Boeing Reports Second-Quarter Results and Raises 2011 EPS Guidance

The Boeing Company (NYSE: BA) reported second-quarter net income of $0.9 billion, or $1.25 per share, on revenue of $16.5 billion. Operating margin of 9.3 percent reflects higher Commercial Airplanes volume and strong core performance across the company’s businesses, partially offset by higher pension expense. The company increased its 2011 earnings per share guidance to between $3.90 and $4.10 per share reflecting the strong core performance. Total company 2011 revenue and cash flow guidance is unchanged.

“Strong operational performance drove double-digit margins at both of our major businesses and produced outstanding results in the quarter,” said Jim McNerney, Boeing chairman, president and chief executive officer. “We also made major progress toward certification and delivery of the 787 Dreamliner and 747-8 and continued our disciplined increases in commercial airplane production rates. Our outlook for the year has strengthened as our team continues its relentless focus on productivity improvement, cash management and program execution.”

Boeing’s quarterly operating cash flow was $1.6 billion, reflecting strong operating performance and continued investment in development programs. Free cash flow* was $1.3 billion in the quarter (Table 2).

Cash and investments in marketable securities totaled $8.8 billion at quarter-end (Table 3), up from $7.8 billion at the beginning of the quarter. Debt was essentially unchanged in the quarter.

Total company backlog at quarter-end was $323 billion, down from $329 billion at the beginning of the quarter. Net orders for the quarter were $12 billion and included a significant mix of wide-body commercial airplanes. Backlog is up $2.7 billion from year-end, reflecting $35 billion of net orders in the first half of 2011.

Segment Results

Commercial Airplanes

Boeing Commercial Airplanes second-quarter revenue increased by 19 percent to $8.8 billion on higher deliveries, improved model mix and higher services volume. Operating margin was 10.4 percent, reflecting the higher revenue and strong operating performance, partially offset by higher R&D (Table 4).

Flight testing activities on the 787 and 747-8 Freighter programs are nearing completion. During the quarter, both programs entered into Function and Reliability testing, while the 787 program also began Extended Operations testing. First deliveries of the 787 and 747-8 Freighter are expected later in the third quarter.

Total firm orders for the 787 at quarter-end were 827 airplanes from 57 customers. Commercial Airplanes booked 65 net orders during the quarter and 171 during the first half of 2011. Backlog remains strong with more than 3,300 airplanes valued at $262 billion.

During the quarter, Boeing Capital Corporation’s (BCC) portfolio balance declined to $4.4 billion, down from $4.5 billion at the beginning of the quarter on run-off and asset sales. BCC’s debt-to-equity ratio was unchanged at 5.0-to-1.

The “Other” segment includes unallocated activities of Engineering, Operations and Technology, Shared Services Group as well as certain intercompany guarantees provided to BCC.

The loss in unallocated items and eliminations increased primarily due to higher pension expense. Total pension expense for the second quarter was $389 million, as compared to $283 million in the same period last year. A total of $326 million was allocated to the operating segments in the quarter, up from $305 million in the same period last year, and $63 million was recognized in unallocated items, compared to a benefit of $22 million in the same period last year.

Outlook

The company’s 2011 financial guidance (Table 7) has been updated to reflect the strong core performance in both businesses.

Table 7. Financial Outlook
(Dollars in Billions, except per-share data)

Boeing’s 2011 earnings per share guidance is increased to between $3.90 and $4.10 per share, up from between $3.80 and $4.00 per share.

Commercial Airplanes’ deliveries guidance is now between 485 and 495, down from between 485 and 500, on lower planned deliveries on development programs (now a combined 25 to 30 787 and 747-8 units, from 25 to 40 units). Operating margin is improved to between 8.0 and 8.5 percent, from between 7.5 and 8.5 percent, reflecting strong core performance and the lower planned development program deliveries.

Defense, Space & Security’s revenue guidance for 2011 is now between $31.5 and $32.5, from between $31.5 to $33 billion, on the current business environment. Defense, Space & Security’s operating margin is improved to approximately 9 percent, from between 8.5 and 9 percent, reflecting the strong performance to date.

Capital expenditures for 2011 have been reduced to approximately $2.0 billion, down from approximately $2.3 billion.

Non-GAAP Measure Disclosure

Management believes that the non-GAAP (Generally Accepted Accounting Principles) measures (indicated by an asterisk *) used in this report provide investors with important perspectives into the company’s ongoing business performance. The company does not intend for the information to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define the measures differently. The following definitions are provided:

Free Cash Flow

Free cash flow is defined as GAAP operating cash flow less capital expenditures for property, plant and equipment additions. Management believes free cash flow provides investors with an important perspective on the cash available for shareholders, debt repayment, and acquisitions after making the capital investments required to support ongoing business operations and long term value creation. Free cash flow does not represent the residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures such as repayment of maturing debt. Management uses free cash flow internally to assess both business performance and overall liquidity. Table 2 provides a reconciliation between GAAP operating cash flow and free cash flow.