Boeing’s third-quarter financial results exceeded expectations, leading the company to raise its outlook for the full year — and leading investors to bid up Boeing’s share price.
Adjusted earnings per share amounted to $3.58, which was nearly 4 percent higher than the Zacks Consensus Estimate and 37 percent higher than the year-ago figures. Total revenue was $25.1 billion, 4 percent higher than last year’s third quarter.
Boeing updated its guidance for 2018, raising its revenue projection by $1 billion to the range of $98 billion to $100 billion. Projected earnings per share got a similar boost, rising 60 cents to the range of $14.90 to $15.10.
“With growing markets and opportunities ahead, our team remains intensely focused on growth, innovation and accelerating productivity improvement to fuel our investments in the future,” Boeing CEO Dennis Muilenburg said today during a conference call with reporters and analysts.
On the plus side, Boeing pointed to higher-than-expected margins on 787 Dreamliner jet sales and strong operating performance on commercial aircraft production programs. The company also scored a hat trick for defense contracts, winning the Air Force’s go-ahead to build T-X training jets and MH-139 helicopters, as well as the Navy’s nod for MQ-25 drone tankers.
Boeing took a $691 million charge to cover investments related to those contracts, which was partially offset by the $412 million benefit of a tax audit settlement.
There was also a $176 million charge related to delays in delivering the Air Force’s KC-46 tanker. Muilenburg said the first deliveries were now on track for the fourth quarter, reiterating a schedule he laid out earlier this month at the GeekWire Summit. Boeing has absorbed more than $3 billion in cost overruns on the fixed-price KC-46 contract.
Muilenburg said Boeing was making progress on supply-chain snags that resulted in a logjam of unfinished 737 jets at its Renton factory this summer. “We’re continuing to ramp up on our recovery plan,” he said.
Sixty-one 737s were delivered in September, which helped Boeing catch up on its target of producing 52 of the single-aisle jets per month. Muilenburg said all the production indicators were “trending in the right direction,” and he expected the backlog to be cleared by the end of the month. The monthly production rate is scheduled to rise to 57 sometime next year.
— The Boeing Company (@Boeing) October 24, 2018
During the quarter, the mix of jet deliveries trended more toward widebody 777 and 787 jets, which provide bigger profit margins and helped keep Boeing’s revenue projections on track. Boeing said its order backlog has grown to a value of $491.2 billion, including more than 5,800 commercial airplanes.
The company is also moving ahead with its next-generation 777X widebody: The first ground test airplane was rolled out of Boeing’s Everett plant last month. The first flight tests are set for next year with delivery on track for 2020, Muilenburg said.
Boeing Global Services, which was launched as a standalone business unit only last year, scored a strong quarter as well, with revenues rising 14 percent year over year.
Muilenburg emphasized the long-term view in today’s remarks. On the trade front, he noted that China is projected to have a strong need for passenger jets in the years ahead, and the Trump administration recognizes how important aerospace exports are for the U.S. trade balance.
“There are strong reasons in both the U.S. and China to have a healthy, prosperous aerospace industry,” Muilenburg said.
On the defense front, Muilenburg said Boeing’s bids on the T-X, MQ-25 and MH-139 contracts were made with an eye toward capturing franchises that could bring in $60 billion for Boeing in the decades ahead.
Earlier this week, Lockheed Martin CEO Marillyn Hewson said her company would have lost more than $5 billion if it tried to match Boeing’s bids. But Muilenburg suggested that any losses in the short term would be made up by profits over the long run.
“Think of applying a commercial mindset to franchises that are measured in decades,” he said.
Even though the newly won defense contracts are fixed-price, Muilenburg said the projects are “fundamentally different” from the fixed-price KC-46 tanker program that created so many cost-overrun issues for Boeing.
He pointed out that the KC-46 was still on the drawing boards when Boeing won that contract. In contrast, Boeing has already started flying its T-X prototypes (with Muilenburg taking a turn in the cockpit) and has already conducted extensive ground tests of its prototype MQ-25 drone tanker.
Boeing’s share price was up more than 3 percent at midday, at times rising above $362, but fell back somewhat to close at $354.65 due to a broader market selloff.
Update for 2:20 p.m. PT Oct. 25: This story has been updated to reflect the ups and downs of Boeing’s share prices. The closing price on Oct. 25 was $363.77.