Bloomberg News

Boeing Gains on Higher Forecast After Profit Tops Estimates

July 27, 2011

(Updates with closing share price in fifth paragraph.)

July 27 (Bloomberg) -- Boeing Co. rose in New York trading after increasing its 2011 earnings forecast and posting a second-quarter profit that beat analysts’ estimates, buoyed by higher commercial-jet revenue and deliveries.

Net income surged 20 percent to $941 million, or $1.25 a share, Chicago-based Boeing said in a statement today. The average estimate of 22 analysts surveyed by Bloomberg was for 97 cents. Full-year profit will be $3.90 to $4.10 a share, Boeing said, a jump of 10 cents at each end of its previous range.

Boeing benefited from shipping 118 jets, four more than a year earlier, and selling more services to airlines. Deliveries matter because that’s when the company gets much of a plane’s purchase price. The gains helped counter a drop in net jetliner orders to 65 from 68 and a 4 percent slide in military sales.

“This is a very strong quarter driven almost entirely by operational performance,” Noah Poponak, a Goldman Sachs Group Inc. analyst in New York, said in a note to investors. He recommends buying Boeing.

The shares rose 47 cents to $70.63 at 4:15 p.m. in New York Stock Exchange composite trading, paring a gain of as much as 4.3 percent. Most stocks fell as a political stalemate over the federal debt ceiling pushed the U.S. closer to default. Boeing has climbed 8.2 percent this year.

Boeing left its forecast for full-year revenue unchanged at $68 billion to $71 billion, saying it was counting on greater productivity for the profit increase. The 2011 delivery forecast was pared by five planes to a range of 485 to 495 airliners.

New Jets

The first 787 Dreamliner and 747-8 jumbo jet will be certified by the U.S. Federal Aviation Administration by the end of August and reach their initial customers in September, though fewer of the new planes will enter service this year than planned, Boeing said.

Deliveries now should total 25 to 30 787s and 747-8s, weighted more heavily toward the jumbos, Boeing said. The company previously said that total would be 25 to 40, split about evenly between the two models.

Both jets have begun the required testing for function and reliability, and crews have also started on extended-operations trials for the 787, the world’s first composite-plastic jetliner, the company said.

787 Output, Inventory

Boeing is building two 787s a month now, will push output to 2.5 a month later this year and still expects to reach 10 a month in 2013, Chief Executive Officer Jim McNerney said on a conference call. The larger 787-9 variant will be delivered to the first customer at the end of 2013, he said.

Inventory related to the new plane grew by $1.7 billion last quarter, to $16.2 billion including 35 airplanes that have already been built and not yet delivered, Chief Financial Officer James Bell said.

Sales climbed 6 percent last quarter to $16.5 billion. Boeing’s net income a year earlier was $787 million, or $1.06 a share, on revenue of $15.6 billion.

Operating profit at the commercial unit jumped 35 percent to $920 million as sales rose 19 percent to $8.84 billion. Profit climbed 12 percent, to $798 million, at Boeing’s defense segment. The drop in military revenue put the total at $7.69 billion.

Boeing is seeking foreign military contracts to counter U.S. Defense Department budget constraints and is expanding into new areas including cybersecurity.

Order Backlog

Commercial-jet output, already at a record, is set to surge over the next three years as Boeing increases the tempo to work off about seven years’ worth of unfilled orders. The backlog declined less than 1 percent to 3,300 airplanes valued at about $262 billion as of June 30, as some customers canceled orders.

Through the first half, Airbus SAS kept the top deliveries spot it has held since 2003, shipping 258 jets compared with Boeing’s 222. Airbus parent European Aeronautic, Defence & Space Co. reports earnings July 29.

The sales campaign with Airbus over a record order from AMR Corp.’s American Airlines was “pretty heated” and “aggressively priced,” McNerney said. Boeing will still make a profit on the 200 737s being sold to American, he said.

An Airbus spokesman, Rainer Ohler, said the same yesterday of the 260 jets sold by the Toulouse, France-based company. American is paying an average of just $35 million to $40 million for each A320neo, less than half the list price, according to an estimate yesterday by Gary Liebowitz, a Wells Fargo analyst in New York.

McNerney said Boeing anticipates being able to “offload significant parts” of the leasing arrangement committed to with American’s order, so the planemaker’s balance sheet won’t be burdened.

Fuel Economy

American and other customers began voicing greater demand in the past three months for more-efficient jets sooner than later, McNerney said. That helped persuade Boeing to follow Airbus by offering new engines on its 737 rather than its previous preference to wait and develop an all-new plane around the end of this decade.

Monthly production of the current and revised 737 will likely reach 50 to 60 planes by the decade’s end, beyond the current goal of 42 jets by 2014, McNerney said. That will require a “significant” capital investment, he said.

McNerney said the tweaked 737 might be assembled at the current plant in Renton, Washington, or another location, including the complex being built in South Carolina for the 787.

Boeing will keep investing in South Carolina, McNerney said, because it expects to win a National Labor Relations Board complaint that the facility there was opened in illegal retaliation against striking unions in the Seattle area.

--With assistance from Andrea Rothman in Paris. Editors: Ed Dufner, John Lear

To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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