10-QPeriod: Q2 FY2016

BOEING CO Quarterly Report for Q2 Ended Jun 30, 2016

Filed July 27, 2016For Securities:BABA-PA

Summary

Boeing's Q2 2016 report (ending June 29, 2016) revealed a significant downturn in net earnings and earnings from operations compared to the prior year. Net earnings dropped to $985 million from $2.45 billion, and earnings from operations fell to $1.37 billion from $3.70 billion. This decline was primarily driven by substantial "reach-forward losses" on the 747 program, amounting to $1.26 billion for the six-month period, and the reclassification of $1.235 billion in costs related to two 787 flight test aircraft from inventory to research and development expense. The Commercial Airplanes segment experienced a dramatic decrease in earnings from operations, turning a profit of $2.82 billion in the first six months of 2015 to a mere $60 million in the same period of 2016. This was heavily impacted by the aforementioned 747 and 787 charges. Defense, Space & Security (BDS) segment, however, showed resilience, with revenues increasing and earnings from operations rising year-over-year. The company maintained a strong total contractual backlog of $462.99 billion, though it saw a slight decrease from the end of 2015.

Financial Highlights

52 data points
Beta

Revenue

$24.75B

9.8% Gross Margin

Net Income

-$234.00M

-0.9% Net Margin

EPS (Diluted)

$-0.37

Total Assets

$89.61B

Cash & Equivalents

$8.61B

Free Cash Flow

$2.52B

Financial Statements
Beta
Revenue$24.75B
Cost of Revenue$22.32B
Gross Profit$2.43B
R&D Expenses$2.13B
Operating Income-$419.00M
Net Income-$234.00M
EPS (Basic)$-0.37
EPS (Diluted)$-0.37
Shares Outstanding (Basic)636.30M
Shares Outstanding (Diluted)635.30M

Key Highlights

  • 1Net earnings for the six months ended June 30, 2016, were $985 million, a significant decrease from $2.45 billion in the prior year's period.
  • 2Earnings from operations for the six months ended June 30, 2016, decreased to $1.37 billion from $3.70 billion in the comparable 2015 period.
  • 3The Commercial Airplanes segment reported a substantial decline in earnings from operations, down to $60 million from $2.82 billion year-over-year, heavily impacted by program charges.
  • 4Significant "reach-forward losses" of $1.26 billion were recognized on the 747 program during the first six months of 2016.
  • 5The company reclassified $1.235 billion in costs related to two 787 flight test aircraft from inventory to R&D expense in the second quarter of 2016.
  • 6Defense, Space & Security (BDS) segment revenues increased by 6% to $15.13 billion for the six months ended June 30, 2016, and earnings from operations rose to $1.42 billion.
  • 7Total contractual backlog remained strong at $462.99 billion as of June 30, 2016, though slightly down from $476.60 billion at the end of 2015.

Frequently Asked Questions

The primary reason for the significant drop in earnings from operations for the six months ended June 30, 2016, was the recognition of substantial 'reach-forward losses' on the 747 program, totaling $1.26 billion, and the reclassification of $1.235 billion in costs related to two 787 flight test aircraft from inventory to research and development expense. These charges heavily impacted the Commercial Airplanes segment.

The Commercial Airplanes segment saw a dramatic decrease in earnings from operations, reflecting the charges mentioned above. In contrast, the Defense, Space & Security (BDS) segment showed improved performance with increased revenues and higher earnings from operations, driven by growth in Global Services & Support and Boeing Military Aircraft.

Boeing maintained a strong total contractual backlog of $462.99 billion as of June 30, 2016. While this represents a slight decrease from $476.60 billion at the end of 2015, it still indicates a substantial pipeline of future work.

Yes, the report highlights risks associated with specific programs, including further potential reach-forward losses on the 747 and 787 programs if risks are not mitigated. There are also ongoing concerns regarding U.S. government defense spending levels and potential future budget cuts or sequestration impacting the Defense, Space & Security segment.