Boeing's 787 Dreamliner may be a future goldmine, however, it's currently weighing on the stock price. Image source: Boeing.
Last year, Boeing (BA +1.74%) could do no wrong. Despite grounded airplanes due to faulty batteries, production delays, and cost overruns, the stock price continued flying higher. This year, however, the story of Boeing's stock price is different, and it's trading 8% lower year-to-date.
On Wednesday Boeing announced its third-quarter results, which beat Wall Street earnings expectations, and, on top of that, management raised full-year core earnings guidance. Typically, this means good things for a company's stock price, but today Boeing's stock is trading roughly 3% lower after the conference call. Here's a look at the details, and what's weighing on the stock.
By the numbers
Let's get the hard facts, and sometimes dreary numbers, out of the way. Boeing's non-GAAP core operating earnings, which don't include some pension and other expenses, rose 13% over last year's third quarter to $2.4 billion. Boeing's core operating margin jumped 50 basis points to 10.2% in the third quarter and remains 20 basis points higher for the full year.
Despite a decline in Boeing's Defense, Space & Security segment, as government spending cuts continue to weigh on the business segment, the aircraft manufacturer's overall top-line growth was fueled by its commercial aircraft. Boeing's commercial aircraft deliveries were up 9% in the third quarter to 186 units and are up 11% for the year to 528 units. The increase in deliveries helped push its commercial airplane revenue up 15% in the third quarter, outweighing the 2% revenue decline in the company's defense, space & security business.
Overall, it was a solid quarter for Boeing, which continues to ramp up production and take in orders for its ballooning backlog -- more on that in a second. With more positives looming in Boeing's business horizon, management raised guidance from between $7.90-$8.10 earnings per share for the full year to between $8.10-$8.30 per share.
Turbulence on the way?
Despite Boeing's third quarter being a solid one, questions surrounding its 787 Dreamliner continue to weigh on the stock price. It was one of the reasons Boeing's operating cash flow before pension contributions declined a staggering 61% to $1.7 billion, compared to last year's third quarter.
The 787 program is still not cash flow positive, and as production increased it is temporarily putting pressure on Boeing's commercial airplane margins, which declined 40 basis points to 11.2%, compared to last year's third quarter -- although 11.2% remains a strong figure. We can also expect that pressure to remain as the company continues to ramp up production of the 787 program.
While questions surrounding Boeing's 787 will remain in the short term, the company's overall business is strong, and the company continues to return significant value to shareholders.
Graph by author. Information source: Boeing
In the third quarter Boeing repurchased 8 million shares for $1 billion, which still leaves authorization for $5.8 billion to be repurchased over the next one to two years. Boeing also continued to dish out its quarterly $0.5 billion per quarter in dividends, or $0.73 per share.
In addition to receiving dividends from Boeing, while investors wait for the 787 Dreamliner program to turn cash flow positive and aid the overall business, you can sleep at night as the company's backlog of orders has ballooned from $440 billion to a record $490 billion at the end of the third quarter. Boeing's backlog of orders represents roughly seven years of production, a revenue safety net few companies can match.
Despite grumblings of the unprofitable 787 program, there are plenty of reasons to rest assured your investment in Boeing will be safe and valuable throughout the decade.
