the boeing company (ba) aerospace & defense investor day ... · september 6, 2018 baird equity...
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September 6, 2018 Baird Equity ResearchAerospace & Defense
The Boeing Company (BA)Investor Day Recap: Lots of 737 Anxiety, but All Misplaced; Buy BA
[ Please refer to Appendix- Important Disclosuresand Analyst Certification]
RESEARCH UPDATE1-Year Price Chart
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Stock DataRating: OutperformSuitability: Higher RiskPrice Target: $450Price (9/5/18): $346.68Market Cap (mil): $204,195Shares Out (mil): 589.0Average Daily Vol (mil): 3.20Dividend Yield: 2.0%
EstimatesFY Dec 2017A 2018E 2019EQ1 2.17 A 3.64 AQ2 2.49 A 3.33 AQ3 2.62 A 3.73 EQ4 5.07 A 4.16 EFiscal EPS 12.35 A 14.86 E 17.15 EFiscal P/E 28.1x 23.3x 20.2xChart/Table Sources: FactSet and Baird Data. Pricechart reflects most recent closing price.
Peter J. ArmentSr. Research [email protected]
Asher Carey, CFAResearch [email protected]
BA is an aerospace prime OEM engaged in manufacturing commercial aircraft(~70% of sales) with the balance of sales derived from various militaryplatforms.
BA remains our top pick and we reiterate our $450 price target as the anxietyaround the supply chain stress is overblown on BA meeting its 2018 guidanceand with 2019 setting up as a very favorable year in terms of earnings and cashflow improvements. BA reiterated its 2018 guidance at its investor day yesterday inSeattle, WA and maintained its view that the supply challenges for 737 fuselages andengines will be caught up by the end of 4Q18. Buy BA if weak.
■ Supply chain recovery intact. LEAP engine production continues to be behindand fuselage shipments from SPR (Outperform, Arment) for the 737-MAX havebeen inconsistent on timing. However, both suppliers are recovering and trackingto a recovery plan that gets both on track by year-end. Currently BA has double theamount of aircraft on the tarmac waiting to enter the final function testing period andeventually on to first flight and customer acceptance. At the current rate (52 aircraftper month), BA typically has ~26 aircraft in the final functional testing/customerdelivery process vs. slightly over 50 aircraft today. CFM has a recover plan inplace that basically catches up on being four weeks behind on LEAP engines byDecember.- Baird checks. Our 737 checks indicate ~40+ 737 deliveries in August, which
does put pressure on September deliveries vs. the current consensus. With 29deliveries in July and 40+ in August, September 737 deliveries need to top 70+to meet the current consensus. While 10-15 737 deliveries could ultimately slipout of 3Q18 into 4Q18 we remain comfortable with our checks indicating thatproduction rate 52 will be running smooth by year-end and BA can meet its 2018delivery guidance of 810-815 deliveries.
■ 787 production line is humming, expect unit profitability to continue to grow.BA continues to make tremendous progress on reducing costs and becoming moreefficient on both 787 final assembly lines. Flow times on the final assembly haveimproved by over 10% ytd and that does not include the benefit of going to ahigher rate at 14 per month in 2019. BA has also eliminated a position on thefinal assembly line (from five to four), which is a massive gain in productivity. Mix,productivity, supplier price step-downs, new production lots within the block andhigher rates all point to the 787 being a cash machine in 2019.
■ 777X making significant progress. BA rolled out the 777X static aircraft last nightand the first two flight test aircraft are well along in the final assembly process.
■ NMA still TBD in 2019. No change in NMA timing.
September 6, 2018 | The Boeing Company
Source: Company Documents and Baird estimates
Source: Company Documents and Baird estimates
BCA Delivery Outlook
2018 for BCA continues many of the same themes seen the last few years: disciplined
execution, productivity improvements, disciplined airplane development, expanded market
position, and integrated service growth. In 2018, BCA remains focused on improving
productivity coupled with further expanding its PFS supplier program, retiring technical risks
with development programs, and development of the 737-MAX, the 777X and 787-10
programs. We do not see this as a negative as the R&D profile with our model that stretches
out to 2020 reflects a balanced view, with the 777X garnering the bulk of the R&D share in
2016-2020 and the NMA ramping thereafter. In the near term, the risk profile for the balance
of 2018 is all about execution on delivering upon the robust backlog and continuing to drive out
costs and gain productivity enterprise-wide.
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737NG Family 737-MAX
Aircraft Delivery Details
2Baird
September 6, 2018 | The Boeing Company
Source: Company Documents and Baird estimates
Source: Company Documents and Baird estimates
Source: Company Documents and Baird estimates
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3Baird
September 6, 2018 | The Boeing Company
Our Baird delivery forecast by platform reflects the ramp in 737 deliveries through 2020
coupled with modest increases in the 767 Tanker deliveries and higher 787 deliveries at 14 per
month commencing in the 2H19. The headwinds at BCA reflect reductions in the 777
production and the potential ending of the 747-8 line in 2020. Again, our model reflects the 777
deliveries declining throughout this forecast period. However, we still expect BCA to maintain a
double-digit operating margin during these 777 production cuts given supply cost reductions,
automation investments and productivity gains in core programs.
Source: Company Documents and Baird estimates
Source: Company Documents and Baird estimates
Cash Flow/FCF Outlook
We are modeling $13.3 billion in 2018, $14.4 billion in 2019, and $15.6 billion in 2020 resulting
in nearly $45 billion in FCF during the 2018-2020 period, which is almost 25% BA’s current
increasing market cap. BA expects cash flow from operations guidance for 2018 of $15.0-
$15.5 billion with expectations of growth annually despite pressures on the 777 production
rates. Below are the key factors impacting cash from operations:
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4Baird
September 6, 2018 | The Boeing Company
Operating Cash Flow Drivers (2018 Guidance = $15.0-$15.5 billion)
Deliver on record backlog
Production rate increases
787 unit cost improving
Continued productivity
Modest growth and strong cash conversion at BDS
Disciplined cash management
Cash Flow Headwinds Over Next Five Years
777 production rates down to 3.5 per month in 2018
Higher 787 cash taxes (2018-2020)
787-10 initial production phasing and longer initial flow times in 2018
777X production transition (2018-2020)
Uses of Cash
Significant share repurchases
Maintain competitive dividend yield
Prudently fund the pension
Invest in growth & productivity
Disciplined R&D spending
Capital Returned to Shareholders
BA repurchased 8.6 million shares for $3.0 million in 2Q18, resulting in $13 billion remaining
under the current repurchase authorization. YTD BA has repurchased 17.5 million shares for
$6.0 million. This compares to 2017, when BA repurchased $9.2 billion in stock, well above the
total target for $7.0 billion. Prior to 2016, BA repurchased $2.8 billion of stock in 2013, $6.0
billion in 2014, and $6.75 billion in 2015 for a total of $15.6 billion in repurchases during 2013-
2015 period. BA’s repurchases have resulted in over 200 million shares cumulatively acquired
via its buyback program to date since 2013, which is a 20% reduction from the 2012 year-end
period. During the 1998-2001 delivery cycle, BA retired $9.1 billion in stock, or 15% of the
shares outstanding. During the 2004-2008 delivery cycle, BA retired $11.0 billion in stock, or
10% of the shares outstanding.
Source: Company Documents and Baird estimates
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5Baird
September 6, 2018 | The Boeing Company
Investment Thesis$450 price target. Our price target is $450 based on 18x on our 2019 FCF estimate reflecting the strongFCF outlook which our model shows gains from tax reform and higher out-year production rates. BAis currently trading at 2018E and 2019E FCF multiples of 15x and 13.5x (historical range 12x-16x),respectively, with a premium warranted tied to BA’s healthy visibility, robust backlog and FCF.
Rising OEM production. We are forecasting OEM production to plateau over 1,800 deliveries in2021, which still remains ~17% above 2017 deliveries totaling 1,436 reflecting increasing narrow-bodyproduction and elevated production of new wide-body A350 and 787 programs.
Robust air traffic. GDP and air traffic have a very high correlation of over 0.95x, allowing for detailedair traffic forecasts by region and country based on rates of GDP. While there is wide range among theregions (0.5%-6%) of global GDP forecasts, the detailed country-based GDP estimates enable fairlyaccurate adjustments to our forecasting traffic model. Based on our proprietary air traffic model, we areforecasting 2018 global revenue passenger miles (RPMs) to increase 6.7%, which 2017 global trafficdata growing over 7.0%. Air traffic continues to outpace the historical relationship with GDP, which overthe last few years should have delivered 4% air traffic growth vs. the 6% growth in each of the lastthree years. We expect available seat miles (ASMs) to grow 6.3% globally in 2018 vs. 5.9% in 2017.For 2018, we are forecasting RPMs to 4.8 trillion, led by measured growth in domestic North America(potentially higher with strong domestic GDP) and Europe traffic markets while international demand willremain in the driver seat for growth, which continues to support the need for higher new model wide-body deliveries in countries like China.
Returning significant cash to shareholders. Ramping build rates on the 737, 787 and 767, convertinga strong commercial backlog of $409 billion, stable R&D costs, and productivity improvements lend toreturning significant cash to shareholders. BA aims to return 100% of FCF to shareholders in the formof dividends and share repurchases.
FCF still growing despite 777 production cuts. We are modeling $13.4 billion in 2018, $14.2 billionin 2019, and $15.6 billion in 2020, $16.3 billion in 2021 and $15.9 billion in 2022.
Major buybacks still intact. The $18 billion repurchase commitment announced in December replacesthe previous $14 billion authorization announced in December 2016, which had only $4.8 billionremaining after repurchasing $9.2 billion in stock during 2017. BA has repurchased $15.6 billion instock during 2013-2015 and $16.2 billion during the 2016-2017 period, resulting in over 172 millionshares cumulatively acquired via its buyback program since 2013 and reducing over 22% of the sharesoutstanding.
787 unit cost improvement. The recovery of the 787 deferred production balance peaked near $29billion ($27.7 billion less R&D charge) in 2Q16. Roughly 70%, or $19.4 billion, of the recovery is tiedto higher-priced 787-9 and 787-10 models. The favorable mix shift in deliveries will continue to aid BAburn down the deferred balance over the remaining ~900 aircraft in the accounting block. Based on thatremaining quantity, the favorable mix will impact the deferred balance by $19.3 billion, or ~$21.5 millionon a per unit basis. Approximately 25%, or $7.0 billion, of deferred recovery is tied to the supply chain,with ~85% already under contract. This makes essentially 95% of the deferred recovery contractual andgives high confidence in its recovery as deliveries ramp.
737 production increases on track. BA remains on track for 737 production to reach 52 aircraft permonth in 2018 and 57 in 2019 with upward bias to likely 63 per month in 2021. The 737 program (sold-out through 2021) remains BA’s highest margin program and remains a major part of growth in earningsand FCF.
6Baird
September 6, 2018 | The Boeing Company
Automation investments yielding cost reductions. Automation investments are allowing forincreased flow time and eliminating significant labor hours on BA’s production system. The 737 and 777are still seeing gains in flow time which is giving confidence in achieving the higher planned rates forthe 737. For the 777X, the automation investment will eliminate 50,000 fasteners previously installed byhand which further improves the 777 cost structure.
BDS stability with growth in out-years with tanker. BDS remains a significant source of cash flowduring this period of heavy investment at BCA. BDS operations reflect a full adoption of sequestration,with affordability being the No. 1 driver of sustaining its program base and expanding international sales.BDS’ history of execution and solid performance on programs such as the F/A-18, V-22, F-15, Chinook,Apache, and P-8 aids its ability to offer significant value to the customer and avoid major program cuts.Further, BDS continues to focus on growth in higher-value verticals like support services, and adjacentmarkets such as Cyber, Energy Services and ISR. Currently, international markets represent 37% ofthe backlog.
Risks & CaveatsOEM cycle risks. OEM production cycle risk remains a concern given the view that the wide-body marketis oversupplied, leading to legacy program production cuts. Moreover, any further weakness in globalGDP could curb narrow-body production rates slated for 2019+. Legacy 777 and A330 production cutscoupled with zero demand for the super jumbo’s 747-8 and A380 continue to weigh on overall productionplans at BA and Airbus.
New product development costs. The magnitude and length of new product development creates riskthat new aircraft design encounters schedule delays and excess costs, as well as the risk that marketand economic circumstances have changed since the program’s launch. Current programs that still havenew product risks are: 737-MAX, A320neo, A350, 787-10, and 777X.
Backlog risks. ~50% of OEM backlogs are tied to Middle East and Asia-Pacific (including China)regions. While many of these orders are state sponsored, a currency shock (similar to the 1997-1998period in Asia) could cause significant deferrals of aircraft currently in backlog.
Financing risks. Total finance requirements to support BA and Airbus deliveries in 2018 is over $130billion and is expected to grow to over $170 billion in 2020 based on current planned production rates.In 2009, several finance market participants (leasing companies, capital markets, commercial banks,hedge funds, OEM finance companies) came under extreme pressure that impacts capital flows. Theexport bank (government) activities were forced to fill this void, which remains a concern if another crisiswere to occur.
A320neo family competition. Airbus with its A320neo aircraft family has been outselling the 737-MAXfamily garnering a 59% market share since the A320neo received its first order in 2010. IncrementalR&D spending required plus an aggressive pricing environment could put further pressure on margins.
777 production bridge and soft wide-body orders. There remains pressure on global wide-body orders which could cause a further reset below BA’s expectations and ultimately reduce FCFexpectations. BA needs 15+ legacy 777 orders annually to bridge the new production rates to the 777Xprogram in 2020.
7Baird
September 6, 2018 | The Boeing Company
Elevated R&D spending tied to 737-MAX, 777X and 787-10. BCA R&D profile has remained elevatedand slowly increased since 2013 reflecting the required spending on the 737-MAX program and now the777X. We expect R&D costs to remain elevated through 2020 reflecting the impact of the 777X program.BA will see a modest increase in R&D tied to the NMA in 2019 but with the majority of the spendingoccurring after 2020.
Company DescriptionThe Boeing Company is an aerospace company that manufactures commercial jetliners and defense,space and security systems. Its products and tailored services include commercial and military aircraft,satellites, weapons, electronic and defense systems, launch systems, advanced information andcommunication systems, and performance-based logistics and training. The company is organized intothree business units: Boeing Commercial Airplanes, Boeing Defense, Space & Security, and BoeingCapital. The Boeing Capital segment seeks to ensure that Boeing customers have the financing theyneed to buy and take delivery of their Boeing product and manages overall financing exposure. Thecompany was founded by William Edward Boeing in 1916 and is headquartered in Chicago, IL.
8Baird
Peter Arment │ Sr. Research Analyst
[email protected] │ (646) 557-3222
Asher Carey, CFA │ Research Associate
[email protected] │ (646) 557-3210
($ in millions) 2017 2018
THE BOEING COMPANY 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022E Q1 Q2 Q3 Q4 TOTALS Q1 Q2 Q3E Q4E TOTALS
Aircraft Deliveries 555 583 723 762 748 763 810 880 932 968 978 169 183 202 209 763 184 194 210 222 810
Boeing Commercial Airplanes (BCA) $44,339 $46,481 $59,990 $66,049 $58,012 $58,014 $59,666 $65,713 $72,386 $77,138 $78,329 $12,953 $14,280 $15,393 $15,388 58,014 $13,652 $14,481 $15,181 $16,352 59,666
Boeing Defense, Space and Security (BDS) 32,607 33,197 30,881 30,388 22,563 20,561 22,531 21,300 21,500 21,500 21,500 5,112 5,142 5,050 5,257 20,561 5,762 5,593 5,535 5,641 22,531
Boeing Capital Corporation (BCC) 441 408 416 413 298 307 307 335 315 300 295 92 72 70 73 307 65 72 85 85 307
Boeing Global Services (BGS) 13,925 14,581 15,853 16,915 18,099 19,366 20,722 3,653 3,552 3,579 3,797 14,581 3,943 4,090 3,758 4,063 15,853
Eliminations (477) 37 (525) (735) (227) 542 (18) 0 0 0 0 151 5 131 255 542 (40) 22 0 0 (18)
Totals, Revenues $76,911 $80,124 $90,763 $96,115 $94,571 $94,005 $98,340 $104,264 $112,300 $118,304 $120,846 $21,961 $23,051 $24,223 $24,770 $94,005 $23,382 $24,258 $24,559 $26,141 $98,340
% Change 12.6% 4.2% 13.3% 5.9% -1.6% -0.6% 4.6% 6.0% 7.7% 5.3% 2.1% -3.0% -6.9% 1.4% 6.4% -0.6% 6.5% 5.2% 1.4% 5.5% 4.6%
Cost of Good Sold $62,910 $65,946 $76,444 $81,749 $80,440 $76,289 $78,555 $83,344 $89,743 $93,656 $95,210 $17,968 $18,603 $19,960 $19,758 $76,289 $18,808 $19,519 $19,511 $20,717 $78,555
% of Sales 82% 82% 84% 85% 85% 81% 80% 80% 80% 79% 79% 82% 81% 82% 80% 81.2% 80% 80% 79% 79% 79.9%
SG&A $3,717 $3,956 $3,767 $3,525 $3,616 $4,094 $4,067 $3,962 $4,043 $4,141 $4,109 $933 $1,040 $915 $1,206 $4,094 $997 $1,194 $909 $967 $4,067
% of Sales 4.8% 4.9% 4.2% 3.7% 3.8% 4.4% 4.1% 3.8% 3.6% 3.5% 3.4% 4.2% 4.5% 3.8% 4.9% 4.4% 4.5% 4.9% 3.7% 3.7% 4.1%
R&D $3,298 $3,071 $3,047 $3,331 $4,631 $3,179 $3,661 $3,425 $3,550 $4,250 $4,200 $838 $813 $767 $761 $3,179 $764 $827 $1,025 $1,045 $3,661
% of Sales 4.3% 3.8% 3.4% 3.5% 4.9% 3.4% 3.7% 3.3% 3.2% 3.6% 3.5% 3.8% 3.5% 3.2% 3.1% 3.4% 3.3% 3.4% 4.2% 4.0% 3.7%
BCC Interest Costs 112 87 69 72 74 100 91 93 95 97 99 16 28 27 29 100 16 17 29 29 91
Other 57 66 13 (6) (20) 113 7 150 150 150 150 0 37 38 38 113 (78) 9 38 38 7
Costs of Operations $70,094 $73,126 $83,340 $88,671 $88,740 $83,661 $86,363 $90,974 $97,580 $102,293 $103,768 $19,755 $20,521 $21,593 $21,792 $83,661 $20,507 $21,547 $21,512 $22,797 $86,363
% of Sales 91.1% 91.3% 91.8% 92.3% 93.8% 89.0% 87.8% 87.3% 86.9% 86.5% 85.9% 90.0% 89.0% 89.1% 88.0% 89.0% 87.7% 88.8% 87.6% 87.2% 87.8%
BCA - Operating profit $5,216 $6,227 $6,408 $5,158 $1,995 $5,452 $6,901 $8,153 $9,381 $10,348 $11,089 $870 $1,282 $1,513 $1,787 $5,452 $1,508 $1,644 $1,774 $1,975 $6,901
BDS - Operating Profit 3,068 3,235 3,133 3,274 1,966 2,193 2,372 2,295 2,333 2,333 2,332 549 614 486 544 2,193 649 521 583 619 $2,372
BCC Operating Profit 82 107 92 50 59 114 70 50 50 50 50 39 25 23 27 114 20 24 13 13 $70
BGS - Operating Profit 2,177 2,246 2,471 2,706 2,896 3,195 3,523 623 569 495 559 2,246 644 603 582 642 $2,471
Share-based -81 -95 -67 -76 -66 -77 -99 -125 -125 -125 -125 -21 -25 -21 -10 (77) -18 -18 -31 -31 (99)
Deferred comp -75 -238 -44 -63 -46 -240 -156 -125 -125 -125 -125 -50 -46 -78 -66 (240) -29 -27 -50 -50 (156)
Pension -787 -1,374 -1,469 -421 217 1,127 1,070 725 725 725 725 262 278 271 316 1127 283 237 275 275 1070
Post-retirement -112 60 82 123 153 311 292 310 315 315 315 84 79 75 73 311 82 80 65 65 292
Capitalized interest -70 -69 -72 -90 -94 -96 -75 -55 -55 -55 -55 -24 -22 -22 -28 (96) -25 -23 -14 -13 (75)
other -425 -703 -483 -511 -530 -686 -870 -645 -675 -650 -650 -126 -224 -112 -224 (686) -239 -331 -150 -150 (870)
Unallocate Expenses/Other (1550) (2573) (2211) (1038) (366) 339 163 85 60 85 85 125 40 113 61 339 54 (82) 95 96 163
EBIT $6,816 $6,996 $7,422 $7,443 $5,831 $10,344 $11,977 $13,290 $14,720 $16,011 $17,079 $2,206 $2,530 $2,630 $2,978 $10,344 $2,875 $2,710 $3,047 $3,345 $11,977
EBIT Margins 8.9% 8.7% 8.2% 7.7% 6.2% 11.0% 12.2% 12.7% 13.1% 13.5% 14.1% 10.0% 11.0% 10.9% 12.0% 11.0% 12.3% 11.2% 12.4% 12.8% 12.2%
Core EBIT (Operating Earnings Ex Pension) $7,715 $8,310 $8,809 $7,741 $5,614 $9,217 $10,907 $12,565 $13,995 $15,286 $16,354 $1,944 $2,252 $2,359 $2,662 $9,217 $2,592 $2,473 $2,772 $3,070 $10,907
EBIT Core Margins 10.0% 10.4% 9.7% 8.1% 5.9% 9.8% 11.1% 12.1% 12.5% 12.9% 13.5% 8.9% 9.8% 9.7% 10.7% 9.8% 11.1% 10.2% 11.3% 11.7% 11.1%
Non-operating pension expense (6) (65) (100) (100) (100) (100) 4 (2) (5) (3) (6) 0 (15) (25) (25) (65)
Other Income 62 56 (3) (13) 40 129 76 15 20 20 20 22 27 45 35 129 66 0 5 5 76
Interest Expense (463) (386) (333) (275) (306) (360) (396) (289) (225) (197) (179) (87) (93) (87) (93) (360) (102) (109) (93) (93) (396)
Totals, Other Income (Expenses) -$401 -$330 -$336 -$288 -$266 -$237 -$385 -$374 -$305 -$277 -$259 -$61 -$68 -$47 -$61 -$237 -$36 -$124 -$113 -$113 -$385
Pre-Tax Income $6,415 $6,666 $7,086 $7,155 $5,565 $10,107 $11,592 $12,916 $14,415 $15,734 $16,820 $2,145 $2,462 $2,583 $2,917 $10,107 $2,839 $2,586 $2,935 $3,232 $11,592
Taxes $2,007 $1,646 $1,691 $1,979 $673 $1,650 $1,800 $2,067 $2,306 $2,517 $2,691 $566 $713 $773 -$403 $1,650 $362 $390 $499 $549 $1,800
Tax Rate 31.3% 24.2% 23.9% 25.3% 12.1% 29.3% 15.5% 16.0% 16.0% 16.0% 16.0% 26.4% 29.0% 29.9% 32.0% 29.3% 12.8% 15.1% 17.0% 17.0% 15.5%
Net Income $4,408 $5,019 $5,394 $5,176 $4,894 $8,457 $9,790 $10,849 $12,109 $13,216 $14,129 $1,579 $1,749 $1,810 $3,320 $8,457 $2,477 $2,196 $2,436 $2,682 $9,790
% Change 9.0% 13.9% 7.5% -4.0% -5.4% 72.8% 15.8% 10.8% 11.6% 9.1% 6.9% 29.5% N/A N/A 103.9% 72.8% 56.9% N/A N/A -19.2% 15.8%
Net Margins 5.7% 6.3% 5.9% 5.4% 5.2% 9.0% 10.0% 10.4% 10.8% 11.2% 11.7% 7.2% 7.6% 7.5% 13.4% 9.0% 10.6% 9.1% 9.9% 10.3% 10.0%
Diluted Shares Outstanding 764 770 738 698 641 611 588 573 558 543 528 621 610 606 605 611 597 589 584 582 588
Core Net Income - Ex Pension $4,810 $5,742 $6,360 $5,380 $4,620 $7,510 $8,741 $9,818 $10,979 $12,527 $13,642 $1,341 $1,520 $1,581 $3,068 $7,510 $2,179 $1,962 $2,175 $2,425 $8,741
Core EPS - Diluted Ex-Pension $6.30 $7.46 $8.63 $7.72 $7.28 $12.35 $14.86 $17.15 $19.70 $23.00 $25.80 $2.17 $2.49 $2.62 $5.07 $12.35 $3.64 $3.33 $3.73 $4.16 $14.86
% Change 8.1% 18.5% 15.7% -10.5% -5.8% 69.7% 20.3% 15.4% 14.9% 16.8% 12.2% 24.6% N/A N/A 105.6% 69.7% 67.7% 33.6% 42.2% -18.0% 20.3%
EPS - Diluted GAAP $5.79 $6.53 $7.34 $7.44 $7.64 $13.89 $16.66 $18.95 $21.70 $24.35 $26.77 $2.54 $2.87 $2.99 $5.50 $13.89 $4.15 $3.73 $4.17 $4.61 $16.66
% Change 8.0% 12.9% 12.3% 1.4% 2.7% 81.8% 19.9% 13.7% 14.5% 12.2% 9.9% 38.8% N/A N/A 112.8% 81.8% 63.2% 30.0% 39.8% -16.2% 19.9%
Dividends $1.68 $1.81 $2.92 $3.64 $4.36 $5.68 $6.84 $7.18 $7.54 $7.92 $8.31 $1.42 $1.42 $1.42 $1.42 $5.68 $1.71 $1.71 $1.71 $1.71 $6.84
Payout Rate (%) 29.0% 27.7% 39.8% 48.9% 57.1% 40.9% 41.1% 37.9% 34.7% 32.5% 31.1% 55.9% 49.5% 47.6% 25.8% 40.9% 41.2% 45.8% 41.0% 37.1% 41.1%
2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022E Q1 Q2 Q3 Q4 TOTALS Q1 Q2 Q3 Q4 TOTALS Growth Rates
Aircraft Deliveries 17.1% 5.0% 24.0% 5.4% -1.8% 2.0% 6.2% 8.6% 5.9% 3.9% 1.0% -4.0% -8.0% 7.4% 13.0% 2.0% 8.9% 6.0% 4.0% 6.2% 6.2%
BCA 23.6% 4.8% 29.1% 10.1% -12.2% 0.0% 2.8% 10.1% 10.2% 6.6% 1.5% 1.3% -8.7% 1.3% 7.0% 0.0% 5.4% 1.4% -1.4% 6.3% 2.8%
BDS 2.0% 1.8% -7.0% -1.6% -25.7% -8.9% 9.6% -5.5% 0.9% 0.0% 0.0% -16.7% -4.7% -12.2% -0.5% -8.9% 12.7% 8.8% 9.6% 7.3% 9.6%
BCC -17.1% -7.5% 2.0% -0.7% -27.8% 3.0% 0.0% 9.1% -6.0% -4.8% -1.7% 43.8% -14.3% 11.1% -16.1% 3.0% -29.3% 0.0% 21.4% 16.4% 0.0%
Margin Analysis
BA Com'l Aircraft 11.8% 13.4% 10.7% 7.8% 3.4% 9.4% 11.6% 12.4% 13.0% 13.4% 14.2% 6.7% 9.0% 9.8% 11.6% 9.4% 11.4% 11.4% 11.7% 12.1% 11.6%
BDS 9.4% 9.7% 10.1% 10.8% 8.7% 10.7% 10.5% 10.8% 10.9% 10.9% 10.8% 10.7% 11.9% 9.6% 10.3% 10.7% 11.3% 9.3% 10.5% 11.0% 10.5%
BGS 15.6% 15.4% 15.6% 16.0% 16.0% 16.5% 17.0% 17.1% 16.0% 13.8% 14.7% 15.4% 16.3% 14.7% 15.5% 15.8% 15.6%
Total Operating Margin 8.9% 8.7% 8.2% 7.7% 6.2% 11.0% 12.2% 12.7% 13.1% 13.5% 14.1% 10.0% 11.0% 10.9% 12.0% 11.0% 12.3% 11.2% 12.4% 12.8% 12.2%
Total Net Margin 5.7% 6.3% 5.9% 5.4% 5.2% 9.0% 10.0% 10.4% 10.8% 11.2% 11.7% 7.2% 7.6% 7.5% 13.4% 9.0% 10.6% 9.1% 9.9% 10.3% 10.0%
EBITDA $8,711 $8,840 $9,328 $9,276 $7,741 $12,413 $14,092 $15,533 $17,020 $18,396 $19,550 $2,677 $3,024 $3,152 $3,560 $12,413 $3,376 $3,217 $3,574 $3,925 $14,092
EBITDA Margin 11.3% 11.0% 10.3% 9.7% 8.2% 13.2% 14.3% 14.9% 15.2% 15.6% 16.2% 12.2% 13.1% 13.0% 14.4% 13.2% 14.4% 13.3% 14.6% 15.0% 14.3%
CASH FROM OPS $7,508 $8,179 $8,857 $9,363 $10,499 $13,344 $15,458 $16,793 $17,939 $18,711 $18,290 $2,094 $4,938 $2,829 $3,483 $13,344 $3,136 $4,680 $3,533 $4,109 $15,458
FREE CASH FLOW (cash from ops, - capex) $5,805 $6,132 $6,655 $6,955 $7,924 $11,697 $13,313 $14,393 $15,589 $16,361 $15,940 $1,628 $4,499 $2,460 $3,110 $11,697 $2,769 $4,277 $2,908 $3,359 $13,313
FREE CASH FLOW Per share 7.60 7.97 9.02 9.97 12.36 19.16 22.64 25.12 27.94 30.13 30.19 $19.16 $22.64
Research disclosures can be accessed at http://www.rwbaird.com/research-insights/research/coverage/research-disclosure.aspx
Source: Robert W. Baird & Co. estimates and Company reports
Published: 9/6/18
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September 6, 2018 | The Boeing Company
Appendix - Important Disclosures and Analyst Certification
Covered Companies MentionedAll stock prices below are the 09/05/2018 closing price.
Spirit AeroSystems Holdings, Inc. (SPR - $85.46 - Outperform)(See recent research reports for more information)
Rating and Price Target History for: The Boeing Company (BA) as of 09-05-2018
400
350
300
250
200
150
100Q2 Q3 2016 Q1 Q2 Q3 2017 Q1 Q2 Q3 2018 Q1 Q2 Q3
10/05/16I:O:$161
01/06/17O:$182
04/07/17O:$208
07/10/17O:$240
07/27/17O:$274
09/20/17O:$325
01/05/18O:$380
01/16/18O:$433
05/23/18O:$450
Created by BlueMatrix
Rating and Price Target History for: Spirit AeroSystems Holdings, Inc. (SPR) as of 09-05-2018
110
100
90
80
70
60
50
40Q2 Q3 2016 Q1 Q2 Q3 2017 Q1 Q2 Q3 2018 Q1 Q2 Q3
10/05/16I:O:$54
11/02/16O:$64
08/03/17O:$86
01/05/18O:$100
01/29/18O:$129
Created by BlueMatrix
1 Robert W. Baird & Co. Incorporated makes a market in the securities of BA and SPR.Robert W. Baird & Co. Incorporated (“Baird”) and/or its affiliates expect to receive or intend to seek investment-banking relatedcompensation from the company or companies mentioned in this report within the next three months. Baird may not be licensed to executetransactions in all foreign listed securities directly. Transactions in foreign listed securities may be prohibited for residents of the UnitedStates. Please contact a Baird representative for more information.
Investment Ratings: Outperform (O) - Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity market over thenext 12 months. Neutral (N) - Expected to perform in line with the broader U.S. equity market over the next 12 months. Underperform (U)- Expected to underperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months.
Risk Ratings: L - Lower Risk – Higher-quality companies for investors seeking capital appreciation or income with an emphasis on safety.Company characteristics may include: stable earnings, conservative balance sheets, and an established history of revenue and earnings.A - Average Risk – Growth situations for investors seeking capital appreciation with an emphasis on safety. Company characteristics mayinclude: moderate volatility, modest balance-sheet leverage, and stable patterns of revenue and earnings. H - Higher Risk – Higher-growth
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September 6, 2018 | The Boeing Company
situations appropriate for investors seeking capital appreciation with the acceptance of risk. Company characteristics may include: higherbalance-sheet leverage, dynamic business environments, and higher levels of earnings and price volatility. S - Speculative Risk – Highgrowth situations appropriate only for investors willing to accept a high degree of volatility and risk. Company characteristics may include:unpredictable earnings, small capitalization, aggressive growth strategies, rapidly changing market dynamics, high leverage, extreme pricevolatility and unknown competitive challenges.
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September 6, 2018 | The Boeing Company
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September 6, 2018 | The Boeing Company
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