Boeing profit beats forecasts; shares rally

CHICAGO Wed Jul 27, 2011 1:48pm EDT

The new Boeing 747-8 Intercontinental jetliner is parked on the eve of the Paris Air Show at Le Bourget airport near Paris, June 19, 2011. REUTERS/Pascal Rossignol

The new Boeing 747-8 Intercontinental jetliner is parked on the eve of the Paris Air Show at Le Bourget airport near Paris, June 19, 2011.

Credit: Reuters/Pascal Rossignol

CHICAGO (Reuters) - Boeing Co (BA.N) on Wednesday posted a higher quarterly profit on strong sales of its commercial airplanes, cost management and a good mix of deliveries of its defense products.

The world's largest aerospace and defense company also raised its 2011 earnings forecast, but the range it gave was slightly below the average Wall Street estimate.

The quarterly profit easily beat expectations and sent shares of Boeing, which boasted a total company backlog of $323 billion, 4 percent higher.

"Everybody is surprised by the size of the beat, but if you go through it, it's just cost containment and cost improvement," said Alex Hamilton, managing director of EarlyBirdCapital. He noted an operating margin of 9.3 percent, compared with 8.4 percent a year ago.

"They pretty much did everything financially right," he said.

Boeing's second-quarter profit was $941 million, or $1.25 per share, compared with $787 million, or $1.06 per share, a year earlier. The results topped a Wall Street forecast for a profit of 97 cents per share, according to Thomson Reuters I/B/E/S.

Revenue increased 6 percent to $16.5 billion.

Boeing also raised its 2011 earnings forecast to a range of $3.90 to $4.10 a share from a previous $3.80 to $4.

Boeing, which competes with the Airbus unit of EADS EAD.PA, splits its business between commercial aircraft and defense products. But its stock tends to track commercial airplane orders and deliveries, which are recovering from an economic downturn that curbed orders in recent years.

Also on Wednesday, the Commerce Department said new orders for U.S.-made durable goods fell in June, supporting views that the economy will not emerge quickly from its current soft patch. The decline reflected a 28.9 percent plunge in aircraft orders.

REBOUND ON COMMERCIAL SIDE

Boeing's commercial airplane revenue rose 19 percent in the quarter to $8.8 billion on higher deliveries. The company delivered 118 commercial airplanes in the quarter, up from 114 a year ago.

Boeing reaffirmed that the first deliveries of the long-awaited 787 Dreamliner and 747-8 Freighter would occur later in the third quarter but trimmed its expected deliveries for the two programs to a combined 25 to 30 units from 25 to 40.

Boeing expects to deliver between 485 and 495 commercial aircraft in 2011, down from a previous forecast of 485 to 500.

"The revisions in the 787 and 747-8 production schedules weren't as bad as many feared, and first deliveries appear to be on track," said Matt Collins, an analyst at Edward Jones.

"After those initial deliveries take place, it's up to Boeing to execute on the production ramp-up, as well as keeping costs down on the tanker program and moving forward with the 737 re-engine," he said.

Last week, Boeing announced plans to "re-engine," or put a new, more fuel-efficient engine in its best-selling 737 narrow-body plane. The company debated for more than a year whether to re-engine or redesign the plane. A redesigned 737 would have taken longer to bring to market but could have provided more fuel savings.

The plane maker had intended to take more time to decide, but its hand was forced by AMR Corp's AMR.N American Airlines, a loyal Boeing customer, which was threatening to give an entire order to Airbus for the competing A320neo. In the end, AMR said it would buy 200 737s and 260 A320s.

Boeing's defense, space and security business reported revenue of $7.7 billion, down 4 percent from the year-ago quarter. The division forecast 2011 revenue in a range of $31.5 billion and $32.5 billion, down slightly from the $31.5 billion to $33 billion it previously estimated.

On a conference call with analysts and reporters, Boeing defended its winning bid for the U.S. Air Force's tanker development deal, which critics say will yield no profit in the program's first phase and shift $600 million in development costs to taxpayers.

"We continue to expect this program to be profitable over time while providing the best value" for American taxpayers, Chief Financial Officer James Bell said.

Shares of Boeing, a Dow industrials component, were up 3.8 percent at $72.86 on the New York Stock Exchange.

(Editing by Maureen Bavdek, Derek Caney and Steve Orlofsky)