Boeing Cash Flow Surges on Record Commercial-Jet Deliveries

Updated on
Boeing Cash Flow Surges on Increase in 787 Dreamliner Deliveries

A Boeing 787-9 Dreamliner stands on display prior to the opening of the Farnborough International Airshow in Farnborough, U.K., on July 13, 2014.

Photographer: Simon Dawson/Bloomberg

Boeing Co.’s cash flow surged during the second quarter, with the 787 Dreamliner pacing record jet deliveries as the company profited from an order backlog stretching into the 2020s.

Free cash flow of $2.6 billion reversed the first quarter’s negative result, Boeing said Wednesday. While Boeing pared its 2015 earnings forecast, the planemaker had telegraphed the move with its July 17 warning of a $536 million after-tax charge on swelling costs to develop a new U.S. Air Force refueling tanker.

Together with a quarterly profit that topped the consensus estimates, the results were welcomed on Wall Street, where investors have been waiting for Chicago-based Boeing to end the financial drag from the once-troubled 787. The shares rallied the most in two months and led the Dow Jones Industrial Average.

Boeing’s quarter was “pretty good,” even with the unexpected tanker costs, said Howard Rubel, a Jefferies LLC analyst who rates the stock as buy. “If you back out the charge, these were terrific numbers. I think they are doing what they need to do in terms of running the business. It’s as simple as that.”

Annual profit will be $7.70 to $7.90 a share, Boeing said, down from the $8.20 to $8.40 range that predated the disclosure of the tanker setback. The charge was the second in a year on the plane, bringing the combined costs absorbed by Boeing on the initial fixed-price contract to $1.3 billion.

Quarterly Beat

Quarterly earnings excluding some pension expenses were $1.62 a share, beating the $1.37 average of 14 analysts’ estimates compiled by Bloomberg. Sales of $24.5 billion exceeded analysts’ $24.3 billion prediction.

Boeing climbed 2.7 percent, the most in intraday trading since May 8, to $148.97 at 9:33 a.m. in New York. A 12 percent jump this year through Tuesday was the sixth-best performance among the 30 Dow companies.

“There will be some relief that at least Boeing has kept this set of results surprise free,” Robert Stallard, an RBC Capital Markets analyst, said in a note to clients.

The results signal that Boeing is back on track to reach a goal of generating more than $9 billion in operating cash flow, after a “disappointing cash performance” a quarter earlier, said Stallard, whose sector perform rating on Boeing is the equivalent of hold.

Boeing bought back $2 billion in stock during the quarter, cushioning the blow from the charge on the tanker’s development. The jet is based on Boeing’s 767 passenger model.

787 Cost

Deferred production cost from the 787 climbed 2.9 percent to $27.7 billion from the prior quarter. The expense is an accounting measure that is supposed to drop as a projected gain in efficiency reduces assembly costs on the carbon-composite jet, whose 2011 debut ran more than three years late. The $790 million increase was $3 million less than a quarter earlier.

“The trajectory is consistent with our estimate and the company’s previous guidance,” Douglas Harned, a Sanford C. Bernstein & Co. analyst, said in a note. He expects deferred production costs to peak late this year at about $28 billion.

Boeing has said it expects 787 costs to climb this year, as it gathers inventory to prepare for a 20 percent rise in output. Costs should start to fall next year when Boeing reaches the new tempo of 12 jets a month. Last quarter’s 34 Dreamliner deliveries marked an increase of four from a year earlier. Those were among 197 aircraft handed to buyers, a 9 percent jump and Boeing’s most ever, according to the company.

Commercial-jet revenue rose 18 percent to $16.9 billion, while sales for Boeing Defense, Space & Security fell 3 percent to $7.54 billion.

The reporting period was Boeing’s last quarter under former Chief Executive Officer Jim McNerney, who was succeeded on July 1 by Chief Operating Officer Dennis Muilenburg.

Net income was $1.1 billion, or $1.59 a share. Boeing earned $2.24 a share a year earlier, when it booked a one-time tax benefit. The company focuses on per-share profit excluding pension costs, a measure that it dubs core earnings. Boeing says that figure gives a clearer picture by adjusting for market fluctuations in the cost of its retirement programs.

Read this next:

Before it's here, it's on the Bloomberg Terminal. LEARN MORE