Boeing Reports Fourth-Quarter 2010 Results and 2011 Guidance
CHICAGO, Jan. 26, 2011 /PRNewswire-FirstCall/
Fourth-Quarter 2010
- Earnings per share of $1.56, including favorable tax settlement, on revenue of $16.6 billion
- Operating cash flow of $1.1 billion reflects strong operating performance
Full Year 2010
- Earnings per share of $4.45 on revenue of $64.3 billion
- Operating cash flow of $3.0 billion and cash and marketable securities of $10.5 billion provide strong liquidity
- Backlog grew to $321 billion including $69 billion of new orders during the year
Outlook
- 2011 EPS guidance of between $3.80 and $4.00 reflects solid core performance, higher pension expense and the recently revised 787 schedule
The Boeing Company (NYSE: BA) reported fourth-quarter net income of $1.2 billion, or $1.56 per share, on revenue of $16.6 billion. The results reflect solid performance across the company's core programs, a favorable tax settlement (+$0.50 per share), and a special one-time contribution to Boeing's charitable trust (-$0.05 per share).
Net income for the full year was $3.3 billion, or $4.45 per share, on revenue of $64.3 billion, which included the $0.45 per share net impact of the favorable tax settlement and the charitable trust contribution. First-quarter 2010 included a $0.20 per share tax charge on health care legislation. Earnings per share for 2009 of $1.84 included a combined $3.58 per share impact due to the 787 R&D reclassification and 747 charges.
Earnings guidance for 2011 has been established at between $3.80 and $4.00 per share reflecting solid core performance, higher pension expense, the revised 787 schedule and the current defense contracting environment.
"Boeing delivered strong operating performance and exceptional cash generation from core production and services businesses in 2010, which helped mitigate the impact of development program challenges," said Jim McNerney, Boeing chairman, president and chief executive officer. "We're entering 2011 well-positioned for growth, with a large order book, increasing global demand for commercial airplanes, greater clarity around our domestic defense outlook, and significant international defense sales opportunities. Our focus for the year is to deliver the 787 and 747-8; manage disciplined increases in commercial airplane production rates and drive improved competitiveness and financial performance throughout the business."
Boeing's quarterly operating cash flow was $1.1 billion, reflecting strong operating performance while continuing to invest in development programs. For the full year, operating cash flow was $3.0 billion. Free cash flow* was $0.7 billion in the quarter and $1.8 billion for the year.
Total company backlog at year-end was $321 billion, unchanged from the prior quarter and up 2 percent from the prior year.
Segment Results
Commercial Airplanes
Boeing Commercial Airplanes fourth-quarter revenue decreased by 11 percent to $8.2 billion on lower expected 777 and 747 airplane deliveries. Operating margin was 7.7 percent, reflecting the lower deliveries and higher R&D and other period costs.
For the full year, revenue decreased by 7 percent to $31.8 billion on the lower expected 777 and 747 airplane deliveries. Commercial Airplanes operating earnings were $3.0 billion on higher planned R&D spending. The prior-year results were impacted by the reclassification of 787 R&D costs of $2.7 billion and 747 charges totaling $1.4 billion.
Commercial Airplanes booked 180 gross orders during the quarter while 22 orders were removed from its order book. This contrasts with the year-ago period when net orders were 62 airplanes. For the full year, net orders were 530 airplanes. Contractual backlog remains strong with 3,443 airplanes valued at $256 billion.
The 787 program experienced an in-flight electrical incident on a test flight in November. As disclosed last week, first delivery is now expected in the third quarter of 2011 and includes the time required to produce, install and test updated software and new electrical power distribution panels in the flight test and production airplanes. Total firm orders for the 787 at year-end were 847 airplanes from 57 customers.
Flight testing of the 747-8 Freighter progressed during the quarter, and the first two Intercontinental passenger models had electrical power successfully turned on. Delivery of the first 747-8 Freighter is planned for mid-2011.
Boeing Defense, Space & Security
Boeing Defense, Space & Security's fourth-quarter revenue declined 4 percent to $8.2 billion on lower revenue in Boeing Military Aircraft (BMA) and Global Services & Support (GS&S). Operating margin was 10.0 percent reflecting improved margins in Network & Space Systems (N&SS).
For the full year, revenue decreased by 5 percent to $31.9 billion on expected lower volume in N&SS. Operating earnings decreased by $0.4 billion to $2.9 billion, producing operating margins of 9.0 percent on lower margins in BMA.
BMA fourth-quarter revenue decreased by $0.2 billion to $3.6 billion, due to fewer deliveries and less favorable mix. Operating margin was 8.9 percent, reflecting strong execution across its programs, offset by higher costs on the Airborne Early Warning & Control program, which reduced BMA margins by 3.8 points. During the quarter, BMA delivered 29 aircraft, and the U.S. Naval Air Systems Command awarded it an A160T Hummingbird unmanned vehicle contract.
N&SS fourth-quarter revenue was essentially unchanged at $2.4 billion. Operating margin grew to 9.0 percent on improved performance in Space and Intelligence Systems. During the quarter, the Mexican government signed a contract for three geomobile satellites and the X-37B Orbital Test Vehicle completed its first flight.
GS&S revenue decreased by $0.3 billion to $2.1 billion in the quarter due to lower volume in maintenance, modifications and upgrades and integrated logistics. Operating margin was 13.1 percent, driven by strong performance across its portfolio. During the quarter, the company was awarded a contract for the development of the Future Logistic Information Services from the U.K. Ministry of Defense and a contract for KC-135 Fleet Support from the U.S. Air Force.
Backlog at Defense, Space & Security is $65.2 billion, approximately two times the unit's expected 2011 revenue. Backlog increased slightly as compared to 2009.
Boeing Capital Corporation
Boeing Capital Corporation (BCC) reported fourth-quarter pre-tax earnings of $6 million compared to $14 million in the same period last year (Table 6). For the full year, pre-tax earnings were $152 million, up from $126 million last year. During the quarter, BCC's portfolio balance declined to $4.7 billion, down from $5.7 billion at the beginning of the year and $5.0 billion at the end of third quarter, on run-off, pre-payments and asset sales. BCC's debt-to-equity ratio was unchanged at 5.0-to-1.
Additional Information
The "Other" segment consists primarily of Boeing Engineering, Operations and Technology, as well as certain results related to the financial consolidation of all business units. Other segment expense was $73 million in the fourth quarter, up from $47 million in the same period last year.
Total pension expense for the fourth quarter was $254 million, as compared to $223 million in the same period last year. A total of $244 million was recognized in the operating segments in the quarter (down from $264 million in the same period last year), and $10 million was recognized in unallocated items.
Unallocated expense was $273 million, up from the $123 million reported in the same period last year, driven by a $55 million charitable trust contribution and higher unallocated pension expense. The company's pension plans were 83 percent funded at year end (5.3 percent discount rate and 12.7 percent actual asset return).
Other income for the quarter was $32 million, as compared to an expense of $33 million in the same period last year. Interest expense for the quarter was $132 million, up from $110 million in the same period last year.
The company's income tax benefit of $163 million in the quarter (compared to an expense of $267 million in the same period last year) included a $371 million non-cash gain due to an IRS settlement for 1998 through 2003 tax years and a benefit of $154 million due to the extension of the R&D credit for the 2010 tax year that was signed into law in December.
Outlook
The company's 2011 financial guidance (Table 7) reflects solid core operating performance, higher pension expense, the recently revised 787 schedule and the current defense contracting environment.
Boeing's 2011 revenue guidance is between $68 and $71 billion and reflects the initial 787 and 747-8 deliveries. Earnings guidance for 2011 is established at between $3.80 and $4.00 per share. Total pension expense in 2011 is expected to be $1.8 billion or $1.58 per share, an increase of $0.58 per share from 2010. Operating cash flow is expected to be greater than $2.5 billion in 2011, including $0.5 billion of discretionary pension contributions.
Commercial Airplanes' 2011 deliveries guidance is expected to be between 485 and 500 airplanes and is sold out. It includes the first 787 and 747-8 deliveries (combined 25 to 40 units), which are expected to begin in the third quarter of 2011 and mid-2011, respectively. Commercial Airplanes' 2011 revenue is expected to be between $36 and $38 billion with operating margins between 7.5 and 8.5 percent.
Defense, Space & Security's revenue for 2011 is expected to be between $31.5 and $33 billion with operating margins between 8.5 and 9 percent.
Boeing Capital Corporation expects that its aircraft finance portfolio will continue to reduce in 2011, as new aircraft financing of less than $0.5 billion is expected to be lower than normal portfolio runoff through customer payments and depreciation.
Boeing's 2011 R&D forecast is between $3.7 and $3.9 billion. Capital expenditures for 2011 are expected to be 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.
Source: BOEING
