Boeing Raises Guidance on Strong Commercial Deliveries

We're maintaining our fair value estimate following impressive third-quarter results from narrow-moat-rated  Boeing (BA) that included deliveries of 149 airplanes. Aircraft sales grew 28% from the year-ago period to $12.2 billion, faster than the 17% growth in units delivered as the 787 and 747-8 deliveries continue to escalate, bringing the year to date total to 43, slightly more than half the total-year guidance. However, strong deliveries in its military segment were unable to offset a revenue decline of 4% in that division. Combined, sales increased 13% to $20 billion. The overall operating margin contracted to 7.8% from 9.7% as commercial segment margins felt the dilutive impacts of the 787 and 747-8 deliveries but defense margins actually improved from the prior-year quarter. Commercial airplane margins declined to 9.5% from 11.4%, while military segment margins improved to 10.5% from 10.0% in the year-ago period. Earnings per share were $1.35 for the quarter, down 8% from $1.46 last year but well above consensus estimates of $1.12.

The company increased its revenue guidance again to $80.5 billion-$82 billion from $79.5 billion-$81.5 billion, driven by an increase in the military segment. It increased its EPS range to $4.80-$4.95 from $4.40-$4.60. Boeing maintained its commercial delivery expectation of 585-600 aircraft. Gross orders in the quarter included 404 aircraft, and the company is likely to beat 2011 orders, a surprise from our prior estimates, though the 737-MAX accounts for 67% of the total orders and we are unsure which of those were accounted for during its launch commentary in August 2011.

Commercial deliveries of 149 were split as follows: 102 planes from the 737 program, 8 of the 747, 7 of the 767, 20 of the 777, and 12 of the 787 program. We believe segment profitability was negatively affected by the increasing 787 and 747-8 deliveries, which overwhelmed the mature 737, 767, and 777 programs. Total backlog was $377.6 billion, or nearly 5 times annual sales.

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