Boeing [BA] on Wednesday posted higher earnings in the second quarter due to lower taxes, higher operating profit at its commercial aircraft business, and to a lesser extent its year-old services segment, and sales were also higher on gains across all the company’s segments.
Boeing generated the higher profit despite a previously disclosed charge related to litigation with Spirit AeroSystems [SPR] and more than $400 million in charges related to cost growth on the Air Force’s KC-46 aerial refueling tanker program which, after years of delays, is on track to begin deliveries this October.
Net income increased 26 percent to $2.2 billion, $3.73 earnings per share (EPS), from $1.7 billion ($2.87 EPS). Excluding pension adjustments, core operating earnings rose 10 percent to $2.4 billion ($3.33 EPS), a nickel above per share consensus estimates.
Sales increased 5 percent to $24.3 billion from $23.1 billion a year ago.
At the operating level, Boeing Commercial Airplanes led the earnings increase on a substantial gain in operating profit driven by higher margins due to strong performance on commercial aircraft production. The strong profit result overshadowed a $307 million charge on the tanker program. Sales were up slightly in the sector on higher aircraft deliveries.
The Defense, Space, & Security segment posted a handsome increase in sales, up 9 percent to $5.6 billion on a production contract for F/A-18 fighter aircraft for Kuwait and weapons volume. Operating profit, however, tumbled 15 percent to $521 million due to a $111 million charge related to the tanker program.
Flight testing of the KC-46 is complete, Dennis Muilenburg, Boeing’s chairman, president and CEO, said on an earnings call. The company is making progress toward final certification of the aircraft, he said. The cost growth in the second quarter was largely due to higher estimates to make changes into six flight test and two early build aircraft, he said.
“The plan to complete manufacturing of these eight aircraft is clear and firmed up,” Muilenburg said.
Boeing Global Services, which stood up last July, posted strong sales growth and solid profit gains. The business segment provides parts, services, modification work, logistics and analytic services to commercial and defense customers worldwide.
For 2018, Boeing increased its sales guidance by $1 billion to between $97 billion and $98 billion based on higher than expected sales at the defense and services businesses. The company left its earnings outlook unchanged as higher margins at Commercial Airplanes will be offset by lower margin at Defense, Space & Security due to the tanker charge.
Free cash flow in the quarter was $4.3 billion and backlog stood at $488 billion. Defense backlog stood at $52 billion with 35 percent of that represented by orders from international customers. Total backlog at the end of 2017 stood at $474.1 billion, with defense backlog at $44 billion.