Boeing (NYSE:BA) reported its second-quarter numbers on July 23 -- it beat analysts' forecasts handily and it raised outlook for earnings. Investors were obviously delighted and shares gained 1.5% in pre-market trading. But the celebrations were cut short once the details of the quarter started coming in, and then the share price made a u-turn. Here's a quick look at what worked for Boeing and what didn't in the second quarter.

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Boeing 737, Source: The Motley Fool

The quarter recap
The jet maker's earnings increased to $1.65 billion or $2.24 per share from last year's $1.09 billion or $1.41 per share. Excluding pension and some other adjustments, Boeing reported core operating earnings of $2.42, up from $1.67 a share in the year-ago quarter. Revenue increased 1.1% to $22.05 billion. Analysts at Thomson Reuters had forecasted earnings of $2.01 per share on $22.23 billion revenues. The company generated operating cash flows of $1.8 billion and repurchased shares worth $1.5 billion during the quarter.

Boeing delivered 181 commercial planes in the quarter, compared with 169 planes in the year-ago period, and commercial revenue soared 5% to $14.3 billion. The quarter's highlight was the delivery of 30 787 Dreamliners, including the first 787-9 that was dispatched to Air New Zealand. The company also crossed an important 737 milestone, delivering its 8000th unit.

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All Nippon Airways Boeing787-8, Source: Wikimedia Commons

Management increased the range of its core earnings guidance for 2014 to $7.90-$8.10 a share from its earlier expectation of $7.15-$7.35 per share.  

What went wrong?
Boeing couldn't fulfill analysts' expectations on the revenue front due to the persisting weakness in the defense segment. Government spending cuts have resulted in lower demand for Boeing's defense and military offerings and revenue declined 5% to $7.8 billion.

Defense earnings dropped by a good 25% to $582 million in the quarter. The 52% rise in the company's overall quarterly profits were helped by tax gains of $524-million, but they "aren't expected to recur", according to industrial analyst Christian Mayes from Edward Jones Equity Research.  

And finally, analysts were quite taken aback by the $272 million charge associated with Boeing's KC-46A tanker. Revamping of the wiring harnesses led to the charge. This is an aircraft that Boeing's developing for the U.S. Air Force's aerial refueling program. The first flight test is scheduled for January next year. In April, Boeing had said that the program was on track despite challenges, and there were no hints of any additional costs till now. 

Analysts think that due to this additional cost, Boeing couldn't increase its 2014 cash flow guidance despite higher earnings forecast. Robert Stallard, analyst at RBC Capital Markets, wrote in a note, "To be halfway through the year, with no change to cash guidance. . . may create doubt as to whether Boeing can generate the cash flow that many are hoping for."

What still works?
Boeing's benefiting from the rebound in the commercial aircraft market. It has a commercial backlog of 5,200 aircraft valued at $377 billion, including 783 new orders bagged in 2014 through June. In July, Boeing made deals worth $40.2 billion for 201 airplanes at the Farnborough air show in England, the Boston Globe reported. These will be reflected in the third-quarter backlog. The aircraft maker's new orders are already ahead of the 715-725 deliveries scheduled for this year.

In the earnings call, Boeing CEO Jim McNerney said, "Global demand remains high for the superior fuel efficiency and economics provided by our family of commercial airplanes. Global passenger traffic trends continue to be healthy, and air cargo traffic is still gradually improving."

The other good news is that McNerney said requests for postponing deliveries from customers were fewer than the historical average, and airlines and lessors are pushing for speedy deliveries. . Given that Boeing's commercial backlog is skewed toward orders from emerging economies, there are always concerns that the uncertainties with Asian carriers could lead to order cancellations.

Finally, analysts are expecting the Dreamliner to break even on the deliveries that happen in the latter part of the year. Until now, the company has been losing money on all the Dreamliners it's delivering.

Foolish last word
Though Boeing beat analysts' earning forecasts in the second quarter, investors were worried about the ailing defense segment, the sudden charge in the KC-46A tanker development program, and the possibility of lower than expected cash flow generation. The concerns are valid, but from a longer-term perspective the strength in Boeing's commercial business can help it get past big hurdles.

ICRA Online and Eshna Basu have no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.