This summary is based on the third quarter fiscal 2008 earnings call conducted by The Boeing Company (BA) on October 22, 2008.
Management:
Chairman, President and CEO: Jim McNerney
EVP, Corporate President and CFO: James Bell
SVP of Corporate Communications: Tom Downey
VP of IR: Diana Sands
Key Investor Issues:
- Q3 revenue declined to $15.3 billion from $16.5 billion in the year ago quarter.
- The company used approximately $520 million to repurchase 7.9 million shares.
- Quarterly dividends paid totaled $295 million.
The third quarter revenue of $15.3 billion was down 7% from the prior year due to the strike and the galley shortages.
- These factors reduced third quarter deliveries by about 35 airplanes and Boeing Commercial Airplanes (BCA) revenue by an estimated $2.1 billion.
- Q3 EPS declined 33% to 96 cents per share with operating margins of 7.5%.
- The strike and galley shortage reduced earnings by an estimated 60 cents per share.
- An estimated 56 cents impacted the Boeing commercial businesses, with the remainder affecting Integrated Defense Systems (IDS).
- The management also reported about $60 million of unfavorable tax adjustments during the quarter which reduced EPS by 8 cents.
Commercial Airplane third quarter revenue of $6.9 billion was 16% lower than the same period last year, driven by 23% fewer deliveries.
- Within the quarter, BCA recorded close to $700 million of inter-company revenue, much of it related to P-8A.
- Operating earnings decreased to $394 million with an operating margin of 5.7%.
- Earnings were impacted mainly by the lower deliveries from the strike and galley shortages which both reduced BCA earnings by more than $600 million and reduced its operating margin by an estimated 5.4%.
- BCA made good progress on cost reductions versus the second quarter which helped offset the continued impact of infrastructure cost absorption from the 787 schedule update in April and now also from the strike.
- The strike impact clearly dominated third quarter results.
The company announced that 747-8 continues to make progress as the first airplane to begin production and engineering on the freighter and is 95% complete.
- The schedule and cost pressures are increasing on this program which resulted in higher 747-8 program costs during the quarter.
- In light of this, BCA has increased its focus on improving productivity and accelerating cost reductions.
- Q3 BCA R&D was $70 million higher than the same period last year due to the absence of R&D supplier cost sharing payments in the third quarter of 2008.
Demand for the commercial airplanes remains high.
- BCA captured 149 gross orders in the third quarter and 625 during the first nine months.
- This increased backlog to another record of $276 billion.
IDS, the defense business, delivered margins of 10.1% on revenue of $8.5 billion in the third quarter.
- Strong performance across the large diversified portfolio of defense programs was somewhat offset by the strike.
- This reduced earnings in some of the Boeing military aircraft program by about $40 million.
- Boeing military aircraft delivered 9.9% margins during the quarter which were reduced by about 1% due to the strike.
- Network and space delivered a 10.1% margin driven by strong performance across the broad array of programs.
- Global services and support generated a 10.4% margin with solid performance offset by the disposition of some contract matters.
IDS continued to win new business and pursue growth opportunities through targeted acquisitions.
- During the quarter, IDS completed the Insitu transaction and announced the Tapestry deal.
- In the previous week, the company announced an agreement to acquire Federated Software Group.
- IDS backlog at the end of the quarter was $73 billion, an increase of 2% year-to-date.
The current economic environment is challenging for the airline customers and the recent credit crisis has put pressure on aircraft financing.
- Boeing Capital Corporation (BCC) is staying very close to both BCA and the commercial customers.
- The process includes monitoring every delivery in the production skyline to assess customer health and financing status.
- While there are still third-party sources of aircraft financing available, it is expected that BCC will do some new financing in 2009.
- As of the third quarter, BCC had backstop financing commitments of $9.5 billion.
- This represents about 3% of BCAs backlog associated with delivery positions through the end of the next decade.
- The company’s financing commitments have always included certain terms and conditions to mitigate risks to Boeing.
- The management recently included additional terms and conditions for new commitments, which further limit Boeing’s risks in light of current market volatility.
In the unallocated section segment, expenses were down due to stock price impacts on deferred compensation liabilities and due to lower unallocated pension expense.
- The management is monitoring the recent market performance and its impact on our pension plans.
- With the change to the pension asset allocation strategy implemented last year, asset returns have not been affected as much as the overall equity markets.
- The company was still fully funded as of the end of the third quarter.
- Asset returns since then, however, have further deteriorated.
- As of mid-October, pension assets were down by about 20% year-to-date.
- At the same time, discount rates are substantially higher than planned.
- Based on the current position, the management is estimating increase to the 2009 pension expense versus prior forecast of about $100 million.
