Bloomberg News

Boeing Beats Estimates on Boost From 777 Amid 787 Grounding (2)

April 24, 2013

Boeing Profit Beats Estimates on Increased Deliveries for 777

Boeing delivered four more 777s and three more 737s in the quarter than a year earlier, making up for the pause in handing over 787 Dreamliners, which are less profitable in part because the program is new. Photographer: Matthew Lloyd/Bloomberg

Boeing Co. (BA:US)’s first-quarter profit beat analysts’ estimates as increased deliveries for 777- and 737-model jets made up for the halt in buyers picking up Dreamliners while that plane was grounded.

The stock reached the highest since 2007 after Boeing said today that profit excluding some pension expenses climbed 5.3 percent to $1.87 billion, or $1.73 a share, from $1.77 billion, or $1.40, a year earlier. Analysts projected (BA:US) $1.49 a share on that basis, the average of 18 estimates compiled by Bloomberg.

The world’s largest planemaker delivered four more 777s and three more 737s in the quarter than a year earlier amid the pause in handing over 787 Dreamliners, which are less profitable in part because the program is new. The 777 is Chicago-based Boeing’s biggest and highest-priced twin-engine model.

“Fewer 787 deliveries paired with strong 737 and 777 deliveries resulted in higher profits,” Christian Mayes, an Edward Jones analyst in Des Peres, Missouri, said by e-mail. He rates Boeing as hold.

Boeing jumped (BA:US) 3 percent to $90.83 in New York, the largest gain since Jan. 9 and the highest closing price since Dec. 10, 2007. The shares have increased 21 percent this year (BA:US), outpacing an 11 percent advance in the Standard & Poor’s 500 index.

Budget Cuts

Revenue fell 2.5 percent to $18.9 billion because of the drop in 787 deliveries and the effect of U.S. budget cuts on Boeing’s defense business. Analysts had predicted sales of $18.8 billion.

Boeing said its commercial and defense backlog rose to a record $392 billion as it gained $20 billion of net orders during the quarter. Commercial deliveries of 137 planes matched the year-earlier tally.

The quarterly profit was buoyed by 19 cents a share because of a research-and-development tax credit, Boeing said.

Since January, Boeing has used a profit measure called core earnings per share that it said gives a clearer picture by adjusting for market fluctuation in pension costs. Without the adjustment, net income (BA:US) was $1.11 billion, or $1.44 a share, compared with $923 million, or $1.22, a year earlier. Boeing reaffirmed its 2013 forecast (BA:US) of core EPS of $6.10 to $6.30.

Operating cash flow tumbled 37 percent to $524 million, hurt by the inventory buildup of Dreamliners as production continued during the worldwide grounding ordered by regulators to fix faults in the plane’s lithium-ion batteries.

Cash Flow

“Cash flow in the quarter was weak,” Robert Stallard, an RBC Capital Markets analyst in London with a neutral rating on the stock, said in a note to clients. “This should improve as the 787 starts to ship again.”

Boeing is becoming more efficient in building the 787, which entered service in 2011 after more than three years of delays. The per-plane cost has dropped 60 percent from the eighth jet to No. 100 on the assembly line, Chief Financial Officer Greg Smith said on a conference call today. He declined to give a dollar value.

Revenue at the commercial airplane unit fell 2.3 percent to $10.7 billion while earnings from operations rose 13 percent to $1.22 billion. Defense revenue slid 1.5 percent to $8.11 billion on lower sales of military aircraft and global services and support. Operating earnings in that business climbed 12 percent to $832 million.

777 Production

During the quarter, Boeing delivered its first 777 built at a production rate of 8.3 a month, part of a five-year push to boost jetliner output more than 60 percent through 2014.

The 777 debuted commercially in 1995, and lists for as much as $315 million. The earliest version of the 737 began operations in 1968. The most-expensive 737 has a catalog price of $107.3 million, though airlines usually buy at a discount.

Boeing’s board may approve a new 777 design this year, featuring upgraded engines and composite-plastic wings, Chief Executive Officer Jim McNerney said on the call. Work on a stretched version of the Dreamliner, or 787-10, may also get under way in 2013, he said.

Boeing delivered only one Dreamliner in this year’s first three months, down from 23 in the previous quarter, after the Federal Aviation Administration grounded the plane on Jan. 16.

The FAA approved Boeing’s changes to the battery system on April 19, and McNerney said on the call that deliveries should resume in early May. Boeing reiterated a goal of handing over more than 60 Dreamliners this year.

Fleet Retrofit

Installation of the new battery system has begun on 10 fleet aircraft and nine production jets, and Boeing expects to complete “the bulk” of fleet retrofits by the middle of next month, McNerney said.

Costs associated with investigating the battery faults, designing the fix and installing the new units will be “minor,” said CFO Smith, who didn’t give a figure.

The total bill, including compensation to airlines for the 787’s down time, may never be known, said Ken Herbert, a San Francisco-based analyst with Imperial Capital LLC who rates the stock as in-line, or the equivalent of hold. Boeing usually repays carriers with discounts instead of cash, Herbert said in a telephone interview before today’s release.

“You’ll never know for sure what they negotiate,” he said.

To contact the reporter on this story: Thomas Black in Dallas at tblack@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)
    • $120.48 USD
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