Boeing (NYSE:BA) will announce its fourth quarter results Wednesday, January 29. The airplane manufacturer will likely post healthy growth in its revenues on higher commercial airplane deliveries driven by production rate hikes. Earlier in January, Boeing announced one of its highest quarterly commercial airplane deliveries for the fourth quarter, as it hiked production rates to make timely deliveries against its growing order book. In the fourth quarter, the company delivered 172 commercial airplanes to airlines worldwide, up from 165 in the prior year period.   The increased deliveries were a result of higher production rates across Boeing’s narrow body 737, and wide body 777 and 787 models.
However, the company’s growth from commercial aviation in the fourth quarter could be offset in part by reduced military spending from the U.S. government. Boeing’s defense business, which accounts for around 40% of its top line has suffered in recent quarters due to the government’s defense budget cuts. The company is especially vulnerable to these cuts as the government constitutes over 80% of its total defense revenues.
For full year 2013, Boeing anticipates its top line will grow by 2-5% annually to $83-86 billion and its earnings will grow by 6-9% annually to $5.40-5.55 per share. In the first nine months of 2013, the company’s revenues grew by 6% annually and its earnings rose by 14% annually on higher commercial airplane deliveries, partially offset by military weakness. 
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We currently have a stock price estimate of $124 for Boeing, around 10% below its current market price.
Production Rate Hikes Driven By Strong Demand From Commercial Aviation Will Lift Results
In the fourth quarter, Boeing produced three of its highest selling commercial airplanes namely 737, 777 and 787 at rates higher than their year ago production. In the first quarter of 2013, Boeing increased its 737 production rate to 38 airplanes per month, from 35 per month, and its 777 production rate to 8.3 airplanes per month, from 7 per month. Thereafter in May, the aircraft manufacturer hiked its 787 production rate to 7 airplanes per month, from 5 per month. These production rate hikes resulted in Boeing delivering 5 more 737s, 4 more 777s and 2 more 787s to airlines in the fourth quarter, compared to same period in 2012.
Boeing hiked its production rates as its order book surged sharply in recent years driven by strong order inflows from airlines worldwide. Airlines from the developed markets placed orders for new airplanes to replace their aging fleets, while airlines from developing markets placed orders to create additional flying capacity. As a result, Boeing’s backlog grew to 5,080 commercial airplanes at the end of 2013, from 3,771 commercial airplanes at the end of 2011.  
For full year 2013, driven by this surging order backlog, Boeing hiked its production rates to deliver 648 commercial airplanes to airlines, compared to 601 commercial airplanes it delivered in 2012.
Defense Segment Results Will Likely Be Weaker
Separately, Boeing’s defense segment results in the fourth quarter will likely be weaker compared to its commercial airplane segment results due to reduced military spending from the U.S. government. In the first nine months of 2013, the company’s defense segment profits fell by 2% annually, compared to 24% growth in its commercial airplane segment profits.  We figure Boeing’s defense segment results will likely continue to remain weak in the fourth quarter.
On its part, the company tried to temper the impact from the government’s defense budget cuts on its results by growing its international defense sales. However, it remains to be seen the extent to which growth in international defense sales will offset the negative impact from lower U.S. defense spending in Boeing’s fourth quarter results.Notes:
- Boeing’s 2013 Q4 deliveries, January 6 2014, www.boeing.com [↩]
- Boeing’s 2012 Q4 deliveries, January 3 2013, www.boeing.com [↩]
- Boeing’s 2013 Q3 earnings form 8-K, October 23 2013, www.boeing.com [↩] [↩]
- Boeing Closes 2013 With Record Commercial Deliveries, January 6 2014, www.boeing.com [↩]
- Boeing Completes 2012 with Record-Setting Performance, January 3 2013, www.boeing.com [↩]