Boeing Co. Earnings: Another Beat-and-Raise Quarter

Boeing (BA 2.16%) has dispelled investors' doubts in the past three years or so, thanks to a run of stellar growth in earnings per share and free cash flow. Indeed, Boeing shares have more than tripled since bottoming out in early 2016.

Last quarter, the U.S. aerospace giant continued its run of strong performance -- particularly in commercial airplanes. This allowed it to raise its full-year guidance again.

Q3 by the numbers

During the third quarter, Boeing's typically efficient production system ran into some snags, largely due to delayed deliveries of LEAP-1B engines for its new 737 MAX jet from CFM, a joint venture of General Electric (GE -1.31%) and Safran.

Boeing had to cope with some delivery delays for its 737 MAX last quarter. Image source: Boeing.

The LEAP engine uses advanced technology developed by GE and Safran to deliver double-digit fuel efficiency gains for the 737 MAX, compared with previous versions of the 737. But some of CFM's suppliers have had trouble keeping up with the steep production increases needed to meet demand for this cutting-edge product. As a result, CFM fell far behind its delivery plans in 2018. The problems peaked last quarter, at one point leading to a pileup of jets waiting for engines at Boeing's factory.

CFM has started to catch up since September. Nevertheless, Boeing's commercial airplane deliveries declined 5.9% last quarter. This put a damper on overall revenue growth, despite strong results in its defense segment.

However, the engine delays didn't break Boeing's earnings and cash flow momentum. Core EPS and free cash flow both soared 37% year over year in the third quarter. The table below provides additional details on Boeing's performance.

Data source: Boeing Q3 earnings releases. Y-o-Y = year-over-year. Note: backlog figures are not fully comparable due to recent accounting changes related to recognizing contractual backlog.

More earnings charges ding profitability

A quarter ago, Boeing's EPS growth was hurt by earnings charges related to cost overruns on its KC-46 Pegasus military tanker project.

In the third quarter, Boeing's defense segment once again recorded some large earnings charges (totaling $755 million). But this time around, they were mainly driven by new contract wins, rather than cost overruns on existing projects. Boeing has been extremely aggressive in bidding for new Pentagon programs, most notably with the T-X trainer jet. It has even been willing to stomach up-front losses to secure the long-term revenue streams that come from winning a major defense contract.

Fortunately, Boeing also concluded a tax settlement last quarter. The resulting tax benefit offset most of the earnings pressure from its contract wins. This enabled Boeing to beat analysts' earnings estimates.

Looking ahead

Boeing also raised its full-year revenue guidance by $1 billion on Wednesday. It attributed the increase to strong defense revenue and its recently closed acquisition of KLX, which will beef up Boeing's new services unit.

And it's important to note that Boeing still expects to deliver 810 to 815 commercial jets in 2018. In other words, by year-end, it will fully catch up on deliveries that were postponed by engine delays. In fact, the outlook implies that Boeing will deliver between 242 and 247 jets this quarter, up from 209 in the prior-year period.

Boeing also boosted its core EPS guidance range by $0.60, to $14.90 to $15.10. It now expects to achieve an operating margin between 12% and 12.5% in its commercial airplanes segment, compared with a previous forecast of greater than 11.5%.

In short, Boeing is still firing on all cylinders. The company's Q3 results and upgraded outlook point to a strong finish to 2018 and further revenue, earnings, and cash flow growth in 2019.