Will The Boeing Company’s Q2 Results Live Up to Expectations?

Boeing’s record Dreamliner deliveries have given investors a kick and set the stage for the second quarter…

ICRA Online
Eshna Basu
Jul 22, 2014 at 12:11PM

Boeing (NYSE:BA) has had quite an action-packed past three months, and its second quarter results, slated to release on July 23, should reflect that. Though the aircraft maker hit a few air pockets in the form of order cancellations, backlog remains at record levels and deliveries are on track. Can Boeing's revenue beat estimates, and delight investors?


Strong deliveries to drive revenue
Analysts are expecting revenue to come in around $22.36 billion, which would be a 2.5% rise from the $21.82 billion recorded during the second quarter of last year. For the fiscal year 2014, Boeing expects to record revenue between $87.50 billion and $90.50 billion. Analysts' forecasts are on the higher side of the company's guidance around $89.78 billion. The aircraft giant is focused on fast tracking deliveries through an accelerated production rate, which was visible in this quarter's commercial delivery count.

The Chicago-based company delivered 181 planes during the period, a record number. For the fiscal year, Boeing expects to dispatch around 715 to 725 aircraft. The single-aisle 737 jet continues to be at the forefront, registering 124 deliveries in the second quarter. But the one that stole the show was the 787 Dreamliner. For the first time since the Dreamliner's launch, Boeing was able to achieve its target of delivering 30 787s during the quarter, an 88% hike over the same period past year.


Source: Boeing.

A favorable aircraft delivery mix should significantly boost the company's top line in the quarter. It will be interesting to see if this top line growth trickles down to the aircraft manufacturer's bottom line.

Earnings should get a boost
Some analysts are estimating the company's earnings per share could hit $2.01, an increase of 20% compared to the second quarter of 2013. There are a few factors that will give earnings a leg up. For one, a tax credit will be recognized in the period, adding to the bottom line.

The "partnering for success" program started by Boeing to squeeze component cost will also help numbers. The company has been working with suppliers to lower prices, with the hopes that it will lead to wider profit margins. The initiative's impact should be even more pronounced in the coming years when production rates ramp up.

Higher commercial deliveries should translate into productivity gains and improved operating efficiency. For the year, analysts expect the company to record an EPS of $7.66 against Boeing's guidance of $7.15 to $7.35. The plane maker has a tendency to give a conservative outlook to cushion minor variations.

Cash position to gradually improve
Cash generation of the jet maker has been on the radar for quite some time now. The chart below shows Boeing's irregular free cash flow trend. The Dreamliner project has been soaking up a lot of cash, negatively impacting the company's position. But now having delivered 30 787s along with 24 777s during the quarter, we can expect operating cash to increase. However, there's no assurance that the 787 program would be free of technical hitches, and won't bleed more cash in the future.

In the second quarter of 2013, Boeing had recorded free cash flow of $3 billion with the help of high deliveries and strong operational performance. This time, too, the trend points toward a healthy cash flow. During the quarter, Boeing acquired AerData Group for an undisclosed value -- a move that would have absorbed cash. Boeing's given an annual operating cash flow guidance of $6.25 billion. The company expects cash generation to stabilize over time and seems confident about its operations, which was reflected in the 50% dividend hike announced in December. 

Backlog grows at a healthy pace
The plane maker ended the first quarter with a contractual backlog worth $422.69 billion, including commercial backlog of 5,154 planes valued at $373.95 billion. Backlog edged up during the second quarter as the plane maker's popular aircraft 737 saw a good flow of orders coming in. According to the company's website, total gross order received through July 16 this year is 837, while net orders adjusted for 54 cancellations stand at 783.

During the quarter, Jet Airways cancelled orders for 17 737s in April. This was overcome last month when a Chinese airline China Eastern Airlines decided to purchase 80 737s in a $7.4 billion deal. More than half of the commercial aircraft operating in China are Boeing jets. The order deepens the plane maker's Chinese ties, which could continue to be a huge opportunity, as the emerging economy is poised to become the largest aircraft market in the world.

Turkish Airlines placed orders for 50 737 Max, and Belavia Airlines signed up for three 737-800s in June. In another great development, Gulf carrier Emirates confirmed orders for 150 777s in July, marking the biggest 777 order for Boeing.

Though the risk of cancellations cannot be completely brushed aside, such order wins give a tremendous leg up to the aero giant, keeping its production facilities working at full capacity for years, while ensuring stability of revenue and returns.

Rounding up
High deliveries, operating efficiencies, and timely conversion of backlog will stand Boeing in good stead. Cash flow is getting better and is expected to be more stable over the next couple of years -- adding to investors' return. From the looks of it, quarterly numbers may bring investors good news.