Boeing Reports First-Quarter Results

• Engaging global regulators and customers on safe return to service of the 737 MAX
• Revenue of $22.9 billion reflecting 149 commercial deliveries and higher defense and services volume
• GAAP EPS of $3.75 and core EPS (non-GAAP)* of $3.16
• Operating cash flow of $2.8 billion; paid $1.2 billion of dividends
• Total backlog of $487 billion, including more than 5,600 commercial airplanes
• Cash and marketable securities of $7.7 billion provide strong liquidity
• Previously issued 2019 guidance does not reflect 737 MAX impacts; new guidance to be issued at a future date

The Boeing Company [NYSE: BA] reported first-quarter revenue of $22.9 billion, GAAP earnings per share of $3.75 and core earnings per share (non-GAAP)* of $3.16, reflecting lower 737 deliveries partially offset by higher defense and services volume (Table 1). Boeing generated operating cash flow of $2.8 billion and paid $1.2 billion of dividends.

The previously issued 2019 financial guidance does not reflect 737 MAX impacts. Due to the uncertainty of the timing and conditions surrounding return to service of the 737 MAX fleet, new guidance will be issued at a future date. Boeing is making steady progress on the path to final certification for a software update for the 737 MAX, with over 135 test and production flights of the software update complete. The company continues to work closely with global regulators and our airline partners to comprehensively test the software and finalize a robust package of training and educational resources.

"Across the company, we are focused on safety, returning the 737 MAX to service, and earning and re-earning the trust and confidence of customers, regulators and the flying public," said Boeing Chairman, President and Chief Executive Officer Dennis Muilenburg. "As we work through this challenging time for our customers, stakeholders and the company, our attention remains on driving excellence in quality and performance and running a healthy sustained growth business built on strong, long-term fundamentals."

The quarter's operating performance was highlighted by key defense wins, strong commercial widebody performance and orders, continued robust services growth, and receiving Embraer shareholder approval for the proposed strategic partnership.

Operating cash flow was $2.8 billion in the quarter, primarily reflecting lower 737 deliveries as well as timing of receipts and expenditures (Table 2). During the quarter, the company paid $1.2 billion in dividends, reflecting a 20 percent increase in dividends per share compared to the same period of the prior year. The company repurchased 6.1 million shares for $2.3 billion in the quarter, all of which occurred prior to mid-March.

Cash and investments in marketable securities totaled $7.7 billion, compared to $8.6 billion at the beginning of the quarter (Table 3). Debt was $14.7 billion, up from $13.8 billion at the beginning of the quarter primarily due to the issuance of new debt.

Total company backlog at quarter-end remained robust at $487 billion.

Segment Results

Commercial Airplanes

Commercial Airplanes first-quarter revenue was $11.8 billion reflecting lower 737 deliveries partially offset by favorable mix (Table 4). First-quarter operating margin was 9.9 percent reflecting lower 737 deliveries partially offset by a higher margin on the 787 program. The reported margin also reflects increased costs associated with the recent 737 production rate adjustment.

During the quarter, Commercial Airplanes delivered 149 airplanes and the production rate for the 787 increased to 14 airplanes per month. Commercial Airplanes captured several widebody orders during the quarter, including orders for 18 777X airplanes for British Airways parent company IAG, 20 787 airplanes for Lufthansa, and 10 787 airplanes for Bamboo Airways. The first 777X flight test airplane rolled out of the factory, and the program remains on track for flight testing this year and first delivery in 2020.

Commercial Airplanes backlog remains healthy with over 5,600 airplanes valued at $399 billion.

Defense, Space & Security

Defense, Space & Security first-quarter revenue increased to $6.6 billion primarily driven by higher volume across satellites, weapons and surveillance aircraft partially offset by lower C-17 volume (Table 5). First-quarter operating margin increased to 12.8 percent reflecting a gain on sale of property partially offset by unfavorable mix.

During the quarter, Defense, Space & Security was awarded a multi-year contract for 78 F/A-18 Super Hornets for the U.S. Navy as well as contracts for 5 Extra Large Unmanned Undersea Vehicles for the U.S. Navy, 5 E-7 AEW&C aircraft for the U.K. Royal Air Force, and 19 P-8 Poseidon aircraft for the U.S. Navy, Royal Norwegian Navy and U.K. Royal Navy. Key milestones achieved during the quarter included completion of the first Ground-based Midcourse Defense test with two interceptors, successful environmental testing of the Commercial Crew spacecraft, and the first flight of the SB>1 DEFIANT™ helicopter. Defense, Space & Security also delivered the first 7 KC-46 Tankers to the U.S. Air Force.

Defense, Space & Security booked orders valued at $12 billion during the quarter and backlog grew to $67 billion, of which 31% percent represents orders from customers outside the U.S.

Global Services

Global Services first-quarter revenue increased to $4.6 billion, primarily driven by higher volume across the portfolio including the acquisition of KLX (Table 6). First-quarter operating margin was 14.1 percent reflecting mix of products and services and less favorable performance.

During the quarter, Global Services was awarded contracts for Performance Based Logistics for V-22 for the U.S. Navy and P-8A training for the U.K. Royal Air Force. Global Services captured an order for 10 737-800 converted freighters for GECAS, secured an agreement to optimize crew operations for Royal Air Maroc, and expanded global distribution of hardware and chemical products to Joramco. In addition, Global Services completed the acquisition of ForeFlight, a leading provider of innovative mobile and web-based aviation applications.

Additional Financial Information

At quarter-end, Boeing Capital's net portfolio balance was $2.5 billion. Revenue in other unallocated items and eliminations decreased primarily due to the timing of eliminations for intercompany aircraft deliveries. The change in earnings from other unallocated items and eliminations is primarily due to a customer financing impairment, higher deferred compensation expense and increased enterprise research and development investment. The effective tax rate for the first quarter decreased from the same period in the prior year primarily due to a higher foreign-derived intangible income benefit and higher excess tax benefits related to share-based payments.

Outlook

The previously issued 2019 financial guidance does not reflect 737 MAX impacts. Due to the uncertainty of the timing and conditions surrounding return to service of the 737 MAX fleet, new guidance will be issued at a future date.

Non-GAAP Measures Disclosures

We supplement the reporting of our financial information determined under Generally Accepted Accounting Principles in the United States of America (GAAP) with certain non-GAAP financial information. The non-GAAP financial information presented excludes certain significant items that may not be indicative of, or are unrelated to, results from our ongoing business operations. We believe that these non-GAAP measures provide investors with additional insight into the company's ongoing business performance. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. The following definitions are provided:

Core Operating Earnings, Core Operating Margin and Core Earnings Per Share

Core operating earnings is defined as GAAP earnings from operations excluding the FAS/CAS service cost adjustment. The FAS/CAS service cost adjustment represents the difference between the FAS pension and postretirement service costs calculated under GAAP and costs allocated to the business segments. Core operating margin is defined as core operating earnings expressed as a percentage of revenue. Core earnings per share is defined as GAAP diluted earnings per share excluding the net earnings per share impact of the FAS/CAS service cost adjustment and Non-operating pension and postretirement expenses. Non-operating pension and postretirement expenses represent the components of net periodic benefit costs other than service cost. Pension costs, comprising service and prior service costs computed in accordance with GAAP are allocated to Commercial Airplanes and BGS businesses supporting commercial customers. Pension costs allocated to BDS and BGS businesses supporting government customers are computed in accordance with U.S. Government Cost Accounting Standards (CAS), which employ different actuarial assumptions and accounting conventions than GAAP. CAS costs are allocable to government contracts. Other postretirement benefit costs are allocated to all business segments based on CAS, which is generally based on benefits paid. Management uses core operating earnings, core operating margin and core earnings/per share for purposes of evaluating and forecasting underlying business performance. Management believes these core earnings measures provide investors additional insights into operational performance as they exclude non-service pension and post-retirement costs, which primarily represent costs driven by market factors and costs not allocable to government contracts. A reconciliation between the GAAP and non-GAAP measures is provided on page 12.

Free Cash Flow

Free cash flow is defined as GAAP operating cash flow without capital expenditures for property, plant and equipment additions. Management believes free cash flow provides investors with an important perspective on the cash available for shareholders, debt repayment, and acquisitions after making the capital investments required to support ongoing business operations and long term value creation. Free cash flow does not represent the residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures such as repayment of maturing debt. Management uses free cash flow as a measure to assess both business performance and overall liquidity. Table 2 provides a reconciliation between GAAP operating cash flow and free cash flow.

Caution Concerning Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "may," "should," "expects," "intends," "projects," "plans," "believes," "estimates," "targets," "anticipates," and similar expressions generally identify these forward-looking statements. Examples of forward-looking statements include statements relating to our future financial condition and operating results, as well as any other statement that does not directly relate to any historical or current fact. Forward-looking statements are based on expectations and assumptions that we believe to be reasonable when made, but that may not prove to be accurate. These statements are not guarantees and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict. Many factors could cause actual results to differ materially and adversely from these forward-looking statements. Among these factors are risks related to: (1) the timing and conditions surrounding the return to service of the 737 MAX fleet; (2) general conditions in the economy and our industry, including those due to regulatory changes; (3) our reliance on our commercial airline customers; (4) the overall health of our aircraft production system, planned commercial aircraft production rate changes, our commercial development and derivative aircraft programs, and our aircraft being subject to stringent performance and reliability standards; (5) changing budget and appropriation levels and acquisition priorities of the U.S. government; (6) our dependence on U.S. government contracts; (7) our reliance on fixed-price contracts; (8) our reliance on cost-type contracts; (9) uncertainties concerning contracts that include in-orbit incentive payments; (10) our dependence on our subcontractors and suppliers, as well as the availability of raw materials; (11) changes in accounting estimates; (12) changes in the competitive landscape in our markets; (13) our non-U.S. operations, including sales to non-U.S. customers; (14) threats to the security of our or our customers' information; (15) potential adverse developments in new or pending litigation and/or government investigations; (16) customer and aircraft concentration in our customer financing portfolio; (17) changes in our ability to obtain debt on commercially reasonable terms and at competitive rates; (18) realizing the anticipated benefits of mergers, acquisitions, joint ventures/strategic alliances or divestitures; (19) the adequacy of our insurance coverage to cover significant risk exposures; (20) potential business disruptions, including those related to physical security threats, information technology or cyber-attacks, epidemics, sanctions or natural disasters; (21) work stoppages or other labor disruptions; (22) substantial pension and other postretirement benefit obligations; and (23) potential environmental liabilities.

Additional information concerning these and other factors can be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Any forward-looking statement speaks only as of the date on which it is made, and we assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.