Boeing (NYSE:BA) posted strong growth in its top line and profits in the third quarter on higher commercial airplane deliveries driven by production rate hikes. The aircraft manufacturer delivered 170 commercial airplanes to airlines worldwide during the third quarter, up from 149 in the prior year quarter, as it raised the production rates of its 737, 777 and 787 aircraft to make timely deliveries against their growing order books. Overall, Boeing’s sales rose by 11% annually to $22.1 billion and its earnings rose by 12% annually to $1.51 per share in the third quarter. 
The company’s margins at its commercial aircraft segment also expanded significantly in the quarter driven by its maturing 787 program. Accordingly, Boeing revised upward its full year 2013 guidance for earnings to $5.40-5.55 per share, up from $5.10-5.30 per share guided earlier. The mid-point of this new earnings forecast represents annual growth of 6%. The carrier also maintained its 2013 top line forecast of $83-86 billion, which represents 2-5% annual growth. 
See our complete analysis of Boeing here. We are in the process of incorporating Boeing’s third quarter earnings and shall update our analysis shortly.
Commercial Aviation Demand Is Lifting Boeing’s Results
The commercial airplane segment constitutes a little less than two-third of Boeing’s top line. It is in this segment that Boeing is seeing strong growth driven by rising demand for air travel from the emerging markets and replacement (of older aircraft) demand from the developed markets. In addition, higher profits at most airlines over the past few years driven by a recovery from the financial crisis and consolidation has enabled airlines to place large orders for new airplanes with aircraft manufacturers such as Boeing, Airbus, Bombardier and Embraer.
Driven by these orders, the company is hiking the production rates of some of its highest selling models such as the narrow body 737 and the wide body 787 to make their deliveries on time. In the first quarter of this year, the company increased the production rate of its 737s to 38 airplanes per month, from 35 per month. Thereafter, in May, it rolled out the first 787 Dreamliner at an increased production rate of 7 airplanes per month, up from 5 per month. These two hikes resulted in Boeing delivering 10 more 737s and 11 more 787s in the third quarter, compared to the same period last year. 
In its third quarter earnings release, the company also reaffirmed its plan to raise the production rate of 787 to 10 airplanes per month by the end of this year and also announced that it will further raise their production rate to 12 airplanes per month in 2016 with plans to increase to 14 per month before the end of this decade.  Boeing had earlier also announced that it will raise the production rate of its largest selling model – the 737 – to 42 airplanes per month in 2014 from 38 per month at present. We figure these production rate hikes will help Boeing faster clear its growing backlog and also help grow its results in the coming years.
Separately, in the third quarter, despite higher deliveries driven by production rate hikes, Boeing’s commercial airplane backlog rose to nearly $345 billion from around $317 billion at the start of this year.  This clearly indicates that the company’s order rates continue to be strong, which will enable sustained growth in its results for the foreseeable future.
Government Austerity Cuts In To Defense Backlog
However, Boeing’s defense backlog declined to slightly under $51 billion at the end of the third quarter, from over $55 billion at the start of this year.  This was due to defense spending cuts of the U.S. government, which constitutes over 80% of Boeing’s total defense sales. While these cuts did not have a major impact on the company’s defense sales in the third quarter, we figure that continued uncertainty over the extent of reduction in the government’s defense spending poses a challenge to Boeing’s growth from commercial aviation.
Boeing is taking steps on its part to prepare for lower levels of government defense spending by focusing more on international defense sales. However, we figure this will take some time to take effect as defense contracts from order to delivery typically spread over multiple years. This means Boeing’s focus on growing its international defense sales will likely not offset the impact from defense spending cuts at home in the near term.Notes: