Boeing Reports Strong Second-Quarter Results and Raises 2013 EPS Guidance

Core EPS (non-GAAP)* rose 13 percent to $1.67 on strong operating performance; GAAP EPS of $1.41
Revenue increased 9 percent to $21.8 billion reflecting higher deliveries on the 787 and 737 programs
Backlog grew to a record $410 billion, including $40 billion of net orders during the quarter
Operating cash flow before pension contributions* more than doubled to $3.5 billion
2013 Core EPS guidance increased to between $6.20 and $6.40; GAAP EPS to between $5.10 and $5.30

The Boeing Company (NYSE: BA) reported second-quarter core earnings per share (non-GAAP) increased 13 percent* to $1.67, driven by strong performance across the company’s businesses (Table 1). Second-quarter core operating earnings (non-GAAP) also increased 13 percent* to $2.0 billion from the same period of the prior year. Second-quarter revenue was $21.8 billion, GAAP earnings from operations was $1.7 billion and earnings per share was $1.41. Core earnings per share guidance increased to between $6.20 and $6.40 and GAAP earnings per share guidance increased to between $5.10 and $5.30, reflecting the strong performance. The company also increased its revenue guidance to between $83 and $86 billion on higher Defense, Space & Security revenues, and reaffirmed its 2013 operating cash flow outlook.

“Continued strong core operating performance drove higher earnings, revenue and operating cash flow during the quarter, and we returned significant value to shareholders through share repurchases and increased dividends,” said Boeing Chairman, President and CEO Jim McNerney. “We also further strengthened our market-leading position in commercial airplanes with the successful launch of the 787-10 and $40 billion of new orders, while our defense, space and security business delivered improved margins and market share in a tough market. Overall, our strong first-half performance and positive outlook allows us to raise our 2013 earnings and revenue guidance, and our team remains intensely focused on execution, productivity and quality to meet our customer commitments and further drive growth.”

Core earnings per share guidance for 2013 increased to between $6.20 and $6.40, up from between $6.10 and $6.30, and earnings per share guidance increased to between $5.10 and $5.30, up from between $5.00 and $5.20, both reflecting the strong operating performance. Total company 2013 revenue increased to between $83 and $86 billion, from between $82 and $85 billion, on higher Defense, Space & Security revenue.

Commercial Airplanes’ operating margin increased to greater than 9.5 percent, up from approximately 9.5 percent.

Defense, Space & Security’s revenue guidance increased to between $31.5 and $32.5 billion, from between $30.5 and $31.5 billion, reflecting international volume and mix.

Research and development expense for 2013 is now expected to be approximately $3.3 billion, down from approximately $3.4 billion. Capital expenditures for 2013 is revised to approximately $2.3 billion, down from between $2.3 and $2.5 billion. The 2013 effective tax rate is now expected to be approximately 31 percent, up from approximately 30 percent.

Non-GAAP Measures Disclosures

We supplement the reporting of our financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial information. The non-GAAP financial information presented excludes certain significant items that may not be indicative of, or are unrelated to, results from our ongoing business operations. We believe that these non-GAAP measures provide investors with additional insight into the company’s ongoing business performance. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. The following definitions are provided:

Core Operating Earnings, Core Operating Margin and Core Earnings Per Share

Core operating earnings is defined as GAAP earnings from operations excluding unallocated pension and post-retirement expense. Core operating margin is defined as core operating earnings expressed as a percentage of revenue. Core earnings per share is defined as GAAP diluted earnings per share excluding the net earnings per share impact of unallocated pension and post-retirement expense. Unallocated pension and post-retirement expense represents the portion of pension and other post-retirement costs that are not recognized by business segments for segment reporting purposes. Management uses core operating earnings, core operating margin and core earnings per share for purposes of evaluating and forecasting underlying business performance. Management believes these core earnings measures provide investors additional insights into operational performance as they exclude unallocated pension and post-retirement costs, which primarily represent costs driven by market factors and costs not allocable to government contracts.

Operating Cash Flow Before Pension Contributions

Operating cash flow before pension contributions is defined as GAAP operating cash flow less pension contributions. Management believes operating cash flow before pension contributions provides additional insights into underlying business performance. Management uses operating cash flow before pension contributions as a measure to assess both business performance and overall liquidity. Table 2 provides a reconciliation between GAAP operating cash flow and operating cash flow before pension contributions.

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 as a measure to assess both business performance and overall liquidity. Table 2 provides a reconciliation between GAAP operating cash flow and free cash flow.