Boeing posted strong second quarter 2018 earnings driven by demand for domestic and foreign military aircraft sales, but operating margins were hampered by higher-than-expected costs for the KC-46 Tanker.
“Revenue increased to $24.3 billion reflecting 194 commercial deliveries and higher defense and services volume,” the company said on Wednesday, July 25.
Revenue guidance increased $1 billion to between $97-99 billion, driven by defense volume and services growth.
Second quarter 2018 Defense, Space & Security revenues increased 9 percent to $5.593 billion from $5.142 billion in second quarter 2017.
Earnings from operations were down 15 percent to $521 billion and the operating margin was 9.3 percent, down 2.6 points from 11.9 percent last year. The decline primarily reflected the $111 million growth cost of the KC-46 Tanker and was partially offset by solid execution and favorable mix, Boeing said.
A report earlier this year by the U.S. Government Accountability Office warned that deliveries of the first fully capable KC-46 tankers could slip to May 2019 from the previous timetable of October 2018, citing a number of critical risks to the timeframe that need to be mitigated. Boeing program manager Mike Gibbons said in May that the company expects the Air Force to declare the issue resolved soon, allowing Boeing to deliver the first tanker as early as this summer.
The operating margin for the year is now expected to be between 10-10.5 percent, down from the previous forecast of 11 percent.
F/A-18 and foreign military sales
Revenue was driven by sales of the F/A-18 and weapons volume, Boeing said. The U.S. Navy ordered three additional P-8A Poseidon aircraft in a $416 million contract modification in May; 18 F/A-18E and F/A-18F fighter jets in a $862 million June deal; and 58 V-22 Ospreys in a $4.2 billion contract modification.
Boeing also finalized foreign military sales during the quarter, including a June contract for $1.5 billion to produce and deliver 28 F/A-18E and F/A-18F Super Hornets to Kuwait.
Defense, Space & Security backlog was $52 billion, of which 35 percent represents orders from international customers, the company said.