Boeing at Morgan Stanley Conference Notes

Dennis Muilenburg – Chairman, President and CEO

7.7% passenger traffic growth year to date

“We see about $7.5 trillion marketplace over the next 10 years, recently updated our current market outlook so expect the world to need about 41,000 new commercial airplanes over the next 20 years that’s incrementally up from last year’s estimate. Traffic patterns around the world continue to be very strong, we’re running about 7.7% passenger traffic growth year-to-date. We expect nominally 6% to 7% rate over the next several years and over the 20 year timeframe we’ve assumed a 4.7% growth rate behind those 41,000 new airplanes.”

The Boeing’s (BA) at Bernstein Strategic Decision Conference

CEO Dennis Muilenburg

Strong growth in commercial passenger traffic

“Commercial airplanes continues to be a very strong marketplace and we are seeing sustained passenger traffic growth, historically 5% to 6% a year — year-to-date commercial passenger traffic is growing little over 8% around the globe with very strong growth continuing in Asia Pacific and Middle East region….we see commercial airplanes as a strong growth market for the future.”

More diversified backlog, less cyclical market

“…the global marketplace is a much less cyclical market, passenger traffic patterns today are much different than they have been in the past. We have a backlog that seven years instead of two years, a backlog that’s geographically diversified not a U.S., Europe dominated backlog. So from a market standpoint, it’s less cyclical.”

The strongly oversold position may go higher

“Even against that production profile, we are strongly oversold and market demand signals are telling us, it could go even higher. So it is part of our effort to keep supply and demand in balance, have a long-term growth plan.”

The future is the 787 and 737 as cash generators

“we can see very clear lines to driving productivity and cash performance on 787 and the data says that we are making good steady solid progress on that. That is one of the biggest cash generation levers that we have. And this is operating on nearly 700 airplanes in backlog. That combined with 737 ramp-up just going to volume ramp-up at 57 a month. Those two things are the cash generators in the company — additional cash generators over the next five years.”

The Boeing (BA) Q1 2017

Dennis A. Muilenburg – President and CEO

Airline activity is picking up. 

“…we still see solid airline profitability and strong passenger traffic that continues to outpace global GDP. According to the International Air Transport Association, the 8.8% year to date passenger traffic growth adjusted for the leap year is well above the long-term average of 5.5%. And with the recovery in global trade, we are now seeing modest improvements in cargo traffic.These favorable industry trends, combined with our robust backlog of more than 5,700 aircraft, underpin our planned production rate increases over the remainder of this decade.”

Passenger traffic picking up

“…we’re continuing to see strong passenger traffic growth in particular. It’s only one quarter, but 8.8% passenger growth in the first quarter this year, again just speaks to the fundamental strength of the marketplace.”

On defense spending

“…we’re seeing a flat to moderately up top line on the defense business over the next five years. Some of this is dependent on where we end up on the U.S. defense budget. As you know, we’re still under sequestration. It’s the law of the land, and we’re hopeful and there’s some signs that alternatives to sequestration are going to come through as the new baseline…. what we’re hearing from our customers and what we’re seeing from the new administration and from the Hill are encouraging signs in terms of adding robustness to the defense budget and selectively growing

Gregory D. Smith – CFO

On tax reform

“….we don’t have any cash offshore, other than cash that supports our operations. So we’re not in a situation where repatriation is an issue or a priority. Broadly speaking, we’re a supporter of tax reform. And simplifying the tax code, as well as getting the rate to a point of being able to compete on a global scale, is certainly something that we support. And again, we’re looking for efficiency in the tax system as well as the rate….But at the highest level, we’re a big supporter of tax reform. It’s going to drive jobs. It’s going to drive the U.S. economy, broadly speaking. And it’s going to allow us to compete in any, whether – doesn’t matter what industry you’re in. If you’re a global company, it’s going to allow you to compete on a global platform.”

Lockheed Martin (LMT) Q1 2017

Marillyn A. Hewson – President and CEO

They hope for increased defense spending

“At this time, government spending remains limited by the continuing resolution that is set to expire on April 28. As you know, the continuing resolution, or CR, limits funding to prior year’s levels and prohibits new programs from starting. Discussions are underway to extend the CR as Congress continues to debate the regular appropriations bills. We are hopeful that these discussions result in an approved FY 2017 Defense Appropriations Act as we feel a further lack of budget clarity could have longer-term consequences for our armed forces and our industry..”

…and the hope seems justified

“There are however, several encouraging indications that our nation’s leaders are aligned with the need for a focus on defense spending. First, the House recently passed the FY 2017 appropriations bill, and it is currently residing with the Senate. This bill…supports vital equipment procurement, with increased spending called out for BLACK HAWK helicopters, as well as additional F-35s. Similarly, we are pleased to see President Trump’s 2017 supplemental defense appropriations submission and the administration’s initial FY 2018 budget outline, or skinny budget; both request funds in excess of the Budget Control Act caps.”



Bruce L. Tanner – Executive Vice President and Chief Financial Officer

In sum

“Our first quarter performance was mixed with a couple of earnings charges detracting from strong performance elsewhere in the business. Our cash performance was strong in the quarter and we expect that performance to carry over to a higher full year outlook than we provided last quarter. We continue to provide significant cash returns to our stockholders and we’re not giving up on trying to overcome our early setbacks and making 2017 a year we can be proud of .”

Due to product lifecycle, the CR will have delayed impact

“…the work that we’re performing today was from several fiscal years ago. It takes about three years or so to go through the F-35 lifecycle from sort of the initial dollar award to the first aircraft delivery. So, as Marillyn said, I wouldn’t expect to see, especially in 2017, much of an impact, if anything, even should CR be extended.”

On the new revenue recognition standard

“…(the) revenue recognition standard that becomes effective January 1, 2018…I’m starting to get insight into sort of rev rec the old way, if you will, and rev rec the new way. Our expectation and what we’ve disclosed in the Ks and the Qs is that we wouldn’t expect to see a large change relative to our sales and/or earnings even though we are going to be changing some contracts that are currently on a delivery-based or what we call units-of-delivery-based method of sales recognition to a cost-to-cost methodology. So that will have some impacts on sort of our opening balance sheet under the new rev rec approach, as well as sort of our opening backlog position, but I wouldn’t think the sort of the run rate if you will, of sales and earnings going forward would be a material difference at all and that’s sort of what I’m seeing as I look at the data so far.”

Boeing 2Q16 Earnings Call Notes

The Boeing (BA) Dennis A. Muilenburg on Q2 2016 Results

Reduced future production expectations on 747 due to weak cargo market

“On the 747 program, we decided to reduce future production expectations and revenue assumptions to account for current and anticipated weakness in the air cargo market”

Passenger traffic continues to outpace GDP

“Our overall view of the business environment remains generally positive due to healthy industry fundamentals. We recently updated our 20-year commercial market outlook and based on solid traffic growth and continued replacement demand, we now forecast nearly $6 trillion of demand for 39,620 commercial airplanes, an increase of nearly 1,600 from last year. Global passenger traffic continues to solidly outpace GDP, with IATA reporting 6% growth year to date. On the cargo side, the market remains sluggish with year to date freight traffic down approximately 1%.

Oil prices have not substantially changed customer fleet planning

“We continue to keep a watchful eye on global market conditions for both passenger travel and cargo to ensure that supply and demand are balanced, with particular attention being paid to the wide body segment. While oil prices have meaningfully rebounded from lows earlier this year, our customers continue to tell us that movements in oil prices have not substantially changed their view on future fleet planning or their commitment to existing delivery schedules.”

Requests for changes in delivery are holding below historical average

“New order activity is continuing at a moderate but healthy pace as indicated by the flow of announcements at the Farnborough Air Show. As a result of the compelling and enduring value proposition of our airplanes, requests to change deliveries are holding well below the historical average. Over the past 12 months, deferrals, accelerations, debookings and cancellations remain at about 1% of our backlog. We continue to expect commercial aircraft deliveries to ramp up beyond 900 aircraft per year through the end of this decade, driven by ongoing market demand in our sizable and diverse backlog.”

57 737s per month by 2019

“demand remains strong for the 737 with a robust backlog of nearly 4,400 firm orders. We remain on track to raise 737 production from the current 42 per month to 47 in 2017 followed by 52 per month in 2018 and then 57 per month in 2019. And importantly, even at the 57 per month rate, we continue to be oversold.”

Have seen some hesitation in twin aisle market

“Turning to the twin aisle market, while long-term demand remains strong, we have seen some hesitation in near-term demand in recent months varying by program. For the current generation 777, our backlog as of the end of the quarter stood at 175 airplanes.”

Gregory D. Smith – Chief Financial Officer & Executive Vice President

Backlog is $417B ni commercial airplanes

“Commercial Airplanes captured $11 billion of net orders during the second quarter and backlog remains very strong at $417 billion and nearly 5,700 aircraft, again equating to seven years of production. ”

Moved payables from daily frequency to twice a month

“When it comes to payables, we have changed our frequency of pay that we have gone from daily to twice a month. Again, that’s in line with industry practices. At the same time, we’re looking at terms across all of our contracts and again looking to get those to industry standards, but ultimately we want to get those to top quartile standards. And there’s no reason why we shouldn’t, and frankly a lot of our supply chain is already there.”

Lockheed Martin (LMT) Q2 2016 Results Conference Call

Marillyn A. Hewson – Chairman, President & CEO

Increased full-year guidance

“Turning to the summary financials, our team continue to deliver broad-based results across the corporation, the second quarter numbers exceeding all of our internal plans. This strong year-to-date performance enabled us to increase full-year 2016 guidance for sales, segment operating profit, earnings per share, and cash from operations.”

There´s some progress on divesting IS&GS. Expect updated outlook if completed soon.

“Significant progress towards transaction closure continues to be achieved. We commenced our exchange offer on Monday of last week. Also last week, the Competition and Markets Authority in the United Kingdom concluded its review, satisfying another condition to closing…the offer provides Lockheed Martin stockholders the opportunity to exchange their shares of Lockheed Martin for shares of stock in a Lockheed Martin subsidiary, which then become shares of Leidos common stock upon completion of the transaction.”

Note: IS&GS (Information Systems & Global Solutions) is one of five business units in LMT. The transaction alluded to here is the separation of IS&GS business from LMT and the merger of IS&GS with Leidos Holdings, Inc. which is expected to close in the third quarter of 2016.

The F-35 has significantly improved capabilities.

“Overall the [F-35 Joint Strike Fighter] program program continued to achieve good progress across the multiple fronts of winding down development activities, ramping up production rate and sustainment activities and securing customer support and demand….The tremendous technological leap in capabilities that the F-35 provides are being demonstrated on a daily basis to a growing number of domestic and international customers as the aircraft is fielded at additional sites.”

There´s been notable demand from customers n the US and internationally…

“Turning to customer support and demand for the F-35, key milestones this past quarter on the domestic side include revalidation to Congress by the Department of Defense of the critical and unchanged procurement requirement to replace legacy aircraft with 2,443 JSF fighters for the U.S. Air Force, Navy and Marines. Internationally, support remains strong and growing…I was able to see firsthand the growing international interest and support of the F-35 earlier this month, when I had the opportunity to attend both the Royal International Air Tattoo and Farnborough air shows in the United Kingdom.”

…as customers get exposed to its capabilities. 

“Customers and attendees were able to see up close the revolutionary capabilities of both CTOL and STOVL F-35 aircraft at the air shows as they performed their aerial maneuvers. This marked the debut of the F-35 at major international air shows, demonstrating the increasing maturity and progress on the program.”

They’re on track on production and cost reduction strategy.

“On production, we are on track to increase our deliveries to 53 aircraft this year and have delivered approximately 180 aircraft since program inception. In the area of cost reductions, we continue to make significant progress on our previously announced blueprint for affordability, shared commitment between the government and industry.”

Bruce L. Tanner – CFO & Executive Vice President

Improved top line and bottom line growth.

“Sales were higher by $1.3 billion or 11% this year than last year, driven by the inclusion of Sikorsky in the results of MST for about $1.2 billion and nearly $250 million in growth at Aeronautics driven by $400 million higher F-35 volume which more than offset two fewer C-5 deliveries in the quarter compared to last year…Our EPS in the quarter was $3.32, which represents about a 13% increase over the EPS in the second quarter of last year. “

Significant capital return via dividends and share buybacks.

“We generated $1.5 billion in cash from operations and returned $1 billion of cash to our stockholders in the quarter…With just over $1 billion returned to stockholders evenly split between dividends and share repurchases, we returned over 80% of free cash flow in the quarter.”

NB: In Q2 2016, LMT repurchased 2.1 million shares for $501 million (4.9 million shares for $937 million in Q2 2015) paying cash dividends of $501 million ($467 million in Q2 2015)

They might do some more share repurchases coming up.

“30%, 35% of our investor base is sort of income base. So, that’s a pretty significant element of our ownership that is driven, in fact, by the dividend yield. So, that’s an important aspect of capital allocation going forward…there’s still a backlog of options out there that as those do get exercised, we will clearly do share repurchases to offset that dilution. We will do share repurchases to offset dilution from the equity compensation as well.”

F-35 production step ups not expected in the H2 2016.

“We don’t currently have plans for F-35 production step-ups for the rest – or for the second half of the year, and so that’s one of the things that will cause the second half of the year to look a little wider probably than the first half of the year.”

Boeing at Bernstein Conference Notes

Dennis Muilenburg – Chairman, President and CEO

Underlying market strength remains solid

” we see the fundamentals continuing to be very consistent with what we talked about there. The underlying aerospace market is a strong one. Commercial aircraft market paced right now by global passenger growth, continuing to run at about a 7% year-over-year growth rate, some month to month variation in that but we see consistent strong market growth there, defense budget returning to some strength in the U.S. with some good support for our programs at Boeing. So, underlying market strength remains solid. ”

Boeing 1Q16 Earnings Call Notes

The Boeing (BA) Dennis A. Muilenburg on Q1 2016 Results

Continue to see a healthy commercial airplane marketplace

” We continue to see a generally healthy commercial airplane marketplace, driven by improving airline profitability, strong passenger traffic growth, and meaningful replacement demand. According to the International Air Transport Association [IATA], passenger traffic is off to its strongest start in eight years, with traffic growing 8% in early 2016. Over the past three years, we have seen passenger traffic growth consistently outpace global GDP and airline capacity growth, a key indicator that the supply and demand dynamic remains positive”

Global air cargo down though

“In contrast to the strength of passenger traffic, the global air cargo market is off to a slow start this year, with air freight traffic declining 2% over the first two months. However, we continue to expect approximately 3% growth for the full year. As always, we continue to keep a watchful eye on global market conditions for both passenger travel and cargo to ensure that supply and demand are balanced.”

Oil prices haven’t changed customers views on future fleet

“With regard to oil prices, while we have seen a rebound from the February lows, prices are still well below the 15-year average. With that said, our customers are telling us that current oil prices have not substantially changed their views on future fleet planning or their commitment to existing delivery schedules.”

Airplane order activity is continuing at a moderated but healthy pace

“Airplane order activity is continuing at a moderated but healthy pace. Meanwhile, requests to change deliveries remain well below the historical average. As a matter of fact, in the past year, deferrals, accelerations, debookings, and cancellations combined for about 1% of our backlog. That is well below the 6% average over the last 15 years.”

Expecting headcount to be down this year as drive productivity

“I will say the overall macro trend that we have for this year is that we expect employment will be net down moderately. I can’t give you a specific number there, but we are on a moderate downward trend enterprise-wide this year as we drive productivity. As I said earlier, we’re also doing that and trying to be very mindful of our employees. And as you know, I have a great deal of respect for our people. They are world-class. They’re the best in the world at what they do. And where we can leverage attrition and the voluntary layoff programs that we’ve put in place, we will, and so far that approach has been very effective for us. And I think that’s good for the business and good for our people, ultimately good for our customers. So that’s our headset on that approach.”

Boeing at Bank of America Conference Notes

Randy Tinseth – VP, Marketing, Boeing Commercial Airplanes

Passenger market has been strong over the last six years

“On the passenger side, we have seen a very strong and robust market. Passenger traffic over the last six years has grown in excess of 6% per year. That has been helping to drive the top line of our customers in terms of revenue. It has also created a market where our customers have been very successful.”

Cargo market has not been as strong

“ow on the other side of that we look at the cargo market. This is a market that came back very strongly in 2010, really struggled in 2011 and 2012. We started to see some improvements in 2013 and 2014 and last year we saw the market grow only about 2%. This is a market that has seen its ups and downs and, clearly, the cargo market grows when trade grows. ”

On pace to deliver 745 aircraft this year

“So our backlog is several times the size of the aircraft that we have been able to build and deliver. And as we look at this year, we continue to be on track to deliver somewhere between 740 and 745 aircraft this year.”

Passenger traffic has grown faster than capacity growth

“. The other thing I wanted to say about passenger traffic, over the last six years, as traffic has grown, it has actually grown faster than capacity growth. So the available seat kilometers in the market has been growing at a slower rate than the revenue passenger kilometers in the market. And you see this when you fly. It means that load factors are going up and up and up over time which means that our customers are able to use their assets in ways and at utilizations they haven’t been able to do before which helps with their bottom line.”

Lots of growth for us still in China

” The other thing about China is their new visa policies that are now in place has also allowed them to grow internationally. So if you think about this, last year, for the first time, Chinese carriers carried more passengers to the United States than U.S. airlines did. They have been able to expand and take significant advantage of the new visa policy. The other thing I would say about China, it is a market today that is underserved. We see hundreds of potential airplanes — I should say it is being underserved by several hundred aircraft at this time, so we do have growth moving into the future and then I want to just say a little bit about the competitive environment and pricing. ”

I don’t think there’s a question that we will see a successful third party in the market

“I don’t think there is any question that we will see a successful third-party in the market. I think it is a question of when and I think it will probably be later, rather than sooner that we see. I think at this point Embraer is choosing to compete just below us. The CSeries is trying to take Boeing and Airbus head on and that is not working too well for them. But I think China and some of those other countries have great potential because of the demand in those markets and the fact is that I think they will invest over the long term to be successful. So we know that new competition is coming. We know that there will be a successful third competitor. I look at it there is room for us to grow, there is room for Airbus to grow there is room for that third competitor.”

Future airplanes will look a lot like airplanes today

“I think airplanes in the future will look a lot like airplanes today, but they will be more capable. And by more capable I mean that they will generate more available seat kilometers; they will generate more revenue seat kilometers. They will fly further; they will fly more hours per day.”

Boeing 4Q15 Earnings Call Notes

Dennis Muilenburg

Export Import bank helps us complete in global markets

“A noteworthy milestone for our industry and others and for large and small U.S. exporters alike, was the five-year extension of the U.S. Export Import Bank. This reauthorization of the bank restores competitive balance in international trade and enables American exporters to compete on a level playing field in tough global markets. These developments in sum help to further de-risk our business going forward.”

Global passenger traffic increased 7% in 2015

“We continue to see a generally healthy commercial airplane marketplace driven by improving airline profitability, solid passenger traffic growth, and meaningful replacement. Traffic data for 2015 illustrates the strength of the passenger market with global passenger traffic increasing 7% for the year, which was above the 10-year average.”

Air freight traffic stalled though

“In contrast, as we highlighted in our rate reduction announcement last week on the 747-8, the global cargo market recovery stalled during 2015 with the air freight traffic growing a modest 2% during the year. We remain confident in the long-term recovery in the cargo market and the upcoming replacement cycle where we see approximately 240 large freighters that will be over 20 years old by 2019.”

Project passenger traffic to increase another 7% next year

“Additionally, passenger traffic in 2016 is forecast to grow 7%, and cargo is forecast to increase 3%. In addition, global GDP is forecast to increase 2.7% in 2016, a healthy level for our industry.”

Chinese passenger traffic increased 15%

“We also continued to see strong growth in Chinese airline traffic. In 2015, passenger traffic in China increased 15% compared to GDP growth of 7%, a steady trend we have seen for the past five years.”

Airlines buy aircraft for growth in a low oil price environment more than replacement

“notwithstanding a fuel price environment today that is well below the 15-year average, the value proposition for our airplanes remains a compelling one, and we have seen airlines in the past efficiently adjust to similar market conditions. In a period such as today with higher passenger demand and lower oil prices, airlines buy new aircraft more for growth rather than replace older assets.”

Airplane demand is 60% growth 40% replacement

“we continue to see about 40% of overall aircraft are in the replacement category, so it’s a combination of growth and replacement. About 60% growth, about 40% replacement on balance. It varies a bit year-to-year, region-by-region, but that gives you a sense for it. And the value proposition of our airplanes is compelling whether you’re looking at replacement of old assets or the need to satisfy passenger growth.”