The Boeing Co.'s EPS Soared 59%, but Its Stock Price Dropped -- What Gives?

Source: Boeing

As fuel costs continue to soar, airliners are demanding newer and more efficient commercial aircraft, and aircraft manufacturers have been lining up to take orders. Increasing demand for fuel-efficient commercial airplanes has been a boon for Boeing (NYSE: BA  ) and its investors, as the Chicago-based company continues to design cutting-edge aircraft that produce significant savings on fuel. Now, the only catch is that Boeing must increase its production rate to capitalize on all its new business; and in the second quarter, it took another step in that direction. Let's take a look at the highlights from a strong quarter and see why the stock price isn't moving higher.

By the numbers
It should be noted that Boeing reports two sets of financial results: Non-GAAP and GAAP. Its non-GAAP is referred to as its core measures, and it excludes certain components of pension and post-retirement benefit costs. Sometimes, Boeing's core figures more accurately reflect its business because its pension liability and costs had been a significant drag in previous years. That isn't the case in Boeing's second quarter, and its GAAP figures appear solid.

Boeing's top-line revenue increased only 1%, to $22 billion -- all figures will be GAAP compared to last year's second quarter. However, with the help of cost reduction and production increases, that will be one of the least impressive figures you see from Boeing today.

Boeing's earnings from operations increased 4%, to $1.8 billion, with a 20-basis-point improvement in operating margin. Here comes the big one: Boeing's net earnings jumped 52%, to $1.65 billion, compared to last year's second quarter. Better, yet, was Boeing's soaring earnings per share, which increased 59%, to $2.24, in the second quarter.

Source: Boeing

It should be noted that Boeing's excellent gain in earnings per share was favorably affected by tax benefits of $116 million and $408 million in the second quarter. Those roughly equate to a favorable $0.71 addition to earnings per share. If you exclude those from the calculations, Boeing's earnings per share still increased 8.5% from last year's second quarter. While that's still a healthy improvement, it's part of the reason Boeing's stock isn't soaring as you'd expect from a 59% increase in earnings per share.

"Strong operating performance across our production programs and services businesses drove revenue and earnings-per-share growth and healthy operating cash flow, which supported $1.5 billion in additional share repurchases in the quarter," said Boeing Chairman and Chief Executive Officer Jim McNerney, in a press release.

In addition to strong overall financial figures, there was more to be optimistic about in Boeing's second quarter.

Production checks out
One of the biggest factors for Boeing's stock price will be its ability to accelerate production and cash in faster on its enormous $440 billion backlog of orders, $377 billion of which is from commercial aircraft orders. For that reason, investors will be eyeing production rates very closely in the quarters and years ahead. Fortunately, the second quarter appears to have dispelled some anxiety surrounding production hiccups and slowdowns.

Perhaps the most important production rate to keep tabs on is Boeing's 787 Dreamliner; the company supposedly had troubles maintaining its accelerated pace of 10 airplanes per month during the second quarter. In the second quarter, the company checked in with 30 787 Dreamliner deliveries, hinting that production stayed on course. Boeing's 737 delivered 124 airplanes in the second quarter, for a pace of just more than 41 per month. Both the 787 Dreamliner and 737 had respective delivery increases over last year's second quarter of 87.5% and 7%.

Looking ahead
The rest of the year appears promising for Boeing and its investors. Management raised its guidance for full-year 2014, partly due to the effect of tax benefits, by $0.75 for core earnings per share to between $7.90 and $8.10, and its GAAP earnings per share guidance was increased to between $6.85 and $7.05.

Boeing's commercial aircraft backlog reached a record $377 billion, and that figure doesn't include the recent $40.2 billion in orders, valued at current list prices, that the aviation giant won at last week's Farnborough air show.

Boeing expects to beat its record of 648 deliveries, set in 2013, this year by reaching 715-725 deliveries. Also, as the company continues returning value to shareholders through its recently increased dividend and share repurchases, and continues to accelerate deliveries, its share price will continue moving higher.

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