The Boeing Company on January 27 reported fourth-quarter net income of $1.3 billion, or $1.75 per share, as revenue rose 42 percent to $17.9 billion. Current period results reflect solid performance across core businesses and represent a significant improvement over the year-ago quarter, which included a labor strike and a charge on the 747 program (Table 1).
Revenue for the full year reached a record $68.3 billion on higher commercial deliveries and growth in Defense, Space & Security. Earnings for the year declined to $1.84 per share due to a combined $3.58 per share impact from previously announced 787 and 747 events in Commercial Airplanes. Earnings for 2008 of $3.67 per share included a combined $2.56 per share impact primarily due to a labor strike and charges on the 747 program.
Earnings guidance for 2010 has been established at $3.70 to $4.00 per share, reflecting the previously announced 777 production rate reduction, reduced scope on Army modernization and missile defense programs, and some consideration for development program and market risks.
"We put a strong finish on 2009 by getting the 787 in the air and generating solid core operating performance across the company," said Jim McNerney, Boeing chairman, president and chief executive officer. "Focus areas for 2010 are to continue our strong operational performance, certify and deliver the 787 and 747-8, and further reposition our defense, space and security business. While the challenges ahead are significant, I believe we have the people and the resources we need to be successful and to begin consistently delivering on this company's great potential."
Boeing's quarterly operating cash flow was $3.2 billion, which includes higher cash receipts than the strike-affected period a year ago partially offset by continued investment in development programs (Table 2). For the full year, operating cash flow was $5.6 billion. Free cash flow* was $3.0 billion in the quarter and $4.4 billion for the year.
Table 1. Summary Financial Results
(Dollars
in
Millions,
except
per Fourth Quarter Full Year
share -------------- -------------
data) 2009 2008 Change 2009 2008 Change
--------------------------------------------------------------------
Revenues $17,937 $12,664 42% $68,281 $60,909 12%
Earnings/
(Loss)
From
Operations $1,693 ($243) NA $2,096 $3,950 (47%)
Operating
Margin 9.4% (1.9%) 11.3 Pts 3.1% 6.5% (3.4)Pts
Net
Income/
(Loss) $1,268 ($86) NA $1,312 $2,672 (51%)
Earnings/
(Loss)
per
Share $1.75 ($0.12) NA $1.84 $3.67 (50%)
Operating
Cash
Flow $3,212 ($1,641) NA $5,603 ($401) NA
Table 2. Cash Flow
Fourth Quarter Full Year
-------------- ---------------
(Millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
Operating Cash Flow (1) $3,212 ($1,641) $5,603 ($401)
Less Additions to
Property, Plant &
Equipment ($221) ($445) ($1,186) ($1,674)
--------------------------------------
Free Cash Flow* $2,991 ($2,086) $4,417 ($2,075)
(1) Operating cash flow for the full year includes cash
contributions to pension plans of $82 million in 2009
and $531 million in 2008.
* Non-GAAP measure. A complete definition and
reconciliation of Boeing's use of non-GAAP measures,
identified by an asterisk (*), is found on page 8, "Non-GAAP
Measure Disclosure."
Cash and investments in marketable securities totaled $11.2 billion at year-end, up 70 percent in the quarter. The cash position was improved by the issuance of $2.2 billion in debt during the quarter and disciplined operational management (Table 3).
Table 3. Cash, Marketable Securities and Debt Balances
Quarter-End
-------------
(Billions) 4Q09 3Q09
----------------------------------------------------------------
Cash $9.2 $6.1
Marketable Securities(1) $2.0 $0.5
---- ----
Total $11.2 $6.6
Debt Balances:
The Boeing Company $8.8 $7.6
Boeing Capital Corporation $4.1 $3.4
---- ----
Total Consolidated Debt $12.9 $11.0
(1) Marketable securities consists primarily of time deposits
due within one year classified as "short-term investments."
Total company backlog at quarter-end was $316 billion, down 1 percent in the quarter, as backlog for both Commercial Airplanes and Defense, Space & Security declined during the period.
Segment Results
Commercial Airplanes
Boeing Commercial Airplane's fourth-quarter revenue doubled to $9.2 billion. A labor strike reduced revenue in the year-ago period by an estimated $4.3 billion. The current period operating margins of 11.1 percent reflect strong operating performance and model mix, while earnings for the year-ago quarter were reduced by the labor strike and a 747 charge (Table 4).
For the full year, revenue rose to $34.1 billion on higher airplane deliveries partially offset by lower services volume. Commercial Airplanes posted a loss for the year of $0.6 billion driven by previously announced 787 and 747 impacts. The 787 impact, which reduced 2009 operating earnings by $2.7 billion, resulted from the reclassification of costs for the first three flight-test airplanes from program inventory to research and development expense. On the 747, higher costs and difficult market conditions resulted in previously announced charges totaling $1.4 billion. Combined, these events reduced the unit's reported operating margin by 11.9 points.
Table 4. Commercial Airplanes Operating Results
Fourth Quarter Full Year
(Dollars in -------------- --------------
Millions) 2009 2008 Change 2009 2008 Change
-----------------------------------------------------------------------
Commercial
Airplanes
Deliveries 122 50 144% 481 375 28%
Revenues $9,183 $4,589 100% $34,051 $28,263 20%
Earnings/
(Loss) from
Operations $1,020 ($968) NA ($583) $1,186 NA
Operating
Margins 11.1% (21.1%) NA (1.7%) 4.2% NA
Commercial Airplanes booked 82 gross orders during the quarter while 20 others were removed from its order book. Contractual backlog remains strong with 3,375 airplanes valued at $250 billion, more than seven times the unit's 2009 revenue.
The 787 program entered flight testing during the quarter with the first two airplanes completing first flights. The remaining four flight-test airplanes are expected to be flying by the end of the second quarter. First delivery is scheduled for the fourth quarter of 2010. During the quarter, the company completed its acquisition of Global Aeronautica and broke ground in South Carolina for the second 787 assembly line. Total firm orders for the 787 at quarter-end were 851 airplanes from 56 customers.
The 747-8 program expects its first flight in the near future which will begin the flight-test phase of the program. Initial delivery is expected in the fourth quarter of 2010.
Boeing Defense, Space & Security
Boeing Defense, Space & Security's fourth-quarter revenue rose 6 percent to $8.5 billion on increased military aircraft deliveries and higher volume in services. Operating margins were 9.7 percent reflecting strong performance in Boeing Military Aircraft and Global Services & Support partially offset by additional costs on the Airborne Early Warning and Control (AEW&C) program which reduced margins by 1.6 points (Table 5).
For the full year, revenue increased by 5 percent to $33.7 billion on growth in Global Services & Support and Boeing Military Aircraft segments. Operating earnings grew 2 percent to $3.3 billion, producing operating margins of 9.8 percent.
Table 5. Boeing Defense, Space & Security Operating Results
(Dollars Fourth Quarter Full Year
In -------------- --------------
Millions) 2009 2008 Change 2009 2008 Change
----------------------------------------------------------------------
Revenues
Boeing
Military
Aircraft $3,733 $3,142 19% $14,057 $13,311 6%
Network &
Space
Systems $2,385 $2,861 (17%) $10,877 $11,346 (4%)
Global
Services&
Support $2,429 $2,038 19% $8,727 $7,390 18%
------ ------ ------ ------
Total BDS
Revenues $8,547 $8,041 6% $33,661 $32,047 5%
Earnings
from
Operations
Boeing
Military
Aircraft $353 $348 1% $1,513 $1,277 18%
Network &
Space
Systems $141 $228 (38%) $839 $1,034 (19%)
Global
Services &
Support $335 $305 10% $947 $921 3%
---- ---- ---- ----
Total
BDS
Earnings
from
Operations $829 $881 (6%) $3,299 $3,232 2%
Operating
Margins 9.7% 11.0% (1.3)Pts 9.8% 10.1% (0.3)Pts
Boeing Military Aircraft (BMA) fourth-quarter revenue rose 19 percent to $3.7 billion and operating margin was 9.5 percent, reflecting higher aircraft deliveries, improved delivery mix and strong execution across its programs, partially offset by higher costs on the AEW&C program which reduced BMA margins by 3.5 points. During the quarter, BMA delivered 32 aircraft, the EA-18G was approved for full-rate production, and the C-17 won new international orders.
Network & Space Systems fourth-quarter revenue was $2.4 billion, reduced primarily by lower volume on combat systems and missile defense. Operating margin was 5.9 percent reflecting solid performance across the segment's array of programs partially offset by a write-down of Delta II inventory and a contract settlement in satellites. During the quarter, the Brigade Combat Team Modernization Increment 1 was approved to enter low rate initial production.
Global Services & Support (GS&S) revenue increased 19 percent on higher volume across its broad portfolio of services and logistics products. During the quarter, GS&S operating margins were 13.8 percent driven by strong operating performance. In this segment, the KC-135 Programmed Depot Maintenance contract award was reinstated, and the company was awarded several Department of Energy Smart Grid grants.
Backlog at Defense, Space & Security is $64.8 billion, approximately two times expected 2010 revenue. The reduction in backlog was driven by run-off of multi-year contracts that exceeded additions to backlog and by termination of a portion of the Brigade Combat Team Modernization contract due to changing US defense priorities.
Boeing Capital Corporation
Boeing Capital Corporation (BCC) reported fourth-quarter pre-tax earnings of $14 million compared to $19 million in the same period last year (Table 6). During the quarter, BCC's portfolio balance declined slightly to $5.7 billion, down from $6.0 billion at the beginning of the year and from $6.1 billion at the end of the third quarter, on customer payments and depreciation. BCC contributed $93 million in cash dividends to the company during the full year. BCC's debt-to-equity ratio increased to 5.8-to-1.
Table 6. Boeing Capital Corporation Operating Results
Fourth Quarter Full Year
-------------- ------------
(Dollars in Millions) 2009 2008 Change 2009 2008 Change
----------------------------------------------------------------------
Revenues $164 $168 (2%) $660 $703 (6%)
Earnings from Operations $14 $19 (26%) $126 $162 (22%)
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 $47 million in the fourth quarter, down from $74 million in the same period last year.
Total pension expense for the fourth quarter was $223 million, as compared to $113 million in the same period last year. A total of $264 million was recognized in the operating segments in the quarter (up from $99 million in the same period last year), partially offset by a $41 million contribution to earnings in unallocated items. The company made a discretionary contribution of 29.2 million shares of Boeing common stock, valued at $1.5 billion, to its pension plans during the quarter.
Unallocated expense was $123 million, up from $101 million in the same quarter last year, driven by higher deferred compensation expense partially offset by lower unallocated pension expense and intersegment eliminations.
Interest expense for the quarter was $110 million, up from $57 million in the same period last year due to additional debt issued in 2009. Other income/(expense) decreased $23 million driven by lower interest earned on cash balances.
Outlook
The company's 2010 financial guidance reflects solid operating performance amid lower volumes, higher pension expense and continued investment in development programs (Table 7).
Boeing's 2010 revenue guidance is $64 billion to $66 billion and reflects previously announced production rate reductions on 777 and reduced scope on Army modernization and missile defense. Earnings guidance for 2010 of $3.70 to $4.00 per share reflects the lower revenue and includes some consideration for development program and market risks. Operating cash flow is expected to be approximately zero in 2010, including less than $100 million of pension contributions, as the company continues to build inventory on key development programs.
The company expects that 2011 revenue will be higher than 2010, primarily driven by higher estimates of 787 and 747-8 deliveries. Combining higher estimated deliveries with plans for R&D and other factors, operating cash flow in 2011 is expected to be greater than $5 billion.
Commercial Airplanes' 2010 delivery guidance is established at between 460 and 465 airplanes (reflecting fewer twin-aisle deliveries) and is sold out. It includes the first few 787 and 747-8 deliveries, which are expected to begin in the fourth quarter. The unit's 2010 revenue is expected to be $31 billion to $32 billion with operating margins between 6.5 percent and 7.5 percent.
Defense, Space & Security's revenue for 2010 is expected to be $32 billion to $33 billion with operating margins of approximately 10 percent.
Boeing Capital Corporation expects that its aircraft finance portfolio will continue to reduce as its expected new aircraft financing for 2010 is less than $0.5 billion, below normal portfolio runoff through customer payments and depreciation. BCC's debt-to-equity ratio is expected to return to the 5.0-to-1 level in the second half of 2010.
Table 7. Financial Outlook
(Dollars in Billions, except per-share data) 2010
-------------------------------------------------------------
The Boeing Company
Revenue $64 - $66
Earnings Per Share (GAAP) $3.70 - $4.00
Operating Cash Flow(1) ~ $0
Boeing Commercial
Airplanes
Deliveries 460 - 465
Revenue $31 - $32
Operating Margin 6.5% - 7.5%
Boeing Defense, Space & Security
Revenue
Boeing Military Aircraft ~ $15
Network & Space Systems ~ $9
Global Services & Support ~ $8.5
----------
Total BDS Revenue $32 - $33
Operating Margin
Boeing Military Aircraft ~ 10.5%
Network & Space Systems ~ 8.5%
Global Services & Support ~ 11%
----------
Total BDS Operating Margin ~ 10%
Boeing Capital
Corporation
Portfolio Size Lower
Revenue ~ $0.6
Return on Assets > 1.0%
Research & Development $3.9 - $4.1
Capital Expenditures ~ $1.9
(1) After cash pension contributions of less than $0.1 billion and
assuming new aircraft financings under $0.5 billion.
Boeing's 2010 R&D forecast is $3.9 billion to $4.1 billion on continued investment in development programs, including an operating model adjustment to better balance future R&D efforts at Commercial Airplanes. R&D is expected to decrease significantly in 2011. Capital expenditures for 2010 are expected to be approximately $1.9 billion reflecting the bulk of capital investments required for the second 787 assembly line in South Carolina. Capital expenditures in 2011 are expected to be lower than in 2010.
The company's non-cash pension expense is expected to be approximately $1.2 billion in 2010.