(Corrects paras 5, 6 and 7 accounting treatment of 787
expenses, deletes extraneous word in paragraph one)
By Alwyn Scott
NEW YORK, April 24 Boeing Co's
first-quarter earnings jumped nearly 20 percent, handily beating
analysts' estimates and showing little impact from the 787
Dreamliner problems, sending the company's shares up more than 3
Boeing, in its quarterly report on Wednesday, stood by its
sales, earnings and cash forecasts for the full year, reassuring
investors that it expects to deliver all of the jets it had
planned, including Dreamliners.
Cost-cutting and higher profit margins more than offset a
small decline in sales. Boeing delivered the same number of
commercial jets as in the year-earlier quarter, but with
deliveries of low-margin 787 halted, margins improved.
Regulators grounded the plane after batteries overheated on
two 787s in January, which stopped deliveries. The company did
not release a cost estimate for the Dreamliner problems, as some
analysts had expected. But on a conference call, it said the
majority of the cost of fixing the battery issue had been
reflected in the first-quarter results.
Much of the cost of analyzing the problem, redesigning the
battery system, testing it and retrofitting the 50 Dreamliners
in service was accounted for in the first quarter as period
expense and was absorbed in large part by shifting resources
around the company, CFO Greg Smith said.
A smaller remaining amount will be folded into the cost of
producing more than 1,100 Dreamliners and will not be felt
significantly in the company's earnings, he said. He declined to
provide a figure for that total cost.
Jason Gursky, an analyst at Citigroup in San Francisco, said
that expense would add only incrementally to the cost of the
jet, which has a list price of about $207 million and sells for
about half that.
"It's a rounding error of a rounding error of a rounding
error," Gursky said.
The Dreamliner's battery problems appear to be nearing an
end after the Federal Aviation Administration approved Boeing's
fix for the battery system last week, and Dreamliner deliveries
are set to resume shortly. Boeing and airlines are already
prepping the planes for a return to passenger service.
Boeing CEO Jim McNerney said Boeing expects to begin
delivering 787s again in early May, now that the battery
redesign has FAA approval, and will finish modifying all 50
customer jets by mid-May. There are 25 Dreamliners awaiting
delivery currently, he said.
"As mods go ... this is not a big one," McNerney said,
referring to battery modifications.
First-quarter net income rose to $1.1 billion, or $1.44 a
share, from $923 million, or $1.22 a share, a year earlier.
Core earnings, which exclude some pension charges, were
$1.73 a share. On that basis, analysts had expected $1.49,
according to Thomson Reuters I/B/E/S.
Revenue slipped 2.5 percent to $18.9 billion, hit by halted
Investors have largely overlooked the Dreamliner problem,
analysts said, because it has been amply flagged and factored
into the stock price. Boeing's shares have risen 18.6 percent
since regulators grounded the Dreamliner on Jan. 16.
Boeing's shares rose some 3.4 percent, or $3.06, to $91.19
in mid-day New York Stock Exchange trading.
Analysts focused on the ability of Boeing's commercial
airplane unit to rake in cash by delivering jets - cash that can
be used to buy back shares, pay dividends or invest in new
airplane programs, all of which are considered positive for the
Boeing's cash balance fell $2 billion in the latest quarter,
less than some analysts had expected. And Boeing's confidence
about its ability to make up the Dreamliner deliveries in the
rest of the year allayed fears about further cash depletion.
Boeing reaffirmed on Wednesday that it will produce more than
$6.5 billion in operating cash flow for the full year.
STOCK BUYBACK TO BEGIN
The company said it will start buying back stock in the
second quarter under a previously announced plan to spend $1.5
billion to $2 billion on such purchases. Gursky noted that the
company missed a chance to get a bargain by buying its shares at
less than $80 in the first quarter.
"The market was likely apprehensive as to what the
(Dreamliner) cost might be, but this quarter's performance and
confirmed guidance put those concerns to rest," said Carter
Leake, a senior equity analyst for aerospace and defense at BB&T
Sales at Boeing's defense, space and security business fell
1 percent to $8.1 billion, reflecting pull-backs in government
defense spending, but profit in the unit rose 12 percent to $832
million, and margin rose to 10.3 percent from 9 percent.
Boeing's commercial airplane unit delivered 137 jets, the
same as the year-earlier quarter, and booked $10.69 billion in
revenue, 2.2 percent less than last time. Operating margins in
the unit vaulted to 11.4 percent from 9.9 percent, reflecting
the elimination of low-profit Dreamliner jets from the tally.
As a new jet, the Dreamliner is still relatively costly to
build and initial customers are typically given big discounts to
entice them to sign up, dragging down the plane's profit margins
in its early years of production.
(Reporting by Alwyn Scott; Editing by John Wallace and Maureen