Boeing Q4 Earnings: Shares Jump On Positive 2017 Outlook

Boeing (NYSE:BA)had a rough year in 2016. The company posted special charges in a few of its programs that affected profits in the first half of the year. Additionally, revenues declined on the back of a dismal commercial aircraft market. That said, the world’s largest airplane manufacturer managed to end the year on a solid note, beating consensus revenue and earnings estimates by a sizeable margin. Furthermore, the company has projected a better-than-expected 2017, providing some relief to investors. This was evident in the fact that the stock rallied up by about 5% after the earnings call concluded. Going forward, we can expect things get better, gradually.

The company reported earnings of $2.47 per share, easily surpassing analyst estimates of $2.32 per share. In terms of revenues, Boeing generated $23.3 billion against the analysts’ expectations of $23.1 billion. Additionally, the airplane manufacturer expects the full year earnings per share in 2017 to fall in the $9.10 to $9.30 range.

Commercial Business To Remain Flat

Both Boeing and Airbus have borne the brunt of the slow commercial aircraft market this year. A weak economy has forced air carriers and governments to delay or cancel orders for new aircraft. This is reflected clearly in the companies’ top lines throughout the year.

The company expects to deliver more planes in the coming year. While 2016 saw a total of 748 planes delivered, 2017 can see deliveries in the range of 760 to 765 airplanes. On the contrary, commercial orders are most likely going to remain flat as adverse factors still continue to weigh things down. Boeing managed to book only 668 orders in the year, falling short of the 2015 figure by 13%.

Orders for widebody aircraft are witnessing varying levels of demand depending on the model. Order activity has been weak for widebody aircraft, like the 777 and the 787, throughout 2016. The company ended the year with 58 net orders for the 787 and only 17 net orders for the 777. To put this into perspective, the two programs combined received more than 600 orders in the 2013-2014 period. The weak demand has forced Boeing to cut production of the 777 by upto 60%. That said, the 787 program has finally turned profitable after almost a decade of being in the red. Going forward, we expect this program to be a real cash cow for the company.

That said, over the long term, the management is extremely confident in the commercial market forecasts that continues to project strong global demand. According to the company, customers are expected to order more than 39,600 planes over the next 20 years. This forecast also includes the need for more than 9,000 widebody aircraft on the back of a large upcoming replacement cycle early in the next decade. Furthermore, global passenger traffic continues to outpace GDP with the IATA reporting 6% growth in commercial passenger traffic through November.

Military Business To Benefit Going Forward

The company’s military business remained relatively flat this year, as Boeing continues to lose out to competition. However, in the future, there is a heavy potential for growth. With increased security becoming a priority worldwide, military spending the world over is expected to rise going forward.

While the 2017 U.S. federal budget is not yet finalised, DoD and congressional support for the company’s key BDS programs is firm. Boeing anticipates modest increases in defense spending over the next five years at least. Furthermore, international demand for Boeing military products remains healthy, especially for rotorcraft, commercial derivatives, fighters, satellites and services.

Furthermore, in the quarter, the company notified Congress on the potential sale of 48 Chinooks to Saudi Arabia and 37 Apaches to the UAE. At the same time, Boeing has also received congressional notification for the sale of 36 F-15s to Qatar with a potential for 36 more and 28 F-18s to Kuwait with options for an additional 12. Additionally, the company has initiated talks to conclude the sale of 18 F-18 fighters with Canada.

Throughout the quarter, Boeing announced its plans for additional organisational streamlining and major facilities consolidation in support of these efforts. By 2020, these plans are expected reduce the facilities space by an additional 4.5 million square feet. Additionally, operating cash flows for the year was a record $10.5 billion. The robust cash flow generation was driven primarily by strong core operating performance and continued efforts on disciplined cash management.

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