Earnings Release: Higher Commercial Deliveries Boost Revenues At Boeing

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The Boeing Company

Boeing (NYSE:BA) announced its first quarter earnings for 2015 on Wednesday, April 22nd. Revenues in Q1 2015 rose to $22.1 billion which translates to an 8% year-over-year growth. [1] The rise in revenues was primarily driven by higher commercial delivery volumes. Boeing delivered 184 commercial airplanes in Q1 2015, an impressive 14% rise in deliveries on a year-over-year basis. [2] Commercial aviation constitutes nearly 65% of Boeing’s top line. The company also reported an impressive 12% rise in core (non-GAAP) earnings per share, which moved to $1.97 in Q1 2015 from $1.86 in Q1 2014. [3] GAAP earnings per share at $1.87 beat analysts expectations average by 4 cents.

With the strong results posted in Q1 2015, Boeing remains on track with the guidance it set for fiscal 2015 at the beginning of the year. The company anticipates revenue to range between $94.5-$96.5 billion, while core earnings per share will range between $8.20-$8.40. ((First-Quarter 2015 Performance Review, Boeing))

We currently have a price estimate of $156 for Boeing, approximately 3% above its current market price, which will be revised shortly in light of the recent earnings release.

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See our complete analysis of Boeing here

Higher Commercial Airplane Deliveries Accelerated Revenue Growth

Boeing’s commercial airplanes revenues in Q1 2015 grew at a whopping 21% over the first quarter of 2015. Backlog also continued to remain strong at $495 billion, with over 5,700 commercial airplane orders. [3] The revenue growth was driven by higher delivery volumes as the global commercial aviation market continues to show robust growth. The revenue growth from the commercial segment was partially offset by slower revenues derived from Boeing’s defense business due to weak U.S. military spending environment. Revenues for the defense segment in Q1 2015 witnessed a drop of approximately 12% on a year-over-year basis, moving from $7.6 billion in Q1 2014 to $6.7 billion Q1 2015. [3] Military spending is expected to continue remaining weak through the remainder of this year. However, the proposed defense budget for fiscal 2016 in the U.S. is the light at the end of the tunnel for Boeing’s defense segment. The proposed budget gives strong indications of substantial recovery in overall military spending. Since Boeing derives majority of its defense-related revenues from the U.S. government, we can expect that defense-related sales will remain slow through the rest of this year but pick up pace in 2016.

Given the challenging military spending environment, Boeing’s defense segment still managed to report an increase in operating margin. The operating margin for this segment moved from 10.2% in Q1 2014 to 11.1% in Q1 2015. [3] his was driven by proactive cost-cutting measures and improved efficiency. On the flip side, the commercial segment witnessed a small decrease in operating margins which moved from 11.8% in Q1 2014 to 10.5% in Q1 2015. [3] However, this decrease in margins should not bother investors as it is driven by larger deliveries of the 787 in the total delivery mix, which also contributed to the higher revenues. Boeing has been taking steps in making production more efficient, and hence the negative impact of the 787s on margins will gradually decline over the next few years. [4]

All in all, Boeing started 2015 with strong first quarter results, and the commercial aviation up-cycle will likely continue to lift the company’s results through 2015.

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Notes:
  1. First-Quarter 2015 Performance Review, Boeing []
  2. Orders & Deliveries, Boeing []
  3. Boeing Reports Strong First-Quarter Results, Boeing [] [] [] [] []
  4. Boeing’s (BA) CEO Jim McNerney on Q1 2015 Results – Earnings Call Transcript, Seeking Alpha []