Boeing (NYSE: BA) Chairman and CEO Dennis Muilenburg shared some interesting information regarding the aerospace giant's future growth opportunities during its second-quarter earnings call. Here are the highlights for long-term investors.
A massive global market opportunity
Global economic expansion combined with a rising middle-class population is fueling growth in air cargo and passenger traffic. This, in turn, is boosting profits for airlines and other transportation companies, thereby giving them the cash they need to expand and modernize their fleets. Moreover, with fuel prices once again on the rise, Boeing is seeing growing demand for its newer, more fuel-efficient aircraft.
In the commercial market alone, Boeing forecasts long-term demand at nearly 43,000 new airplanes over the next 20 years, as the global fleet doubles in size during this time. Boeing is ramping up production to satisfy this robust demand and fulfill its massive backlog of orders. This is helping to drive sales higher, with revenue rising 5% to $24 billion in the second quarter.
Better still, as my colleague Lee Samaha notes, Boeing tends to make more profit per aircraft as it builds more planes. So if Boeing is able to successfully increase its production rates, its margins are likely to rise along with them.
Strength in defense, space, and security
Boeing is enjoying solid demand for its most important defense products from the U.S. and international governments. For example, Boeing finalized a production contract with Kuwait for 28 F-18 Super Hornet fighter jets, and New Zealand selected Boeing's P-8 Poseidon aircraft as its new maritime patrol aircraft. The company is also working toward finalizing sales of Chinook helicopters to Spain and Saudi Arabia.
In all, Boeing booked $7 billion of new orders in its defense, space, and security segment in the second quarter. Management also boosted its full-year revenue forecast for the division by $500 million to between $22 billion and $23 billion.
Long runways for growth still ahead
Boeing intends to grow its services business via both organic means and acquisitions, such as its $4 billion purchase of aerospace parts distributor KLX (NASDAQ: KLXI). Boeing believes that its aerospace expertise, global reach, and strong customer relationships will allow it to rapidly gain share in this massive market.
The numbers support this view -- services revenue jumped 15% to $4.1 billion in the second quarter. Looking ahead, management expects Boeing Global Services to generate full-year revenue of $15.5 billion to $16 billion, at an impressive operating margin of about 15.5%.
Boeing plans to return more capital to investors
Boeing excels at turning airplanes into cash for investors. Since the end of 2012, the company has returned $48 billion to shareholders via dividends and stock buybacks.
Going forward, Boeing intends to return nearly all of its free cash flow to investors, including another $12 billion in share repurchases over the next two years. And with its current cash payout accounting for only about 40% of its earnings, investors can expect plenty more dividend increases from Boeing in the decade ahead.
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