Clear Skies Likely for Boeing

In its latest quarterly report, aerospace and defense giant Boeing (NYSE: BA  ) announced a weak earnings outlook for 2012, which took away the shine from its strong fourth-quarter numbers.

A wider view may, however, prove that Boeing is stronger than a weak forecast.

A peek into the quarter
Compared to the year-ago quarter, Boeing's net income increased by a sharp 20% to $1.4 billion. After adjusting for tax benefits, this translates into earnings of $1.31 per share, which comfortably beat street expectations of $1.01 per share. Profits were benefited by a strong top line as well.

The company's revenue rose by 10% to $20 billion, helped mainly by an increase in commercial aircraft deliveries. Commercial aircraft sales account for more than half of the company's overall sales. This segment saw a staggering 56% increase in profits and significant improvement in operating margins as well.

Owing to a potential cut in the military budget, defense contractors such as Boeing will soon have to increasingly depend on other sources of revenue. This is where Boeing's well-performing, fast-growing commercial aircraft sales become a crucial area of strength.

The flip side
Boeing's earnings projection for fiscal 2012 has fallen short of analysts' estimates due to increasing costs. Retirement of the first batch of employees who form Boeing's core factory workers is expected to significantly push up pension payments and hurt profitability this year. In fact, the company now expects to earn an average of $4.15 per share this year, nearly 20% less than what analysts predicted.

The bright side
The good news is that Boeing has a thick pipeline of orders. Commercial order backlog is valued at a record $296 billion, while its defense business has orders worth $60 billion. This is truly huge. These orders have the potential of generating profits for a long time, provided Boeing improves its manufacturing capacity.

The company is focused on increasing production and deliveries this year. Compared to 477 commercial aircraft deliveries in 2011, Boeing aims to deliver 585 to 600 aircrafts this year, higher than rival Airbus. Although this target seems a bit overoptimistic, an increase anywhere close to that number will boost Boeing's top line significantly.

The Foolish takeaway
With impressive growth in commercial sales and a heavy backlog to fuel future growth, Boeing certainly looks promising to me. Although pension payments are likely to weigh on Boeing's profits, the company's fundamentals are unlikely to take a long-term hit. Add this company to your watchlist to stay updated.

Navjot Kaur does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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10/22/2014 4:00 PM
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