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Boeing Profits Up, Outlook Positive (Apr.23)



SEATTLE---The Boeing Company reported strong financial results for the first quarter with net earnings of $762 million or $0.89 per share on $13.3 billion of revenue. These results exclude a $475 million non-recurring earnings tax benefit. Net earnings including the non-recurring tax benefit totaled $1,237 million, or $1.45 per share. Operating earnings and margins totaled $1.2 billion and 9.2 percent, respectively. Total backlog at the end of the quarter was up slightly to $153 billion, of which $124 billion is contractually committed.

The company generated $850 million of free cash flow (operating cash flow less capital expenditures) in the quarter. Ending cash and short-term investment balances were nearly $1.6 billion. Consolidated debt at the end of the period totaled $8.9 billion, of which $4.6 billion is attributable to Boeing Capital Corporation.

General and administrative expenses attributable to deferred stock compensation decreased $55 million, resulting in a favorable 0.4 percent operating margin impact and $0.04 impact on earnings per share. This is a result of the decrease in Boeing's share price over the quarter.

Financial results for the quarter reflect continued solid operating performance across the company's core businesses. Overall financial results were up significantly versus the first quarter of 2000, which was impacted by a 40-day work stoppage by engineers and technicians. The February 28, 2001 Puget Sound earthquake did not have a material financial impact.

During the quarter the company took key actions that reflect its ongoing transformation. On March 21, the company elevated the leaders of its three largest businesses to chief executive officers and announced plans for a new, leaner and strategically focused world headquarters. On March 29, Boeing Commercial Airplanes unveiled plans to focus its new product development efforts on a longer-range sonic cruiser airplane able to fly at near-supersonic speeds and having the potential to change the way the world flies.

"We are off to a great start for 2001," said Phil Condit, Boeing chairman and chief executive officer. "I am extremely pleased with our quarterly operating results as they reflect our continuing focus on running healthy core businesses and achieving strong operating performance. I am also very encouraged by our continuing transformation and the strategic potential represented by both the corporate re-architecture and our 'new frontier' opportunities. These activities illustrate our collective determination to seize worldwide growth opportunities and generate shareholder value."


Commercial Airplanes: First quarter Commercial Airplanes segment revenues totaled $8.4 billion, up 63 percent compared to the first three months of 2000, which was impacted by the work stoppage. Commercial Airplanes delivered 122 jet airplanes during the quarter compared to 75 during the first quarter of 2000. Segment operating earnings and margins totaled $860 million and 10.2 percent, respectively, driven by continued operating improvements as well as delivery mix.

During the quarter Commercial Airplanes announced plans to focus its product development activities on a faster, longer-range sonic cruiser airplane, highlighting Commercial Airplanes' commitment to innovation and customer focus. Commercial Airplanes will team with its customers to ensure that the design of the new airplane provides the most value to the industry, and initial customer response has been enthusiastic.

Contractual backlog at the end of the quarter was $88.6 billion. As expected, demand for new airplanes moderated when compared to the strong levels experienced in the latter half of 2000. Commercial Airplanes received 120 gross orders during the quarter versus 128 in the first quarter of 2000. Based on its current assessment that the U.S. economy will experience a "soft landing," the Commercial Airplanes delivery outlook is stable. The 2001 delivery forecast is nearly sold out, and the 2002 delivery forecast is more than 80 percent sold.


Military Aircraft and Missile Systems
: Military Aircraft and Missile Systems revenues for first quarter totaled $2.4 billion compared to $2.8 billion a year ago. Revenues decreased primarily as a result of fewer F-15, C-17 and F/A-18 deliveries versus first quarter of 2000. Overall operating performance continued to be solid as segment earnings and operating margins totaled $246 million and 10.1 percent, respectively, compared to $294 million and 10.3 percent during the first quarter of 2000.

Major events during the quarter included significant progress on the Joint Strike Fighter program. On February 5, the Boeing JSF X-32A concept demonstrator completed flight testing after its 66th flight, meeting all government test objectives and demonstrating additional capabilities. On March 29, the Boeing JSF X-32B demonstrator successfully completed its first flight, entering a four month test program to validate the Boeing approach to short-takeoff and vertical landing (STOVL) flight. Subsequent to the quarter, on April 13, the X-32B completed the first STOVL flight of the entire Joint Strike Fighter program.

Contractual backlog at the end of the quarter increased 19 percent to $20.4 billion compared to $17.1 billion at the end of 2000.


Space and Communications: Space and Communications reported first quarter revenues of $2.2 billion, up 35 percent compared to the $1.7 billion revenues reported for the first three months of 2000. The increase in revenues reflects Space and Communications' growing business base, primarily Boeing Satellite Systems.

First quarter operating earnings totaled $84 million. Operating margins increased slightly to 3.7 percent versus 3.6 percent during the first quarter of 2000 as the company continued to invest in developing its Delta IV launch vehicle.

During the quarter operational integration of Boeing Satellite Systems (formerly Hughes space and communication businesses) was largely completed. Other milestones include the successful completion of extended duration testing on the RS-68 engine for the Delta IV, the announcement of the first Delta IV commercial launch customer and the successful launch of a Boeing Satellite Systems 702 satellite by Sea Launch.

Contractual backlog at the end of the quarter increased 10 percent to $15.1 billion compared to $13.7 billion at the end of 2000.


Financing Segment: Customer and Commercial Financing, which consists primarily of Boeing Capital Corporation, had first quarter revenues totaling $206 million on total assets of $7.1 billion. Operating income, excluding interest expense, relating to financing segment activities totaled $142 million. Financing related interest costs totaled $74 million, and earnings before income taxes totaled $68 million. Major events for first quarter included a well received $750 million 10-year Boeing Capital Corporation bond issue as well as the definitization of lease terms under which the United Kingdom Royal Air Force will lease four C-17 Globemaster III airlifters. Initial deliveries of the leased airlifters are scheduled for May 2001.


Non-Recurring Item (Taxes)
: In March 2001 the company reached final agreement with the Internal Revenue Service, primarily regarding previously filed claims for refund of research and development tax credits. These claims dealt primarily with historical fixed-price development program expenses incurred by McDonnell Douglas from 1986 to 1992. The agreement with the IRS resulted in financial recognition during the quarter of $343 million of tax credit and $210 million ($132 million after-tax) of related interest income. The net earnings and EPS impact of this agreement totaled $475 million and $0.56, respectively, during the quarter.


Outlook: The company's (...) outlook remains consistent with that previously provided. "I am pleased to report that we can reaffirm our guidance reflecting a solid financial outlook," said Mike Sears, senior vice president and chief financial officer. "As promised, we continue to execute well on our core businesses, invest for future growth and competitiveness, and maintain significant balance sheet strength."

For 2001, the company expects revenues of approximately $57 billion and an operating margin greater than 8.5 percent. The company also expects to generate $3 billion to $4 billion of free cash flow. This estimate includes the second quarter impact of paying approximately $900 million in taxes which come due as a result of completing activities under a long-term government contract.

Guidance for 2002 reflects expected growth in revenues to greater than $62 billion, while the operating margin is expected to improve to more than 9 percent. Free cash flow is expected to exceed $4 billion. The company estimates annual commercial airplane deliveries in 2001 and 2002 to approximate 530 each year.

The company expects aggregate research and development expenses to be in the range of 3.0 percent to 3.5 percent of sales.


(Click here for full financial results on Boeing's website)

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Boeing Reports Strong First Quarter EPS of $0.89, Reaffirms Positive Outlook