To the contrary, with shares of the foreign-listed airplane maker rising more than 2% in late-week trading last week, it seems investors were pleased as punch with what Airbus had to report. Which raises the question: What did Airbus report last week?
- $13 billion in revenue, which was down 26% year over year in dollar terms. (Note that this is S&P Capital IQ's calculation at euro-dollar exchange rates.) In euro terms, as Airbus reported them, revenue was down less than 5%.
- $851 million in net income (likewise), which was up 41% in dollar terms and up 80% in euros.
- $1.09 per share in profit, a 42% increase year over year in dollars, 80% in euros.
Those are some pretty terrific-looking numbers. So terrific, in fact, that they lead an investor to wonder: Why did Airbus shares gain only 2%, and not much, much more?
The answer, like the devil, is in the details. One particular detail worth noting is that in the first quarter Airbus disposed of a 17.5% interest in Dassault Aviation, resulting in a big influx in cash and a big boost to profit. An even more important detail, though, is that absent the stock sale, Airbus would have reported a massive cash outflow for the quarter -- whether you calculate that cash in dollars or euros.
Specifically, Capital IQ calculated that Airbus' cash from operations in first-quarter 2015 was negative $761 million. Airbus didn't reveal its capital expenditures in its earnings press release, but in a separate earnings presentation it put this number at 505 million euros ($566 million at today's exchange rate). This suggests free cash flow (as usually defined -- cash from operations minus capital expenditures) for the quarter of approximately negative $1.33 billion.
Which is not the kind of news you'd ordinarily expect to give rise to a big jump in share price.
Caveats to the details
Mind you, this is not how Airbus itself framed the numbers. As the company calculates it, free cash flow for the quarter was actually positive, like so:
- Free cash flow "before mergers and acquisitions" was negative 1.1 billion euros (negative $1.24 billion at today's exchange rate).
- But Airbus collected 1.6 billion euros ($1.8 billion) in proceeds from the sale of its stake in Dassault Aviation.
- Calculated this way, and considering the proceeds from a one-time sale of another company's shares as if it were an ongoing cash contributor -- which, to be clear, you should never do -- Airbus says it generated 452 million euros in free cash flow, which works out to about $507 million.
What it means to investors
Airbus' first quarter epitomized the concept of "lumpy earnings," with $1.8 billion in extra cash flowing into the company. But that cash flow cannot be expected to repeat. To the contrary, looking toward the end of the year, the best Airbus is promising investors is that:
- Revenue will "increase" in comparison to 2014 "before mergers & acquisitions."
- Operating income will experience a "slight increase" and earnings per share will "increase."
- Meanwhile, "Airbus Group targets breakeven free cash flow in 2015 before M&A."
In other words, Airbus' sustainable, continuing rate of revenue and profit production might increase somewhat this year, although the company won't say how much. Actual cash profit, in contrast, will be lucky to just break even. That right there tells you why Airbus shares only gained 2%.