Source: Boeing
Among the top blue chip stocks in the market, Boeing (BA +1.39%) has one of the biggest growth opportunities in front of it. With trillions of dollars of potential orders in the next 20 years, Boeing is doing its best to capture as much market share as it possibly can. But with large backlogs and the challenge of an expensive ramp-up in its production capabilities, the question many investors have is whether Boeing is actually seeing money come in as it works toward fulfilling its commitments on long-term contracts.
Looking at earnings is a useful way of assessing a company's financial health, but cash flow analysis is a vital supplement, showing more clearly whether the company is actually seeing money flow in from its business activities. In some cases, even companies that look strong on an earnings basis are actually vulnerable to cash crunches because their cash flow isn't as reliable. Let's take a close look at Boeing's cash flow figures and pick out three key elements of the company's financial strength.
A look at Boeing
|
Net Income, Past 12 Months |
$5.01 billion |
|
Cash From Operations, Past 12 Months |
$7.11 billion |
|
Capital Expenditures, Past 12 Months |
($2.07 billion) |
Source: S&P Capital IQ
1. Free cash flow is back at Boeing.
The long-term trend at Boeing has been toward rising free cash flow, with the figure hitting a record of nearly $8 billion in 2007. Yet as happened with most companies, Boeing suffered a big drop during the financial crisis, as cash from operations actually went negative temporarily and carried free cash flow with it.
BA Free Cash Flow (Annual) data by YCharts
In the ensuing years, though, Boeing has made major efforts to boost its cash from operations while keeping growth in capital expenditures under control. In 2013, free cash flow climbed back to about $6 billion for the first time since before the crisis, and although the first half of 2014 hasn't gone quite as well, Boeing still hopes that its efforts to produce more cash will be successful in the long run.
2. Boeing's capital expenditures might need to rise further.
A lot of the gain in Boeing's free cash flow has come from the fact that even as it has raised its cash from operations, the aerospace company hasn't seen a huge increase in capital expenditures. But as order backlogs lengthen, Boeing expects that its capex will have to rise. Already in 2013, Boeing boosted its capital spending from $1.7 billion to $2.1 billion, and the company's forecast for 2014 has capex rising higher to about $2.5 billion.
BA Capital Expenditures (Annual) data by YCharts
Despite the negative impact on free cash flow, Boeing's decision to spend more on capital improvements should be encouraging to investors. Boeing has identified the need to ramp up aircraft production in order to meet the huge demand for its planes, and the only way to build up capacity is to spend money on building new facilities and improving existing production processes to enhance efficiency. Rising capital spending should result in higher revenue after a short lag, so investors can keep tabs on Boeing's progress just by keeping an eye on future financials.
3. Boeing is deploying its free cash toward buybacks.
Perhaps the most interesting shift in Boeing's cash flow is in how the company is deploying the bulk of its available capital. From 2009 to 2012, Boeing focused most of its capital toward paying down long-term debt, spending a total of about $5.1 billion toward reducing its debt load. Yet last year, the company took a more balanced approach toward its capital allocation, reducing debt by about $1.7 billion but also implementing a stock buyback program that resulted in $2.8 billion in share repurchases.
Source: Boeing
Boeing has made considerable progress in getting its debt back down to pre-crisis levels, and going forward, that should leave more free cash flow available for dividends or buybacks. That could provide support for the stock, and it could give Boeing more flexibility with future capital-allocation decisions as industry conditions change.
Boeing is showing shareholders the money
From a cash flow perspective, Boeing looks like a formidable player in a fast-growing industry. As long as it keeps making smart decisions with its available cash, Boeing has the potential to grow even stronger in the years ahead.
