So Boeing's (NYSE:BA) set to report its Q1 2006 earnings tomorrow morning, and here I am trying to explain everything about this $70 billion company, where it's coming from, and where it's going, all in about 400 words or thereabouts. Good luck.
What analysts say:
- Buy, sell, or waffle? There are 22 analysts with Boeing on their radar. Of these, 12 rate the stock a buy. Seven say hold, and three more say sell.
- Revenues. Analysts expect to see Q1 2006 sales rise 11% in comparison with last year's Q1. The target is $14.4 billion.
- Earnings. Profits are predicted to edge that result and rise 14% to $0.75 per share.
What management says:
In its review of Q4 and full-year 2005 results back in February, Boeing management practically crowed over the company's successes. Backlog was up 33% year over year. Operating profits were up 40%. Operating cash flow -- was up 100%. Simply superb results all around.
Looking forward, management expects 2006 to be good but not superb. It's looking for sales gains of about 10% and a per-share profits increase of about 5%, but it expects operating cash flow to fall by more than 20%. Still further out, Boeing guided investors to expect slower sales growth -- but still positive growth -- in 2007, with profits rising much faster than sales because of an accounting change in 2006. With $60 billion or so forecast for 2006 sales, Boeing is looking for about $64 billion or so in 2007, and flat year-over-year production of operating cash flow, at $5.5 billion in both years.
What management does:
|
Margins % |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
12/05 |
|---|---|---|---|---|---|---|
|
Gross |
15.2 |
14.2 |
14.3 |
14.6 |
14.6 |
15.7 |
|
Op. |
5.1 |
3.6 |
4.4 |
4.8 |
4.2 |
4 |
|
Net |
5.4 |
3.6 |
3.4 |
3.2 |
4.3 |
4.7 |
One Fool says:
Humongous companies like Boeing are tricky beasts to analyze -- simply because there are so many moving parts that it's hard to keep a firm grasp on where the enterprise as a whole is headed. As you can see from the above chart, for example, rolling gross margins are trending upward, operating margins are trending downward, and net margins are incessantly wobbly, often even exceeding operating margins as a result of one-time items -- like the $191 million tax credit the company booked in Q4 2004 and the $201 million credit booked in Q3 2005.
Sometimes, it seems a whole lot easier to just ignore the GAAP-induced wobbling and focus instead on the actual cash the business produces, and how the company deploys it. From this perspective, Boeing looks pretty good. Over the past four years, it generated $1.3 billion, $2 billion, $2.3 billion, and $5.5 billion in free cash flow, respectively. Cash profits in each of those years dwarfed the corresponding "accounting profits" of $0.5 billion, $0.7 billion, $1.9 billion, and $2.6 billion, respectively. And you can't argue with how the company's spending all its cash, either. It raised its dividend 20% and bought back 45 million shares -- more than 5% of shares outstanding -- last year alone.
There's a trend afoot here, and from this Fool's perspective, it's a good one.
Competitors:
- Raytheon (NYSE:RTN)
- Northrop Grumman (NYSE:NOC)
- Lockheed Martin (NYSE:LMT)
- Embraer (NYSE:ERJ)
- General Dynamics (NYSE:GD)
- SpaceHab (NASDAQ:SPAB)
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Fool contributorRich Smithdoes not own shares of any company named above.
