Boeing Co. gained after the largest U.S. industrial company smashed profit estimates and boosted the forecast for this year’s cash and earnings.
The strong performance in a traditionally weak quarter for planemakers reassured investors, spooked by Caterpillar Inc.’s commentary Tuesday, that perhaps the market hasn’t peaked for all U.S. manufacturers.
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 Inc. as President Donald Trump’s trade salvos rattled markets. Investors sold off Boeing as aluminum prices went on a wild ride, and again when China threatened penalties for the 737, the manufacturer’s largest source of profit.
The shares climbed 2.7 percent to $337.99 at 9:34 a.m. in New York, by far the biggest gain on the Dow. Through Tuesday, they had gained 12 percent this year, while the Dow fell 2.8 percent.
Free cash flow climbed to $2.74 billion, Chicago-based Boeing said in a statement. That topped the average analyst estimate of $1.49 billion, a sign the company’s underlying business remains healthy.
Adjusted earnings rose to $3.64, handily beating the $2.58 average of estimates compiled by Bloomberg. Revenue increased 6.5 percent to $23.4 billion. Analysts had predicted $22.2 billion.
“Well it’s not every day that a mega-cap company beats consensus by 40 percent,” Robert Stallard, an analyst with Vertical Research Partners said in a note to clients. But crushing consensus estimates, “by such a large amount also raises the risk that Boeing’s guidance will be increasingly ignored.”
Production Strains
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 $24.7 billion, freeing up cash.
The company’s commercial airplane and defense divisions made progress toward the mid-teen profit margins set by Boeing Chief Executive Officer Dennis Muilenburg, reporting operating margins of 11 percent and 11.3 percent, respectively. The measure declined slightly to 16.3 percent for Boeing Global Services, a new division offering spare parts, maintenance and other services.
Boeing now expects its jetliner business to generate an operating margin of about 11.5 percent for the year, compared with the January estimate of more than 11 percent. The company also raised its operating cash flow forecast to a range of $15 billion to $15.5 billion, from the previous forecast of $15 billion.
Share Buybacks
The company spent $3 billion during the quarter repurchasing 8.9 million shares, more than the $2.5 billion that Bloomberg Intelligence had modeled, said analyst George Ferguson. “There’s something for everyone here,” he said of the results.
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, according to Canaccord’s Herbert.
As the launch of the new mid-range family approaches, “I think for a lot of people that will represent a shift in sentiment,” he 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.
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