes segment ($238 million) and the Boeing Military Aircraft (BMA) segment ($187 million).

Boeing generated $3.9 billion in net cash from operating activities for the nine months ended September 30, 2014. The company significantly increased its share repurchase activity, spending $5 billion on buybacks, and also paid substantial dividends. Boeing maintained strong liquidity with $6.66 billion in cash and cash equivalents at the end of the period.

Key risks include the uncertainty surrounding U.S. government defense spending due to budget control acts and potential sequestration, the complex and fixed-price nature of certain development contracts like the KC-46A Tanker, ongoing challenges with the 787 program profitability due to production complexities and schedule delays, and potential impacts from the Russia/Ukraine political unrest on supply chains.