Bloomberg News

Boeing Lifts Forecast as Jet Deliveries Fuel Profit Beat

July 25, 2012

Boeing Co. Chief Executive Officer Jim McNerney

Chief Executive Officer Jim McNerney raised the forecast for full-year profit to $4.40 to $4.60 a share from his April prediction of $4.15 to $4.35 a share. Photographer: Andrew Harrer/Bloomberg

Boeing Co. (BA:US) rose the most in about a month after boosting its forecast for the second time this year amid increasing deliveries of commercial and military jets.

Second-quarter profit of $1.27 a share topped the $1.13 average of estimates from analysts surveyed by Bloomberg, marking the 20th time in the seven years since Jim McNerney became chief executive officer that Boeing beat projections.

Sales jumped 21 percent to $20 billion after the planemaker delivered 150 airliners in the quarter, up from 118 a year earlier. Boeing has been cutting jobs at its defense unit while hiring for its commercial jet division, which is boosting output more than 60 percent in four years through 2014.

“A performance like this had generally been expected for Boeing Commercial Airplanes, given the lack of known issues on the aircraft programs this quarter,” wrote Robert Stallard, an analyst with RBC Capital Markets in London. “Where Boeing has arguably beaten is on defense though, where expectations have been understandably low.”

The defense unit overcame “a difficult market environment” to lift sales 6.6 percent to $8.19 billion, aided by Saudi Arabia’s purchase of F-15 fighter jets, Chicago-based Boeing said. Segment profit declined 6.3 percent to $748 million because of an inventory charge on the A160 Hummingbird helicopter drone and lower earnings in the United Launch Alliance space joint venture with Lockheed Martin Corp. (LMT:US)

Commercial Jets

Sales at the commercial-jet unit surged 34 percent to $11.8 billion as Boeing delivered more of its most profitable planes, the 777 and 737. Airlines pay about 40 percent of the price for a new jet upon delivery. Profit jumped 32 percent to $1.21 billion, helped by lower research and development costs as work wound down on the new 787 Dreamliner and 747-8 jumbo jet.

Companywide net income gained 2.8 percent to $967 million.

McNerney raised Boeing’s full-year profit forecast (BA:US) to $4.40 to $4.60 a share, 25 cents higher than his April prediction. That’s still lower than $5.34 a share in 2011, amid pressure from rising pension costs, falling U.S. defense spending and smaller margins on two new models.

The stock rose 2.6 percent to $73.88 at 1:27 p.m. in New York, after a 3.4 percent gain that was the largest intraday since June 29. Boeing previously dropped 1.8 percent this year.

The company said it still expects to deliver 70 to 85 of the wide-body 787 and 747-8 aircraft this year, split about evenly between the two new models, even after handing over only about a third of that goal so far. Both planes were years late in entering service after Boeing struggled with redesigns and new materials and production processes.

787 Fixes

Boeing is still working on 56 787s that rolled off the assembly line incomplete or before the plane was certified and need fixes, Chief Financial Officer Greg Smith said on a conference call with analysts.

About two-thirds of this year’s deliveries will come from that batch and the rest will be fresh from the factory, he repeated. There has been “significant improvement” recently in the condition of newly built 787s, he said.

Boeing is on track to assemble 10 of the composite-plastic 787s a month by the end of 2013, McNerney said on the call. The company is addressing problems building the aft fuselage at a plant in South Carolina, which McNerney referred to as a “hot spot,” as well as a couple of other areas in the supply chain.

“I don’t think it’s a show stopper in terms of getting to rate, but it is something we’re focused on,” he said.

Total jet deliveries will rise to 585 to 600 this year, Boeing repeated. That may help the U.S. planemaker reclaim the top spot in commercial production lost to European rival Airbus SAS in 2003. Boeing lifted its sales forecast by $1.5 billion, to a range of $79.5 billion to $81.5 billion.

Commercial Backlog

The commercial backlog declined to about 4,000 jets valued at $302 billion at the end of June, from $308 billion in March, after Boeing booked just 28 orders in the period.

The company announced 228 orders at the Farnborough air show outside London earlier this month, more than four times as many as Airbus, which had dominated last year’s exhibition in Paris.

The new 737 Max model that Boeing plans for 2017 is driving orders this year, and lower introductory pricing -- as well as pressure on prices for the current version of the single-aisle plane -- is included in the forecast, Smith said.

Boeing is converting hundreds of commitments for the plane into firm orders faster than planned, McNerney said. Out of more than 1,200 orders and commitments for the plane since its introduction late last year, 649 have been signed, he said.

Fewer Orders

Boeing will book fewer orders in 2013 after this year’s “massive” introductory drive on the 737 Max, McNerney said, adding that he sees sales returning to “a steady state rather than a deep trough.”

The company will decide later this year whether to move forward with a larger Dreamliner, the 787-10, which looks like it will be “the absolute perfect next step,” McNerney said.

The backlog is stable amid a “fragile” economy, the CEO said. Half or more of the planes are being ordered to replace older fuel guzzlers, he said, so airlines see the new aircraft as “a quick payback investment.”

Boeing’s operating cash flow rose 4.7 percent to $1.67 billion, before pension contributions, and the company had $10.3 billion in cash and marketable securities. Smith said Boeing may start buying back shares again next year.

McNerney said the planemaker plans to keep making “small tactical” acquisitions for its defense business amid a weak market. The U.S. Congress is considering a so-called sequestration process that could trigger even deeper reductions in defense programs, hurting military contractors.

“The big major deal is one that would not be done without a great deal of thought, and it’s really not on our radar screen despite the pending storm clouds,” he said. “We’ve got a pretty strong business here.”

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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Companies Mentioned

  • BA
    (Boeing Co/The)
    • $124.35 USD
    • -2.77
    • -2.23%
  • LMT
    (Lockheed Martin Corp)
    • $176.08 USD
    • 3.47
    • 1.97%
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