Boeing (BA 0.39%) stock is on an upswing this week, rising more than 4% in the 48 hours following its release of Q1 results Wednesday morning. What's behind this sudden strength, and does Boeing stock deserve to be doing so well? Let's hit the highlights first, and then we'll dive into a few details:

  • Q1 revenues for the aerospace giant were down 3% at $18.9 billion.
  • Operating profit margins on these revenues were flat at 8.1%.
  • Yet net income rose 20% to $1.1 billion, and ...
  • Earnings per share climbed 18% to $1.44.
  • Meanwhile, Boeing managed to hold the line on plane production, delivering the same number of aircraft (137) to customers this quarter as in last year's Q1. And management assured investors that the good times will keep rolling at Boeing, reaffirming its projections for full-year earnings and plane deliveries.

When you consider all the troubles Boeing has had with getting its 787 Dreamliner program up and running -- and then getting it running again after it got stalled by a few exploding batteries -- that's pretty impressive performance, growing earnings by a fifth in a rough year as Boeing did.

Yet it isn't all good news at Boeing.

For one thing, despite what the GAAP numbers seemed to say, free cash flow for the quarter was almost nonexistent. Boeing generated $524 million in cash from operations. That's less than half of reported net income already. Subtract out $521 million in capital expenditures, though, and free cash flow dropped to a bare $3 million -- and if a million dollars ain't what it used to be, even 3 million isn't a whole lot better.

Now, Boeing isn't the only aerospace concern reporting weak FCF this quarter. General Electric (GE 1.44%) reported a 90% reduction in cash production last week. Textron (TXT 0.50%) actually went negative on FCF, hurt by weak business-jet sales.

As for Boeing, it spins the near-vaporization of its cash profits as actually a good thing, "reflecting inventory build on the 787 program." In management's view, the investment of cash in fixing the 787's battery issues today will result in renewed cash inflows in quarters to come.

Going forward, Boeing tells us to expect:

  • Full-year revenue of between $82 billion and $85 billion.
  • $5 to $5.20 in per-share profit.
  • At least $4 billion in positive free cash flow -- possibly more.

Will it happen? Possibly. If it does, Boeing stock should end this year selling for about 17.5 times free cash flow -- a bit pricey for a projected 14% grower paying a 2.2% dividend, but not excessively so. All we know for sure, though, is that with Q1 basically a wash, Boeing now only has three quarters left in which to generate a full year's worth of cash profit.