01—Abstract
Summary
Summary of the 10-Q filed October 26, 2016. Cited figures are marked; the original filing is the authoritative source.
Boeing's Q3 2016 filing shows a notable decrease in revenue and earnings from operations compared to the prior year, primarily driven by challenges within the Commercial Airplanes segment.
Significant factors contributing to this decline include substantial "reach-forward" losses on the 747 program and the reclassification of costs related to 787 flight test aircraft to research and development expenses. While the Defense, Space & Security segment showed relative stability, overall profitability was significantly impacted by the issues in commercial aviation. Despite the top-line and bottom-line contraction, Boeing's financial position remains solid, supported by a robust backlog of orders.
The company continues its share repurchase program and dividend payments, demonstrating a commitment to shareholder returns. Investors should closely monitor the ongoing recovery of the Commercial Airplanes segment and the execution of new defense contracts, as these will be critical drivers of future financial performance.
02—Key points
Key Highlights
- Total revenues for the nine months ended September 30, 2016, decreased to $71.3 billion from $72.5 billion in the prior year, primarily due to lower airplane volume in Commercial Airplanes.
- Earnings from operations for the nine months ended September 30, 2016, significantly decreased to $3.7 billion from $6.3 billion in the prior year, largely impacted by $1.26 billion in reach-forward losses on the 747 program and a $1.24 billion reclassification of 787 flight test aircraft costs.
- Commercial Airplanes segment's earnings from operations dropped sharply to $1.7 billion for the nine months ended September 30, 2016, from $4.6 billion in the prior year, heavily influenced by the aforementioned 747 and 787 program impacts.
- Defense, Space & Security segment revenues remained relatively stable at $22.6 billion for the nine months ended September 30, 2016, with earnings from operations at $2.2 billion, showing resilience compared to the commercial segment.
- Net cash provided by operating activities increased to $7.7 billion for the nine months ended September 30, 2016, from $6.2 billion in the prior year, indicating strong cash generation despite lower earnings.
- The company repurchased $6.5 billion of its common stock during the nine months ended September 30, 2016, and paid $2.1 billion in dividends, signaling a continued focus on capital return to shareholders.
- Total contractual backlog stood at $448.9 billion as of September 30, 2016, a decrease from $476.6 billion at the end of 2015, reflecting deliveries outpacing new orders during the period.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2016, Boeing Co kept $0.10.
- Revenue$23.90B100.0%
- Cost of revenue−$19.90B83.3%
- Gross profit$3.99B16.7%
- Operating costs−$1.71B7.2%
- Operating income$2.28B9.5%
- Interest, other & tax−$3.0M0.0%
- Net income$2.28B9.5%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2016filed October 26, 2016Financial Statements
Q3 FY2016 against Q3 FY2015
| Line item | Q3 FY2016Q3 FY2015 | Change |
|---|---|---|
| Revenue | $23.90B$25.85B | −7.5% |
| Cost of Revenue | $19.90B$21.60B | −7.9% |
| Gross Profit | $3.99B$4.25B | −6.0% |
| R&D Expenses | $857.00M$857.00M | 0.0% |
| Operating Income | $2.28B$2.58B | −11.6% |
| Net Income | $2.28B$1.70B | +33.7% |
| EPS (Basic) | $3.64$2.50 | +45.6% |
| EPS (Diluted) | $3.60$2.47 | +45.7% |
| Shares Outstanding (Basic) | 625.50M681.30M | −8.2% |
| Shares Outstanding (Diluted) | 631.80M687.80M | −8.1% |
05—Questions
Frequently Asked Questions
What is the primary driver behind the decrease in Boeing's earnings from operations in Q3 2016?
The primary driver was significant negative impacts within the Commercial Airplanes segment. This included substantial reach-forward losses on the 747 program ($1.26 billion) and the reclassification of $1.24 billion in costs related to two 787 flight test aircraft from inventory to research and development expenses. These factors, combined with lower volume and mix, led to a sharp decline in segment profitability.
How is the Defense, Space & Security segment performing relative to Commercial Airplanes?
The Defense, Space & Security (BDS) segment demonstrated more stability. Its revenues remained largely flat year-over-year at $22.6 billion for the nine months ended September 30, 2016, and earnings from operations were $2.2 billion. This contrasts with the significant earnings decline in the Commercial Airplanes segment, highlighting BDS's resilience in the current period.
What is Boeing's cash flow situation, and how is it managing capital?
Boeing's operating cash flow was strong, increasing to $7.7 billion for the first nine months of 2016. The company also continued its capital return strategy, repurchasing $6.5 billion in stock and paying $2.1 billion in dividends during the same period. Despite lower reported earnings, the company maintained robust cash generation and commitment to shareholder returns.
What are the key risks or uncertainties facing Boeing as highlighted in this report?
Key risks include the potential for further charges on programs like the 747 and 787, uncertainties in government defense spending and appropriations, the impact of regulatory changes, reliance on a few major customers in Commercial Airplanes, and potential disruptions in the supply chain. The report also notes the ongoing uncertainty surrounding the Export-Import Bank's operational capacity, which can affect international customer financing.
06—Continue