Boeing Reports Third-Quarter Results

Staff Report From South Carolina CEO

Thursday, October 24th, 2019

The Boeing Company reported third-quarter revenue of $20.0 billion, GAAP earnings per share of $2.05 and core earnings per share (non-GAAP)* of $1.45, reflecting lower 737 deliveries partially offset by higher defense and services volume (Table 1). Boeing recorded operating cash flow of ($2.4) billion and paid $1.2 billion of dividends.

Boeing has developed software and training updates for the 737 MAX and continues to work with the FAA and global civil aviation authorities to complete remaining steps toward certification and readiness for return to service. These regulatory authorities will determine the timing and conditions of return to service in each relevant jurisdiction. For purposes of the third-quarter results, the company has assumed that regulatory approval of the 737 MAX return to service begins in the fourth quarter of 2019 and that it will gradually increase the 737 production rate from 42 per month to 57 per month by late 2020.

"Our top priority remains the safe return to service of the 737 MAX, and we're making steady progress," said Boeing President and Chief Executive Officer Dennis Muilenburg. "We've also taken action to further sharpen our company's focus on product and services safety, and we continue to deliver on customer commitments and capture new opportunities with our values of safety, quality and integrity always at the forefront."        

Table 2. Cash Flow

Third Quarter

 

Nine Months

(Millions)

2019

 

2018

 

2019

 

2018

Operating Cash Flow

($2,424)

 

$4,559

 

($226)

 

$12,375

Less Additions to Property, Plant & Equipment

($465)

 

($457)

 

($1,387)

 

($1,227)

Free Cash Flow*

($2,889)

 

$4,102

 

($1,613)

 

$11,148

 

*Non-GAAP measure; complete definitions of Boeing's non-GAAP measures are on page 6, "Non-GAAP Measures Disclosures."    

Operating cash flow was ($2.4) billion in the quarter, primarily reflecting lower 737 delivery and advance payments as well as timing of receipts and expenditures (Table 2). During the quarter, the company paid $1.2 billion of dividends, reflecting a 20 percent increase in dividends per share compared to the same period of the prior year.

Table 3. Cash, Marketable Securities and Debt Balances

Quarter-End

(Billions)

Q3 19

 

Q2 19

Cash

$9.8

 

$9.2

Marketable Securities1

$1.1

 

$0.4

Total

$10.9

 

$9.6

Debt Balances:

     

The Boeing Company, net of intercompany loans to BCC

$22.8

 

$17.3

Boeing Capital, including intercompany loans

$1.9

 

$1.9

Total Consolidated Debt

$24.7

 

$19.2

 

1 Marketable securities consists primarily of time deposits due within one year classified as "short-term investments."

Cash and investments in marketable securities totaled $10.9 billion, compared to $9.6 billion at the beginning of the quarter (Table 3). Debt was $24.7 billion, up from $19.2 billion at the beginning of the quarter primarily due to the issuance of new debt.

Total company backlog at quarter-end was $470 billion and included net orders of $16 billion.

Segment Results

Commercial Airplanes

Table 4. Commercial Airplanes

Third Quarter

     

Nine Months

   

(Dollars in Millions)

2019

 

2018

 

Change

 

2019

 

2018

 

Change

                       

Commercial Airplanes Deliveries

62

 

190

 

(67)%

 

301

 

568

 

(47)%

                       

Revenues

$8,249

 

$14,071

 

(41)%

 

$24,793

 

$40,968

 

(39)%

(Loss)/Earnings from Operations

($40)

 

$2,033

 

NM

 

($3,813)

 

$5,230

 

NM

Operating Margin

(0.5)%

 

14.4%

 

(14.9) Pts

 

(15.4)%

 

12.8%

 

NM

Commercial Airplanes third-quarter revenue was $8.2 billion reflecting lower 737 deliveries (Table 4). Third-quarter operating margin decreased to (0.5) percent reflecting lower 737 deliveries partially offset by a higher margin on the 787 program. During the quarter estimated costs to produce 737 aircraft included in the accounting quantity increased by $0.9 billion primarily to reflect current assumptions regarding timing of return to service and the timing of planned production rate increases. There was no significant change to estimated potential concessions and other considerations to customers related to the 737 MAX grounding.

Commercial Airplanes delivered 62 airplanes during the quarter. Given the current global trade environment, the 787 production rate will be reduced to 12 airplanes per month for approximately two years beginning in late 2020. The 777X program is progressing through pre-flight testing and remains on track for first flight in early 2020. The company is now targeting early 2021 for first delivery of the 777X.

Commercial Airplanes booked net orders worth $5 billion during the quarter, including orders for twenty 787 airplanes for Korean Air, eight 787 airplanes for Air New Zealand, and six 777 freighters for China Airlines. Commercial Airplanes backlog included nearly 5,500 airplanes valued at $387 billion.

Defense, Space & Security

Table 5. Defense, Space & Security

Third Quarter

     

Nine Months

   

(Dollars in Millions)

2019

 

2018

 

Change

 

2019

 

2018

 

Change

                       

Revenues

$7,042

 

$6,937

 

2%

 

$20,265

 

$19,518

 

4%

Earnings/(Loss) from Operations

$755

 

($247)

 

NM

 

$2,577

 

$886

 

191%

Operating Margin

10.7%

 

(3.6)%

 

14.3 Pts

 

12.7%

 

4.5%

 

8.2 Pts

Defense, Space & Security third-quarter revenue increased to $7.0 billion primarily driven by higher volume on satellites, weapons, and T-7A Red Hawk (formerly T-X Trainer), partially offset by lower volume on F-15 (Table 5). Third-quarter operating margin increased to 10.7 percent primarily due to the absence of third quarter 2018 charges and improved performance.

During the quarter, Defense, Space & Security received contracts for the fifth production lot for 15 KC-46A Tanker aircraft for the U.S. Air Force and nine AH-64E Apache helicopters for the U.S. Army. Significant milestones achieved during the quarter included completion of the first test flight of the MQ-25 unmanned aerial refueler, first flight of the inaugural P-8A Poseidon aircraft for the United Kingdom Royal Air Force, and final assembly of the Space Launch System core stage structure. Defense, Space & Security also performed the 100th test flight of the T-7A Red Hawk.

Backlog at Defense, Space & Security was $62 billion, of which 30 percent represents orders from customers outside the U.S.

Global Services

Table 6. Global Services

Third Quarter

     

Nine Months

   

(Dollars in Millions)

2019

 

2018

 

Change

 

2019

 

2018

 

Change

                       

Revenues

$4,658

 

$4,101

 

14%

 

$13,820

 

$12,148

 

14%

Earnings from Operations

$673

 

$548

 

23%

 

$2,013

 

$1,799

 

12%

Operating Margin

14.4%

 

13.4%

 

1.0 Pts

 

14.6%

 

14.8%

 

(0.2) Pts

Global Services third-quarter revenue increased to $4.7 billion, primarily driven by the acquisition of Boeing Distribution Services, Inc. (formerly KLX) and higher government services volume (Table 6). Third-quarter operating margin increased to 14.4 percent primarily due to improved performance.

During the quarter, Global Services was awarded contracts with the U.S. Air Force for F-15 training to Qatar, A-10 Thunderbolt II re-winging, and KC-46A Tanker Lot 5 services. Global Services also signed an agreement with IndiGo for digital solutions and delivered the first SpiceXpress 737-800 Boeing Converted Freighter following India certification.

Additional Financial Information

Table 7. Additional Financial Information

Third Quarter

 

Nine Months

(Dollars in Millions)

2019

 

2018

 

2019

 

2018

Revenues

             

Boeing Capital

$66

 

$77

 

$207

 

$214

Unallocated items, eliminations and other

($35)

 

($40)

 

($437)

 

($62)

Earnings from Operations

             

Boeing Capital

$29

 

$27

 

$86

 

$71

FAS/CAS service cost adjustment

$364

 

$337

 

$1,093

 

$1,019

Other unallocated items and eliminations

($522)

 

($471)

 

($1,727)

 

($1,193)

Other income, net

$121

 

$12

 

$334

 

$63

Interest and debt expense

($203)

 

($106)

 

($480)

 

($317)

Effective tax rate

0.8%

 

(10.8)%

 

(350.6)%

 

6.9%

At quarter-end, Boeing Capital's net portfolio balance was $2.2 billion. The change in earnings from other unallocated items and eliminations is primarily due to increased enterprise research and development investment. Interest and debt expense increased due to higher debt balances. The effective tax rate for the third quarter increased from the same period in the prior year primarily due to a $412 million benefit related to a 2013-2014 tax settlement that was recorded in the third quarter of 2018, partially offset by larger 2019 tax rate benefits resulting from lower pre-tax earnings.