News Column

Boeing Profit up on Stronger Airliner Sales

April 26, 2012

Gregory Karp

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Chicago-based aircraft maker Boeing Co. on Wednesday announced first-quarter profits soared 58 percent on strong sales of commercial planes. The results handily beat Wall Street expectations.

Boeing's first-quarter earnings were $923 million, or $1.22 per share, up 58 percent from the same quarter a year ago. Excluding a one-time reduction in a litigation-related reserve, the company would have earned $1.11 per share. Analysts were expecting an average of 94 cents per share. Revenue was $19.4 billion, up 30 percent year-over-year, also beating analyst expectations of $18.4 billion.

CEO Jim McNerney attributed the results to "strong core operating performance." In its commercial airplane segment, Boeing delivered 137 planes during the quarter worth $10.9 billion, compared with 104 planes worth $7.1 billion in the same quarter of 2011.

He noted that the company increased its record backlog of orders during the quarter with more than 300 orders for the new Boeing 737 MAX and 84 new F-15s to Saudi Arabia. The total backlog of orders stands at more than 4,000 airplanes, valued at a record $308 billion, the company said.

"Going forward we believe it is going to be 'up and away' as orders continue to pick up for its new commercial product lines and as production continues to be ramped up for both narrow-body and wide-body type aircraft," said Maxim Group aerospace analyst Ray Neidl in a report Wednesday.

"Overall, I thought it was a great quarter," said Neal Dihora, a Morningstar analyst. "Commercial airline growth was pretty phenomenal."

While Boeing's defense sales are likely to tail off, a decline the company has been bracing for, commercial airline sales should continue to be strong, driven in part by airlines' desire for more fuel-efficient planes, he said.

That shift is happening already. In recent years, Boeing's revenues between commercial and defense used to be about 50-50, but in the most recent quarter it was about 56 percent commercial, he said. "Commercial will start dominating the business," Dihora said.

While the outlook is positive, Boeing is unlikely to continue seeing profit margins of 9.9 percent, which is what it reported for the most recent quarter for commercial aircraft. Margins will likely retract as the company delivers more 787 and 747 planes, which currently carry slimmer margins, he said. The profit margin on commercial aircraft for the same period last year was 7.2 percent.

McNerney said during a conference call Wednesday that the new Boeing 787, the so-called Dreamliner, is "performing well" for its first customers, ANA and Japan Airlines. The company plans to ramp up production of the 787 to 10 planes per month by late 2013. Chicago-based United Continental Holdings, which operates United Airlines, is scheduled to be the first North American airline to take delivery of the plane, which had been plagued for years by production delays. United is expecting to take delivery of its first 787 in September, United CEO Jeff Smisek said last week.

The two Chicago companies are reportedly in late-stage negotiations on another deal, a plane order of around 200 Boeing 737 single-aisle jetliners. Officials at United declined to comment on the reports this week. However, Bloomberg News cited sources saying United is negotiating solely with Boeing and not with rival Airbus. The list price of such an order would be near $17 billion, although large discounts are usually applied to such orders. A similar report by Reuters said Boeing is the frontrunner for a United order of about 180 such planes.

Looking ahead, Boeing expects full-year 2012 per-share profits to be between $4.15 and $4.35, up from previous forecasts of $4.05 to $4.25. From Boeing's perspective, the global economy is recovering, but a "slow and choppy pace," McNerney said.

Boeing's ability to get more orders and accelerate production on orders already placed have helped ease concerns in the industry about Boeing's credibility, which was tarnished in the last decade by problems bringing the long-overdue 787 Dreamliner to market.

"Investor confidence is with the company," said Alex Hamilton, managing director of EarlyBirdCapital told Reuters. "So right now, the street is pretty much starting to buy into the story that they're going to be able to do it. Personally, I would argue that is a huge sea change for Boeing."

Separately, Boeing said Wednesday it delivered the first 747-8 Intercontinental passenger airliner to Deutsche Lufthansa AG. The plane is touted to emit fewer emissions and be more fuel-efficient and quieter.

During midday trading Wednesday, shares of Boeing were 3.7 percent higher, at $75.95, on the New York Stock Exchange.



Source: (c) 2012 the Chicago Tribune


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