Boeing Military Aircraft (BMA) third-quarter revenue rose 7 percent to $4.0 billion and operating margin expanded to 12.3 percent, reflecting improved delivery mix and strong execution across its programs. During the quarter, BMA delivered 34 aircraft, the third P-8A achieved its first flight, the P-8 India contract was finalized, and the Chinook program received a 15-aircraft contract from Canada.
Network & Space Systems third-quarter revenues were $2.7 billion primarily driven by lower volume on intelligence and security systems, missile defense, and combat systems. Operating margin was 9.3 percent reflecting strong performance across the segment's array of programs partially offset by a less favorable contract mix. During the quarter, key flight milestones were achieved on Directed Energy programs, and the company was awarded contracts to provide four of its new 702B satellite to Intelsat.
Global Services & Support (GS&S) revenues increased 15 percent on higher volume across its broad portfolio of services and logistics products. During the quarter, GS&S operating margins were 7.1 percent driven by a contract adjustment and less favorable contract mix. In this segment, the company was awarded contracts for A-10 modernization as part of a $1.6 billion lifecycle program support contract and a UK Chinook modernization contract.
IDS' backlog is $65.8 billion, nearly two times expected 2009 revenues. The reduction in backlog was primarily due to termination of the manned ground vehicle portion of the Future Combat Systems contract due to changing US defense priorities.
Boeing Capital Corporation
Boeing Capital Corporation (BCC) reported third-quarter pre-tax earnings of $39 million compared to $37 million in the same period last year (Table 6). During the quarter, BCC's portfolio balance declined slightly to $6.1 billion, down from $6.3 billion at the end of the second quarter, on normal portfolio run-off through customer payments and depreciation, partially offset by $153 million in new aircraft financings and other volume. BCC contributed $48 million in cash dividends to the company during the quarter. BCC's debt-to-equity ratio was unchanged at 5.0-to-1.
Table 6. Boeing Capital Corporation Operating Results
Third Nine
Quarter Months
-------- -------
(Dollars in Millions) 2009 2008 Change 2009 2008 Change
--------------------- ---- ---- ------ ---- ---- ------
Revenues $166 $171 (3%) $496 $535 (7%)
Earnings from Operations $39 $37 5% $112 $143 (22%)
Additional Information
The "Other" segment consists primarily of Boeing Engineering, Operations and Technology, as well as certain results related to the financial consolidation of all business units. Other segment expense was $36 million in the third quarter.
Total pension expense for the quarter was $230 million, as compared to $176 million in the same period last year. A total of $254 million was recognized in the operating segments in the quarter (up from $125 million in the same period last year), partially offset by a $24 million contribution to earnings in unallocated items.
Unallocated expense was $202 million driven by higher deferred compensation expense partially offset by lower unallocated pension expense, up from $90 million in the same quarter last year which included a more favorable insurance adjustment.
Interest expense for the quarter was $92 million, up from $49 million in the same period last year due to additional debt issued in 2009. Other income (expense) decreased $59 million driven by lower interest earned on cash balances.
Outlook
The 2009 financial guidance is updated to include the previously disclosed 787 cost reclassification and 747 charge (Table 7).
Boeing's 2009 revenue guidance is reaffirmed at $68 billion to $69 billion. Earnings-per-share guidance for 2009 has been reduced to between $1.35 and $1.55 per share from $4.70 to $5.00 per share for the 787 cost reclassification and 747 charge. Operating cash flow guidance is reaffirmed at greater than $2.5 billion, including discretionary pension contributions of approximately $0.5 billion and an assumption of $0.8 billion for new commercial airplane financings. The company will issue financial guidance for 2010 with its fourth-quarter 2009 results.
Commercial Airplanes' 2009 delivery guidance remains at between 480 and 485 airplanes and is sold out. BCA's 2009 revenue is unchanged at between $34 billion and $35 billion, and operating margin is expected to be between (3) percent and (2.5) percent due to the previously discussed 787 and 747 impacts.
IDS guidance for 2009 remains unchanged with revenue between $33 billion and $34 billion and operating margins of approximately 10 percent.
Boeing Capital Corporation now expects that the aircraft finance portfolio will be stable as the amount of new aircraft financing in 2009 will approximate normal portfolio runoff due to customer payments and depreciation.
Boeing's 2009 R&D forecast is between $6.6 billion and $6.8 billion, up from $3.6 billion to $3.8 billion, driven by the 787 cost reclassification, an operating model adjustment to better balance BCA R&D efforts going forward, and higher IDS R&D. Capital expenditures for 2009 are expected to be approximately $1.3 billion, down from approximately $1.4 billion. The company's non-cash pension expense is expected to be approximately $0.9 billion in 2009. The third-quarter tax benefit related to the 787 cost reclassification and 747 charge was 30.6 percent, and the full-year tax benefit for both impacts is expected to be approximately 37 percent.
Table 7. Financial Outlook
(Dollars in Billions, except per-share
data) 2009
--------------------------------------- ----
The Boeing Company
Revenues $68 - $69
Earnings Per Share (GAAP) $1.35 - $1.55
Operating Cash Flow(1) > $2.5
Boeing Commercial Airplanes
Deliveries 480 - 485
Revenues $34 - $35
Operating Margin (3)% - (2.5)%
Integrated Defense Systems
Revenues
Boeing Military Aircraft ~ $14.0
Network & Space Systems ~ $11
Global Services & Support ~ $8.5
------
Total IDS Revenues $33 - $34
Operating Margin
Boeing Military Aircraft ~10.5%
Network & Space Systems ~8.5%
Global Services & Support ~11%
---
Total IDS Operating Margin ~10%
Boeing Capital Corporation
Portfolio Size Stable
Revenue ~ $0.6
Return on Assets >1.0%
Research & Development $6.6 - $6.8
Capital Expenditures ~ $1.3
-------------------- ------
(1) After pension contributions of $0.5 billion and assumed $0.8
billion for new aircraft financings in 2009.
