Boeing reported 3Q12 GAAP EPS of $1.35 versus consensus forecasts of $1.12.  Boeing’s total revenues of $20,008mn were up 12.9% from $17,727 million in 3Q11. Free cash flow of $1,168mn resulted in FCF conversion of 113%.  BCA’s contractual backlog ended at $305.4 billion, up 13% Y/Y, and BDS’ backlog increased 12% Y/Y to $52.3 billion.

Boeing Co

Full year EPS guidance was raised to 4.80-4.95 vs. 4.40-4.60 on the back of better defence performance and cash from operations guidance was also raised by $500 million to >$5.5 billion.

Deutsche Bank notes that looking to 2013, one item that the Boeing Company (NYSE:BA) provided was a headwind of $1B in pension expense ($3.5B with $1.8B in unallocated expense). This, along with flat R&D and some margin pressure in BCA (despite strong top-line growth) would likely drive a sub-$5 initial EPS guidance for 2013 (vs. their forecast $5.37 and the Street’s $5.60).

The pension expense is a non-cash item, but will weigh on consensus estimates.   This issue could be a central pushback point on an otherwise strong quarter, as it will push consensus estimates for 2013 into the low $5 range.  The key question for us is how much follow through this will have as numbers will subsequently be adjusted down to beatable levels and cash flow will still be very strong (perhaps ~$7/share if not better).

Among the key questions for the conference call,  1) New 737 block margin impact?; 2) Commercial backlog stability amidst slowed order environment & are there any open 2013 delivery slots?; 3) Cash deployment plans/timing & what’s internal debate over cash-use (return to s/h vs. new plane development); 4) Confident in production rate plans & opportunities to move past current targets (specifically 737 & 787); 5) GenX problems impacting 787/747?; 6) 747 orders have disappointed YTD…BA has been expecting passenger orders that aren’t coming through; 7) December board meeting agenda: dvd (target yield in mind?), 787-10, 777X; 8) Mark-to-market pension accounting?; 9) Defense backlog & sequester planning.

Stifel Nicholas added a note of caution regarding the earnings. They have a buy on the stock, but note that legally, the company can pretty much report whatever earnings they want. Their reasoning is that given the complexities of program accounting, they think the Boeing Company (NYSE:BA) can report pretty much any EPS result it chooses. In their opinion, continued progress on the 787, an official launch for 777X (which should not be expected at this time), and cash flow are what they had an eye on be watching.

Shares of he Boeing Company (NYSE:BA) are up 1.65 percent in today’s trading session to $74.02.

Disclosure: No position