Boeing rose as better than expected cash and profit signalled that trade tensions haven’t yet hurt the largest US exporter’s plane making business.
Free cash flow climbed to $2.74 billion, the company said on That topped the average analyst estimate of $1.49bn, a sign the company’s underlying business remains healthy. Boeing also raised its 2018 earnings forecast.
The robust results underscored the strengths that made Boeing the best performer on the Dow Jones Industrial Average for most of the past year. The company was recently dethroned by Cisco Systems as US President Donald Trump’s trade salvos rattled markets. Investors sold off Boeing as aluminium prices went on a wild ride, and again when China threatened penalties for the 737, the manufacturer’s largest source of profit.
“Boeing appears a natural casualty in a trade war, as one of the most visible American exporters,” Robert Spingarn, an analyst at Credit Suisse, told Bloomberg on Monday. “Most of the impact seems to be limited to the share price rather than the fundamentals.”
The shares advanced 2.6 per cent to $337.48 before the start of trading in New York. Through Tuesday, they had gained 12 per cent this year, while the Dow fell 2.8 per cent.
Adjusted earnings rose to $3.64 a share, Chicago-based Boeing said in the statement. That was more than the $2.58 average of estimates compiled by Bloomberg. Revenue increased 6.5 per cent to $23.4bn. Analysts had predicted $22.2bn.
There are signs of strain, however, as engine makers and other suppliers struggle to keep pace with the record production tempo for the single-aisle 737. Almost half of Boeing’s 184 jet deliveries in the quarter occurred in March, after a sluggish start. The company delivered 35 of the upgraded 737 Max in the quarter, nine fewer than Credit Suisse had expected.
Boeing has worked hard to improve productivity in its factories, while making good on pledges to increase cash flow and share the gains with shareholders. Deferred production costs for the 787 Dreamliner fell $668 million to $24.7bn, freeing up cash.
The company’s commercial aircraft and defence divisions made progress toward the mid-teen profit margins set by Boeing chief executive Dennis Muilenburg, reporting operating margins of 11 per cent and 11.3 per cent, respectively. The measure declined slightly to 16.3 per cent for Boeing Global Services, a new division offering spare parts, maintenance and other services.
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Earnings in Boeing's defence division were lifted by strong weapons volume. Boeing won new business from Kuwait and said it was making progress on the KC-46 tanker program, a US Air Force transport aircraft contract that has led to unexpected cost increases in prior quarters.
Boeing lifted its full-year forecast range from $13.80 to $14.00 per share to $14.30 to $14.5 per share, excluding pension costs.
"Our team's strong first-quarter performance, combined with the positive market outlook across our businesses and our confidence in executing on our production and development programs, gives us a solid foundation to raise our guidance for the year," Mr Muilenburg told AFP.
Boeing now expects its jetliner business to generate an operating margin of about 11.5 per cent for the year, compared with the January estimate of more than 11 per cent. The company also raised its operating cash flow forecast to a range of $15bn to $15.5bn, from the previous forecast of $15bn.
Investors who have fixated on Boeing’s cash generation are starting to take a broader look at its production and market risks as the company plots its first all-new aircraft family since the carbon-composite 787, Ken Herbert, an analyst with Canaccord Genuity, told Bloomberg.
As the launch of the new mid-range family approaches, “I think for a lot of people that will represent a shift in sentiment,” Herbert said in an interview before the earnings were released. “It will translate from a free cash flow story to more of a bet on the environment” in the broader market.