Boeing‘s (NYSE:BA) earnings increased by 18% year-over-year to $1.44 per share in the first quarter driven by higher deliveries of narrow body 737s and wide body 777s.  The halt on deliveries of 787 Dreamliner during the quarter contributed to growth in the company’s margin as airplane deliveries consisted of a larger share of the higher margin 737s and 777s.
On April 19, the Federal Aviation Administration (FAA) also approved the 787 battery modifications proposed by Boeing. This has paved the way for return of these airplanes to commercial service. Currently, Boeing is incorporating the approved battery modifications in the 50 in-service 787s operated by eight airlines across the world. The aircraft manufacturer also anticipates resuming 787 deliveries soon and reiterated that it expects to deliver over 60 787s to airlines in 2013. Boeing currently has 840 undelivered orders for the 787 Dreamliner. 
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The company also reaffirmed its outlook for 2013. It forecasts revenues of $82-$85 billion, up from $81.7 billion in 2012, and earnings of $5-$5.20 per share in 2013, compared to $5.11 per share in 2012.  We currently have a stock price estimate of $88 for Boeing, approximately 5% below its current market price.
Increased Production Rates Of 737 And 777 Drive Growth
During the first quarter, Boeing increased the production rate of single-aisle 737s to 38 airplanes per month from 35 per month driven by their large order backlog. However still, the number of undelivered 737 orders climbed to 3,125 at the end of the first quarter, from 3,074 at the end of 2012. Looking ahead, the company plans to further hike the 737 production rate to 42 airplanes per month in 2014. Boeing also increased the production rate of wide body 777s during the first quarter to 8.3 units per month from 7 per month. As a result of these hikes in production rate, it was able to deliver 102 Boeing 737s in the first quarter, three more than the prior year period, and 24 Boeing 777s, four more than the first quarter of 2012. 
We anticipate that these production rate hikes will help Boeing to maintain its share of the global commercial airplane deliveries in 2013. The chart below highlights Boeing’s market share of global commercial airplane deliveries.
Halt On 787 Deliveries Impacts Top Line
However, Boeing’s total commercial airplane deliveries and its top line in the first quarter were impacted by the suspension on 787 deliveries. In January, Boeing had voluntarily halted deliveries of the 787 Dreamliner after the FAA had ordered the grounding of all in-service 787s due to battery related incidents. This suspension lowered the company’s top line by 3% y-o-y to $18.9 billion in the first quarter. 
Additionally, the freeze on 787 deliveries also lowered Boeing’s free cash flow to $3 million in the first quarter compared to $413 million in the first quarter of 2012.  However, this deferred cash will get realized over the coming months, as the company resumes delivery of 787s. Further, Boeing will increase the production rate of 787s to 10 units per months by the end of 2013, from around 7 per month at present. 
Separately, Boeing also announced that it will lower the production rate of its largest commercial airplane model – the 747, from 2 units per month at present to 1.75 units per month in January 2014.  Continued weakness in the global cargo markets coupled with lower than anticipated demand for super jumbos, has dented sales of 747s.
Defense Segment Sales Under Pressure From Government Austerity
Boeing’s sales from its defense segment also declined marginally to $8.1 billion in the first quarter from $8.2 billion in the year ago period due to a decline in government’s defense spending.  The across-the-board government spending cuts called sequestration which came in to effect on March 1, are expected to lower the planned defense budgetary spending of the U.S. government by $42.7 billion in the fiscal year 2013.  Looking ahead, this cut back can severely impact the results at Boeing’s defense segment, as the company receives over 80% of its defense sales from the U.S. government.Notes: