May 26, 2022


Skillful Business Crafters

Airbus Keeps Rolling With Strong Earnings

The COVID-19 pandemic dealt a crippling blow to Boeing, compounding its existing woes from the 737 MAX grounding. The U.S. aerospace titan has burned tens of billions of dollars over the past two years, weakening its balance sheet, while its backlog has eroded significantly.

By contrast, the pandemic has proven to be a minor setback for Airbus ( EADSY 4.93% ). On Thursday, the European aircraft manufacturer released another strong earnings report as it closed the books on 2021.

Results cruise past guidance

Last month, Airbus reported that it delivered 611 commercial jets in 2021, up from 566 a year earlier. This surpassed the company’s October outlook for approximately 600 deliveries. As a result, full-year revenue grew 4% to 52.1 billion euros ($59.3 billion), despite lower revenue from Airbus’ defense segment.

Airbus also handily beat its projections for earnings and cash flow. Adjusted operating profit reached 4.9 billion euros ($5.5 billion) in 2021, while the company generated free cash flow of 3.5 billion euros ($4 billion). Airbus’ most recent guidance had called for a full-year adjusted operating profit of 4.5 billion euros and free cash flow of 2.5 billion euros.

This performance was even more impressive when judged against management’s expectations at the beginning of 2021. Entering the year, Airbus expected to deliver about the same number of commercial jets as it did in 2020 and to generate an adjusted operating profit of 2 billion euros and breakeven free cash flow.

A firm foundation for the future

Thanks to its strong free cash flow last year, Airbus ended 2021 with a net cash position of 7.6 billion euros ($8.7 billion). That’s giving it the confidence to reinstate its dividend, with a proposed annual payment of 1.5 euros per share. Airbus expects its net cash position to continue growing in 2022, putting the company in an excellent position to continue investing in next-generation technology.

Additionally, Airbus continues to have an impressive order backlog. It exited the year with more than 7,000 firm orders for its commercial jets. The company’s defense and helicopters segments grew their backlogs during 2021 as well. Total backlog reached 398 billion euros ($452 billion) by year-end. This gives Airbus a clear path to continued growth in revenue, earnings, and free cash flow.

Image source: Getty Images.

Momentum continues

Airbus expects to deliver about 720 commercial jets this year, which would represent an 18% year-over-year increase. The company also estimates that its adjusted operating profit will grow to 5.5 billion euros ($6.3 billion) and free cash flow will remain steady at 3.5 billion euros ($4 billion). Given management’s penchant for conservative guidance, there’s a good chance Airbus will surpass these targets.

Looking beyond 2022, Airbus is well positioned for further growth. Most notably, it is on track to boost A320neo-family production to a rate of 65 per month by next summer. That would put annual production of Airbus’ most popular commercial jet family at nearly 750 units. The company is pushing suppliers to prepare for additional production rate increases as early as 2024, as it looks to solidify its market share advantage over Boeing’s 737 MAX.

Additionally, Airbus continues to target an A220 production rate of 14 per month by around 2025. That could bring the program to profitability. Airbus still has work to do to grow the A220 order book enough to support production at that level, but it’s off to a strong start in 2022. Airbus booked an order for 22 A220s in January. Just this week, it finalized two more orders for a total of 50 A220s. Production of Airbus’ wide-bodies will rebound somewhat over the next few years, too, though probably not to pre-pandemic rates.

Despite this promising outlook, Airbus stock continues to trade at a market cap of roughly $100 billion. If Airbus’ growth plans play out as planned, shareholders could reap big gains over the next few years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.