Boeing Reports Third-Quarter Results and Raises 2012 Guidance

Earnings per share of $1.35 reported on revenue of $20.0 billion
Operating earnings rose at Commercial Airplanes and Defense, Space & Security
Backlog grew to $378 billion driven by $24 billion of new orders
Operating cash flow before pension contributions* totaled $2.3 billion
Cash and marketable securities of $11.2 billion provide strong liquidity
Guidance increased for revenue, EPS and operating cash flow

The Boeing Company (NYSE: BA) reported third-quarter net income of $1.0 billion, or $1.35 per share, on continued strong core performance and revenue of $20.0 billion. Increased earnings at Commercial Airplanes and Defense, Space & Security were more than offset by higher pension expense of $194 million ($0.18 per share). Earnings per share guidance for 2012 was raised to between $4.80 and $4.95. The company also raised its revenue guidance to between $80.5 and $82 billion on higher Defense, Space & Security revenue, and increased its 2012 operating cash flow outlook to greater than $5.5 billion.

“Strong core operating performance drove increased earnings in both our major businesses, along with higher overall revenues, improved cash flow, and solid earnings per share even as pension headwinds rose,” said Boeing Chairman, President and Chief Executive Officer Jim McNerney. “Our Defense, Space & Security business maintained double-digit margins in a challenging environment while Commercial Airplanes continued to build momentum with 787 deliveries and 737 MAX orders. Underpinned by our solid performance to date and positive outlook, we are raising our year-end guidance for revenue, earnings and operating cash flow. We remain well positioned for long-term growth with a clear focus on quality, productivity and disciplined program execution,” McNerney said.

Boeing’s quarterly operating cash flow before pension contributions* was $2.3 billion. Operating cash flow was $1.6 billion, with higher commercial airplane deliveries and strong operating performance more than offsetting continued investment in the 787 program and discretionary pension funding. Free cash flow* was $1.2 billion in the quarter (Table 2).

Cash and investments in marketable securities totaled $11.2 billion at quarter-end (Table 3), up from $10.3 billion at the beginning of the quarter. Debt was $11.2 billion, unchanged from the prior quarter.

Total company backlog at quarter-end was $378 billion, up from $374 billion at the beginning of the quarter, and included net orders for the quarter of $24 billion.

Boeing Commercial Airplanes third-quarter revenue increased by 28 percent to $12.2 billion on higher delivery volume. Operating margin was 9.5 percent, reflecting the dilutive impact of 787 and 747-8 deliveries and higher period costs partially offset by lower R&D (Table 4).

During the quarter, Commercial Airplanes began major assembly on the 787-9, and, in October, delivered the first 787 built in South Carolina.

Commercial Airplanes booked 369 net orders during the quarter. Backlog remains strong with approximately 4,100 airplanes valued at $307 billion.

At quarter-end, Boeing Capital Corporation’s (BCC) portfolio balance was $4.1 billion, unchanged from the beginning of the quarter. BCC’s debt-to-equity ratio was 5.0-to-1.

The “Other” segment includes unallocated activities of Engineering, Operations and Technology, Shared Services Group as well as certain intercompany guarantees provided to BCC. Other segment expense was $74 million in the quarter compared with Other segment income of $92 million in 2011 due to a $141 million gain in the third quarter of 2011 from an upgraded credit rating assigned to certain financing receivables.

The loss in unallocated items and eliminations increased due to higher pension expense. The third quarter of 2011 included a $161 million charge for post-retirement medical. Total pension expense for the third quarter was $583 million, as compared to $389 million in the same period last year.

Outlook

Earnings per share guidance for 2012 increased to between $4.80 and $4.95, up from between $4.40 and $4.60, reflecting the strong core operating performance. Total company 2012 revenue increased to between $80.5 and $82 billion, from between $79.5 and $81.5 billion, on higher Defense, Space & Security revenues. Operating cash flow guidance for 2012 is now expected to be greater than $5.5 billion, up from greater than $5 billion.

BDS’s revenue guidance increased to between $32.5 and $33 billion, from between $31.5 and $32 billion, reflecting increased volume. BDS’s operating margin is now greater than 9.25 percent, up from greater than 9 percent.

BCC’s return on assets is now expected to be approximately 1.0 percent, up from approximately 0.5 percent.

Capital expenditures for 2012 have been reduced to approximately $1.8 billion, down from approximately $2.0 billion.

Based on current interest rates and market conditions, pension expense in 2013 is estimated to be approximately $3.5 billion, of which approximately $1.8 billion is expected to be recorded in unallocated items and eliminations. 2013 pension expense will be determined at year end based on market conditions at that time.

Non-GAAP Measure Disclosures

Management believes that the non-GAAP (Generally Accepted Accounting Principles) measures (indicated by an asterisk *) used in this report provide investors with important perspectives into the company’s ongoing business performance. The company does not intend for the information to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define the measures differently. The following definitions are provided:

Operating Cash Flow Before Pension Contributions

Operating cash flow before pension contributions is defined as GAAP operating cash flow less pension contributions. Management believes operating cash flow before pension contributions provides additional insights into underlying business performance. Table 2 provides a reconciliation between GAAP operating cash flow and operating cash flow before pension contributions.

Free Cash Flow

Free cash flow is defined as GAAP operating cash flow less capital expenditures for property, plant and equipment additions. Management believes free cash flow provides investors with an important perspective on the cash available for shareholders, debt repayment, and acquisitions after making the capital investments required to support ongoing business operations and long term value creation. Free cash flow does not represent the residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures such as repayment of maturing debt. Management uses free cash flow internally to assess both business performance and overall liquidity. Table 2 provides a reconciliation between GAAP operating cash flow and free cash flow.