The Boeing Company Earnings: How High Can They Fly?

Boeing (NYSE: BA  ) will release its quarterly report on Wednesday, and investors have remained bullish on the aerospace giant, sending its stock to all-time record highs as recently as last week. But even as domestic carriers Delta Air Lines (NYSE: DAL  ) and United Continental (NYSE: UAL  ) have joined dozens of airlines around the world in making massive orders for new aircraft models, the question facing Boeing is whether the huge growth it's experiencing now is sustainable for the long run.

Boeing struggled during the decade of the 2000s, as the airline industry as a whole struggled to remain solvent amid competitive pressures and high costs. Yet as Delta, United, and their peers merged with rivals and started passing through costs to customers in the form of ancillary charges like baggage fees, they suddenly became immensely profitable. That put them in a position to invest in their long-term prospects, and Boeing was ready with more fuel-efficient aircraft models that suddenly found themselves in high demand. Yet the concern is whether all this purchasing activity will meet customers' needs for decades to come, leaving Boeing with a future growth problem. Let's take an early look at what's been happening with Boeing over the past quarter and what we're likely to see in its report.


Source: Boeing.

Stats on Boeing

Analyst EPS Estimate

$1.57

Change From Year-Ago EPS

23%

Revenue Estimate

$22.74 billion

Change From Year-Ago Revenue

2%

Earnings Beats in Past Four Quarters

4

Source: Yahoo! Finance.

How high can Boeing earnings go?
Analysts have been optimistic about Boeing earnings in recent months, raising their fourth-quarter estimates by a penny per share and their full-year-2014 projections by more than a dime per share. The stock has kept climbing as well, rising 13% since late October.

Boeing's third-quarter earnings report gave a good example of just how well the aerospace giant has performed recently. Sales jumped 11% on the strength of its commercial aircraft division, leading the company to boost its full-year-earnings guidance by about 5%-6%, its second upward revision to guidance during 2013. Despite challenging conditions on its defense business, commercial aircraft profits soared by 40%, with the company's order backlog rising to a new record level of $415 billion.

Clearly, customers like United and Delta are hungry to upgrade their fleets with Boeing aircraft. But the challenge Boeing faces is actually building enough planes to satisfy that demand. Its most popular 737 aircraft model represents more than 70% of its backlog, and at current production rates, Boeing would need until mid-2021 to build and deliver currently ordered planes -- even if no further orders come in. To address those concerns, Boeing announced during the quarter its plan to boost its production speed on its 737 models by 24%. Yet the risk remains that customers will flee to Boeing rival Airbus for faster turnaround times, or that Boeing will have to pay penalties for failing to deliver on orders in a timely manner.

Another piece of good news came just after the New Year began, when Boeing announced an eight-year labor contract with its largest union, the International Association of Machinists & Aerospace Workers. The contract only narrowly passed, but it ensures the production of the important 777X model will likely remain within the state of Washington, even after Boeing shopped around to see if it could get a better deal elsewhere.

Investors also need to remember that even with its commercial business thriving, Boeing still has a huge defense presence. For instance, the company said it believes it's on track to deliver on its $52 billion contract for the KC-46 Tanker for the U.S. Air Force. Boeing still has plenty of things to accomplish between now and the expected 2017 delivery date before declaring final victory, but the news nevertheless emphasizes the continuing importance of Boeing to the military community.

In the Boeing earnings report, watch to see how the company comments on its future production ramp-up. With such a huge backlog, the key to earnings expansion will be to deliver on its commitments as quickly as possible in order to keep customers like Delta and United satisfied. Otherwise, enthusiasm could turn to disappointment for Boeing shareholders in the long run.

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Read/Post Comments (3) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 27, 2014, at 1:44 PM, paperplate wrote:

    if one of their concerns is being overbooked, then i'm bullish baby

  • Report this Comment On January 27, 2014, at 4:51 PM, RES wrote:

    Yet as Delta, United, and their peers merged with rivals and started passing through costs to customers in the form of ancillary charges like baggage fees, they suddenly became immensely profitable

    1) They all went bankrupt

    2) They have lost money for nearly a decade

    3) Drastically cut employees

    4) Can still fly most places cheaper than prior to deregulation

    5) Delta is buying mostly used or the last run of the planes

    This is like 1999 when I cost over $1500 DFW-ORD

  • Report this Comment On January 27, 2014, at 9:11 PM, GarryGR wrote:

    You say, "Yet the risk remains that customers will flee to Boeing rival Airbus for faster turnaround times, or that Boeing will have to pay penalties for failing to deliver on orders in a timely manner". Airbus has a larger backlog than Boeing but produced and delivered fewer planes than Boeing did, the last two years. I never understood how it is that some people seem to think that Airbus can easily crank up their production schedule but Boeing can't? There's been much reporting over more than a decade now, on the orders being taken in by Airbus vs. Boeing. And yet, Airbus produced fewer planes than Boeing for two years running. For example, Airbus hopes to be building 4 A350s per month by 2015 while Boeing’s producing 10 B787s per month now and will increase that further by 2015. We'll see if Airbus can crank up their production rate, however, the question is, do they have delivery dates for more planes this year, next year, etc. I've not read about Airbus missing a lot of delivery dates in the last two years, so much of that large order backlog was obviously not for 2012 and 2013. That's the problem with the Boeing / Airbus order numbers; nowhere have I found any accounting of when that order backlog is to be delivered, e.g. how many deliveries this year, how man next year, how many in 2020! ;-) And without knowing that, the order numbers are not that meaningful, as the last two years have shown, because you would have had to assume, based on the order numbers, that Airbus would deliver more planes than Boeing in 2012 & 2013.

    I seriously doubt that Airbus will be able to increase production rapidly enough to offer earlier delivery dates than Boeing.

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