Boeing Cash Flow Impresses
We're raising our fair value estimate for this wide-moat firm after a strong first quarter.
Wide-moat Boeing (BA) reported first-quarter results that featured an earnings beat and higher year-over-year EPS and operating margins. Management raised its 2018 guidance for operating profits, which translated into a higher outlook for full-year core EPS, which now stands at a midpoint of $14.40 versus $13.90 previously. We’re increasing our fair value estimate by about 5% due to higher operating profit and cash flow for 2018 in our model plus the time value of money since our last update.
Boeing’s revenue rose 6% year over year to $23.4 billion in the quarter, and GAAP operating margins expanded 30 basis points. The company’s core operating margins, which excludes pensions, expanded 220 basis points to 10.7% due to strong performance in both commercial airplanes and the defense business. However, margins contracted 80 basis points in the new services unit to 16.3%. We’d note that tanker charges weighed on Boeing’s operating margins during the first quarter of 2017, so these results are a bit flattered by an easy comparison. Nonetheless, rising 737 production and Boeing’s 50-basis-point upgrade of consolidated operating margin guidance for the full year indicates tangible improvements across the business.
Lower taxes, fewer shares, and higher operating profits combined to push core EPS, which excludes pensions, up $1.47, to $3.64 this quarter. Cash flow continues to impress, and Boeing delivered $3.1 billion of operating cash flow this quarter compared with $2.1 billion last year. Burn-down on 787 deferred production accelerated this quarter, dropping $668 million on a sequential basis. Management increased its operating cash flow guidance to $15.0 billion-$15.5 billion from approximately $15.5 billion; we’re moving up our cash flow forecast as well.
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Chris Higgins does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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